The Psychology of Pricing

It seems like the question of how to price photography packages and services comes up over and over for many people - even people who have been established for quite a while, so it seems like something we should really have a conversation on. Here are some of my thoughts - I'd love to hear yours!!

1. Understand the buyer you want to attract (aka target market).

I can't tell you who your target market is because it's different for everyone (at least it should be), but I can give you some questions to help you think about how to price for your ideal buyer. Print these questions out and write down the answers. Yes, it's hard work and it's time consuming, but these are things you should think about in your business.

• How will your ideal buyer find you?
  
• Will anyone else have an influence over their decisions?
  
• Are they bargain shoppers who will analyze each item and price?
  
• Are they all-inclusive package people who want to pay for everything up front?
  
• Are they likely to negotiate?
  
• How much research will they do, and how will their research into other photographers affect their expectations of you?
  
• What level of service do they expect (do they just expect you to show up, take pictures, and hand over a disk... or do they expect you to help them plan their wedding and make decisions)?
  
• What does THEIR referral network look like and does that have an impact on the pricing they expect?
  
• How important (honestly) are your services to them? (it's very easy to fool ourselves on this one... make sure you do a reality check)
  
• What do their other purchases say about their values and how they make decisions?

2. What does your pricing say about you?

• A la carte pricing tells the buyer: Do-it-yourself, include what you need, you can add on later (or not), my profit is built into my shooting fee and the rest is bonus
  
• Package Pricing says: I'll help you decide, all-inclusive, pay up front, profits are built into the package as a whole.
  
• Lowest Price Says: This is the minimum I'll work for.
  
• Highest Price Says: If you wanted to get everything I think you should have, this is what it would cost. (This SHOULD be a dream number that most people don't actually pay. If your clients are booking your highest package- you need to raise the price on it.)
  
• Middle Price Says: Just right- not too much, not too little. If you have several middle packages, you will spend more time helping the client decide which on to choose.
  
• One Package Price: this is what I need to make it worth my time and this is what I think you need to walk away with, there's room for negotiation. (Be sure that you are comfortable with the negotiation process if this is your structure. Some people like it, some don't, and you need to make your pricing fit with your personal style of doing business.)
  
• Retainer Fee: will your ideal buyer be able to have the amount in their bank so that they can cut you a check at your meeting, or will they have to save for a while in order to simply secure your services? How much of a commitment/risk are you asking them to take on securing your services so far in advance?
  
• Payments: Can you take ANY form of payment to make it easy for the client to hire you? Do you allow flexible payments over time if the client is stretching their budget for you? Do you accept all of the money before the wedding day? Do you take part of the payment after the wedding day? Do you require any payment on the wedding day? What do those answers say about your level of service or the risk you expect your clients to take in trusting you?
  
• Market Comparison: Where are your prices in comparison with your competitors? Do your prices reflect the quality of work and service that you provide when compared to your competitors?

3. The REAL costs and the REAL profits.

• What are your COGS (cost of goods sold)? You NEED to know exactly what it costs for each product you offer before you can decide what the price needs to be. Generally, your costs should be no more than 33% of the price. Cost does not neccesaily include the time it takes to create the product.
  
• What are the service costs associated with providing each product (goods)? (if it is something you currently do on your own, what would it cost to outsource it if you were ever too swamped or injured to do it yourself?)
  
• Did you include tax, shipping, and packaging into your figures? Do you expect the client to pay those in addition?
  
• What are your costs outside of your goods? How much do you spend on education, professional organizations, advertising, marketing materials, accounting, legal fees, phone, internet, travel, promotions for clients, photo contests, studio space, equipment upgrades, emergency backup services, etc. Add up the annual costs for these items and divide them by the number of jobs you want to take in order to find out how much of each job goes to your overhead.
  
• How much money do you REALLY expect to make in reprints (after you've subtracted your COGS, shipping, packaging, and the cost of your time)? Could you sell a DVD of the images for that amount or more? Would the profit margin be higher? What would that say about you & your services?
  
• How much is your time worth? How much is time with your family or friends worth? Are there tasks in your business that you're taking care of which could be done by someone you could pay less in order to free up more of your own time to work on things that only you can work on?
  
• Are you REALLY the only one who can complete the project or task? Can you train someone else to do it if you had the time? If so, than you're really not the only one who can do it- and you have to consider how valuable your time really is if taking care of that task prevents you from doing other, more important things that only you can do- like making decisions about your business or building relationships with clients or vendors - or being a mom, dad, or friend to the people who love you.
  
• Write down the list of tasks in your business that make you happy (or in your life for that matter) . Then write down the list of tasks that bore you or frustrate you. Then think about how much it's worth for you not to take care of those boring or frustrating tasks and where you might find someone who is happy to do the tasks you don't like, who may even do them better because they are happy doing them.
  
• How much do you need to make in order to live the lifestyle you want? How much do you want to work in order to live the lifestyle you want? In other words, how does your overall cost of living get divided among the amount of work you want to take each year? How much net profit do you need from your gross income to take care of everything outside of your business?

I'm sure I've left out a lot of questions and things to think about - but hopefully this will be a good starting place. I'd love to hear your thoughts as well so that we can have a deep discussion about the issues at hand. Posted on OSP 3/14/07

Update: 11/8/08 Check out this great blog on the psychology behind why customers buy:
http://www.psychotactics.com/