Annie Strack, Developing a formula for pricing.docx
Developing a Strategy for Successful Pricing
How to create a sensible formula for pricing your artwork.
Several variables factor into art pricing. To begin with, prices reflect the level of the artist’s recognition. Paintings by well –known artists always command higher prices than work by unknown artists, often regardless of the skill involved. Experience and credentials play a role in pricing as well, and works by artists who have acquired a history of awards, prominent collectors, and prestigious exhibits are perceived as more valuable than works by emerging artists. Researching the prices of artists in your market who have a level of experience and style that is similar to yours can provide a starting point for formulating your prices.
Market demand is also a large element in considering prices. Artwork is worth what people are willing to spend on it, and the more people who want it; the more value it has. The geographic area also plays a part in pricing, and art can be marketed easier and at higher prices in regions that are more affluent. Art displayed in prestigious galleries in metropolitan cities is usually perceived to have more value than art exhibited in small town gift shops. This doesn’t mean that an artist can charge different prices in different regional markets, or in different venues. Artists should change venues as their prices rise, and recruit new sales venues and markets that can sustain those increased prices.
Another factor in pricing is the choice of medium used. Some mediums are perceived as being more valuable than others, and buyers are usually willing to spend much more on an original oil painting than they are for watercolors or other types of paintings. Generally, oil paintings are at the top of the food chain, followed by acrylics, watercolors and pastels, hand-pulled prints and drawings, and reproductions.
Most artists price their work according to size, and the most popular method is to formulate a base price unit for each square inch. But the value of art is only what someone is willing to pay for it, and an artist needs to know what the current value of their art is in order to accurately create a formula for pricing. A simple way to determine current value is to compare the retail prices of the paintings that have recently sold, and determine which sizes and prices are the most popular sellers. Knowing which painting sizes are the most popular, an artist can then develop a base price unit for his work by dividing the retail price of the painting by it’s total of square inches. For instance, if most of your sales have been for 16 x 20 paintings at around $900 to $1000 each, then your most popular paintings are valued at a unit price of about $3 per square inch. This price per square inch can then be used as a base unit to ensure consistency when calculating prices for new artworks.
If you compare the unit prices of the paintings that haven’t been selling as well, you may find that the reason for some of the more sluggish sales could be because some of the prices are inconsistent or out of whack with your base unit price. Paintings that are priced considerably higher than your current unit price may be over priced for your market, while other paintings with price units that are considerably lower may be sending the wrong signals to your customers about the value of your art. Whether too high or too low, inconsistent prices are confusing and sometimes even suspicious to buyers, and can severely hinder sales. That’s not to say that every painting of a certain size has to be exactly the same price; allowing a small range of about 10% when setting prices provides adequate room to allow for exceptions in pricing, such as paintings that may be slightly more or less complex, or paintings that have received awards or other recognition. Additionally, having a sliding price schedule where larger works are priced at slightly less than the base price and smaller works are priced at slightly more will alleviate huge price differences between sizes.
For instance, this sample is a sliding (10%) pricing schedule with a 10% range, and with the median painting priced at $3 per square inch.
8 x 10 = 80 sq in, x $3.63 = $275 to $305
12 x 16 = 192 sq in, x $3.30 = $602 to $665
16 x 20 = 320 sq in, x $3 = $912 to $1008
20 x 24 = 480 sq in, x $2.70 = $1231 to $1301
24 x 30 = 720 sq in, x $2.43 = $1663 to $1838
So if the retail price of a 16 x 20 painting is $1000, and the artist pays an average of 50% commission on sales, then the artist is getting a wholesale price of $500 for the painting. However that $500 is not all profit, there is still the COGS (Cost Of Goods Sold) to calculate before a profit can be determined. COGS include all the supplies and materials used to create the artwork, as well as equipment, overhead, marketing, professional, and other expenses related to the sale of the final product. To determine these costs, a business adds the totals of all the expenses for a given time period (such as quarterly or annually), and divides this figure by the number of items sold during this period. For instance, if an artist’s business expenses were $10,000 in a year and he sold 50 paintings, then the COGS average out to $200 for each painting. If the paintings sold at retail for an average of $1000 and the artist received an average wholesale price of $500, then he is making a profit of $300 on each sale. Although this sounds like a successful profit, there’s still more to consider. The sale of 50 paintings at a profit of $300 each means his total profit for the year is $4,500. If the business is a full-time endeavor, then this breaks down to an hourly wage of a little more than two dollars an hour for the artist. Even if we re-calculate this as a part-time business, the wage then climbs to only a little more than $4 an hour.
Many artists choose to supplement their sales income by providing art related services, such as teaching lessons or workshops, painting custom ordered paintings, consulting, and other services. Just as with anything else, artists need to figure out just how much time and expenses are actually involved and calculate an acceptable wage for their service.
Artists also need to understand the differences between wholesale prices and retail prices, and what circumstances are appropriate for wholesale. Many artists mistakenly set higher retail prices on works that they place for sale in galleries and other venues that charge a commission. This unprofessional practice of wholesaling directly to the public results in artists underselling and alienating their galleries, and even alienating their customers. Artwork should only have one retail price, regardless of where or how it was purchased. Some artists try to justify the practice of setting duel retail prices by believing that direct sales encompass fewer sales related expenses, such as paying sales commissions. However the actual costs related to selling still exist, even when selling directly to a customer. For instance, direct selling at an art festival has the expenses of the booth fees, travel and lodging, equipment and merchandising displays, marketing, and other costs that can quickly add up to hundreds of dollars or more per festival. Not to mention, for every festival an artist attends, he loses four or five working days that could be spent on production. These extra costs of sales can easily equal or even exceed what an artist would pay for sales commissions to galleries.
When to discount artwork, and by how much, is another axiom that artists often face in routine business. It’s perfectly acceptable to offer a wholesale price to galleries, decorators, and other professional retailers. And if a retail customer is purchasing three or more paintings, I have no objection to offering them a ten percent discount for a preferred or loyal customer. But an artist can’t discount everything for everybody who asks; the profit margin simply isn’t large enough to allow for this, and consistent discounting can have an adverse effect on the value of the artist’s work. When bargain shoppers ask me if I can give them a discount, I politely tell them that I have some paintings that are similar but less expensive, and then direct their attention to those instead. Another alternative that I’ve found effective is to counter-offer a discount request with an offer of something else instead, such as free shipping or an upgraded frame. This type of negotiation allows the price of the artwork to remain constant, but still lets the customer believe that they’ve still managed to bargain for a better deal.
Knowing when to raise prices, and by how much, can be a bit trickier. All artists want to get the maximum price for their work, but raising prices too high or too quickly can cause sales to stagnate or fall. Ideally, prices should rise when they are justified by a steady and sustainable market demand. In my own art business, I consistently raise my prices once a year. If I’ve had a particularly good year, I might raise them as much as a whopping five or six percent, while in slower years I might only raise them one or two percent. These small increases may not sound like a lot, but they add up over time. The knowledge of impending price increases also increases customer confidence in the value of the artwork, and helps them to self-validate their purchases.
There are no set rules for pricing artwork, and there is no single formula that is going to be perfect for every artist. But these examples and guidelines can assist you in developing or adjusting your own pricing formulas and standards. By adhering to policy standards you will ensure consistency in your pricing, and portray your business in a professional manner that will help to instill your customers with confidence in their purchases.