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.
