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Pricing, Profit Maximisation and the Mythology of 3x - part 2 of 1 2

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The myth tellers will say, "Yes, but it is just a 'rule of thumb'." In fact, it is not. A 'rule of thumb,' in order to be worth anything, should be based on some reasonable approximation of the thing you are trying to measure, not on something which has no relationship with the thing you want to approximate. Three times your costs obviously has nothing to do with the value that a client places on your product, thus 3x should not be used to approximate the price you could get for the product. Using 3x to approximate demand is like saying that height is a good rule of thumb to measure intelligence or number of parking tickets is a good approximation of fashion sense.

Cost-based pricing is folly because the price a prospective customer will pay for something (demand) is completely independent of how much that product costs to produce.

And pricing for profit maximisation is about understanding value that a prospective client places on your product.

Demand-based Pricing

So what is the right way to price? Well, the bad news is that there is not a silver bullet or an easy multiplier. Good pricing is complicated, and takes time and patience. But, done properly, it will make a huge difference to your bottom line. What follows is a three-point plan to create demand-based pricing.

Step 1 - The Customer - Identify your target market

Determining who is your target market is no small task. All brides do not value the same things and thus, there are many markets within the larger market called 'brides.' And if you identify your target market as 'anyone who will hire me,' you will quickly find out that being all things to all people is an expensive proposition! A Segment, Target, Position (STP) analysis will highlight how values vary amongst brides, how to pick the most profitable segment, and how to position yourself to win their business. This analysis goes far beyond simply dividing brides into economic buckets like high-, medium- and low-end brides. Instead, try this: make a list of all of your past clients and the amount of profit each client has yielded. Looking at your top five to 10 most profitable clients, make a list of personality traits and values you think they hold based on your dealings with them. What common values do they share? What common tastes did they exhibit? From what source did they come to you?

If you want to target brides who differ from your current client base, you can start by identifying others with a similar client base. What can you guess about their values? For example, if you want to target women who shop at Harrods, make a list of the values you think that a Harrods shopper holds. Stumped? Use clues about the way Harrods markets, displays merchandise, treats their customers and prices, to give you a proxy for what that target values.

Step 2 - The Competition - Identify the market rate for your target

Benchmarking pricing can also be helpful, but only after you have clearly defined your target market. Often times, people will poll other photographers, looking for an average price for a given suite of products. While this may appear to be a pass at demand-based pricing, it will only be useful if you are talking to photographers who offer similar products in similar regions with similar target brides.

This is not a recommendation to 'shop' your competition. However, if you join trade associations, participate actively in forums such as the DWF and form real relationships with other photographers, you will be amazed at the amount of information you can find about the prices your target market will pay.

Additionally, observing what your target market will pay for other nonphotography goods can give you insight into what they may pay for photography. For example, a bride who spends a lot on expensive clothing may be very concerned with her appearance and be willing to spend more to have photos that show her in the best light.

Step 3 - The Company - Test your pricing in the market

Ultimately, the only way to know for sure if pricing is right is to test it on the open market. Since you have some proxy information about what the market will bear from the first two steps, you will be able to take a better guess at what prices you might be able to get. So change your price list and wait.

Observe not what happens to your booking rate or even to your revenue. Rather, observe what happens to your profits for that period. This takes patience and grit. You can't panic at the first dip in bookings. However, if you see a dip in profits you need to reassess and ask why the market isn't seeing the value at that price. Is it a marketing question? Or a calibre of work question? Or is it that you picked a target that can't support those prices? In any case, you make adjustments and repeat the process until you find the sweet spot where your profits are maximised!

About the author

Rosalind Van Tuyl has carved out a niche serving high-end brides as owner of Rosalind Weddings, a boutique wedding photography business based in Chicago. Rosalind spent six years as a management consultant, and holds an MBA in marketing and strategy from the Kellogg School at Northwestern University. Rosalind has been a DWF member since 2002, and served as one of the site's first moderators.

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