Ceramic Studio Marketing, Part 2: Pricing for Profit

Click here to read Part 1 of Ceramic Studio Marketing

Pricing right is of overriding importance in running your own business. Your pricing dictates survival or failure. Therefore, think about it all the time – every day, week and month. A good price can turn into a bad price within a very short period of time. If you have not thought about your prices today, you have not done your job.

 

Of all questions I get during my business lectures, those about pricing are the most frequent.

 

I have heard the phrase “Pricing is really more of an art than technique”. There is a certain truth in that, but, in addition to the first paragraph in this chapter, there are four very basic points that you absolutely must make part of your operating guidelines.

First: You control your prices, nobody else. We live in a free society and for somebody else to dictate your prices would be illegal. I hear many say that their suppliers or their competition decide their pricing. Many times they have a strong influence, but your thinking must be that, ultimately, you decide which price to set.

Second: Keep in mind that you set the prices. You cannot delegate that to someone else, such as an employee, unless you have a pricing formula for each type of product (see further below). You are the only one who has the overall picture necessary for pricing decisions.

Third: Do not let your emotions cloud your thought process, such as thinking that a certain price might be “excessive”. The customers have an excellent way of telling you if something is too expensive – they simply don’t buy. Sometimes you need a very substantial mark-up (see below) to stay in business or to make it worth your while to carry a certain item or provide a certain service.

Fourth: Your pricing has immediate effect on your profits. If you are not generating the profits you need in line with your business plan, you must change something. That “something” could be to lower expenses or to increase prices or a combination of both.

Keep in mind that to lower expenses takes time. To increase prices has an immediate effect on your bottom line. Survival is your first obligation, and pricing can be your most effective tool.

Influencing factors

 

The industry of ceramic arts consists of several different businesses. The common denominator is ceramics. Ceramics itself includes at least three different clay bodies:

Earthenware (low fired)
Stoneware (high fired)
Porcelain (high fired)

Each clay body forms a major ingredient in ceramic studios, such as:

1. Traditional ceramic studios: Earthenware
2. Contemporary ceramic studios: Bisque principally made of earthenware, but also some stoneware
3. Porcelain doll, figurine and china painting studios: Porcelain
4. Potters studios: Stoneware, Porcelain and Earthenware

Regardless of the technical focus of the four above-mentioned businesses, the economic rules of pricing apply to all of them. So when I talk about a ceramic studio, I include the use of either or all clay bodies.

 

Many ceramic studios have a multiple position in regards to pricing. They may have a line of products which they produce themselves, several lines of bought-in products and they teach classes. Therefore, a typical ceramic studio would sell:

1. Greenware cast from plaster molds. i.e. a “manufactured line”.
2. In the case of a contemporary studio, bisque ware is used instead of greenware
3. Lines of re-sold products – such as ones that are fulfilling the needs of your customers and they buy out of convenience.
4. Classes or seminars are taught to paying students.

Each type of the above products and services requires a different approach to pricing.

 

There are ceramic businesses that may exclusively sell products made by manufacturers, who publish recommended retail prices to the public. This requires a high volume of business and those businesses would more likely be distributors to smaller studios within a large area.

It’s almost impossible for a small ceramic studio to survive exclusively on re-selling products at recommended retail prices. The gross profits (see below) are likely to be too low. However, a mix of products manufactured by the business (such as cast ceramics) and resold products either bought from a distributor or a manufacturer combined with teaching, would lift the mix of profit margins (your “product mix) to a satisfactory level.

 

 

The “All inclusive pricing” of the Contemporary Ceramic Studio

 

This type of studio – many times also called “Paint our own pottery” – has become very popular during the past decade. As cost of rent (especially in urban areas), paying hired help and other costs have escalated, a new simplified system for pricing has emerged. Instead of the studio manufacturing its own greenware (which involves casting, cleaning and space-demanding storage of molds and greenware), bisque ware (greenware fired and bought directly from specialized factories) is purchased by the studio and then decorated by the customers.

Their “all-inclusive pricing” means that the customer selects a piece of bisque ware and pays the studio owner once and up-front for:

The bisque piece
A seat at a table in the studio
Use of glazes, brushes and patterns for decorating
Some basic instruction in decorating
Dipping the decorated piece in clear glaze
Firing the piece

This has simplified the business of the traditional casting and teaching studio, leaving the studio owner to focus on planning, coordination, purchasing and customer service. The type of customer is different in a contemporary studio, which caters to satisfying the customer’s need for creativity and self-gratification. within a shsorter period of time.  It also opens the world of ceramics to children. The “traffic” through a contemporary studio, thanks to this simplified process, allows for a much higher number of customers.

The price has to include all of the above steps and is set by applying a “factor” to the piece of bisque ware. The studio owner dictates the factors, which span over ranges from as low as 2-3 times to perhaps 8-10 times the cost of the bisque ware. The system is fast, simple and effective. The contemporary studios pricing technique is relatively new, but the basic philosophy of pricing is not different from any business in terms of setting the price at a level where a needed profit is generated.

 

Your general pricing philosophy

 

Will you be high, medium or low priced?  The answer to that is not so easy. If your prices are too high, your customers may not be able to afford to buy. If your prices are too low, you will work hard with little or no profit. Your gross profit (see below) must cover your overhead such as your rent, your compensation to yourself and your employees, advertising and promotion, your own continuing education in your ceramic niche and many other items.

In most cases, I recommend a medium range pricing, something I call “Neutral Pricing”. By “neutral”, I simply mean that the price is neutral in the customer’s buying decision.  It will not be a major point to argue about (too high) or a cause of quantity buying (too low).

Your pricing is also influenced by many other considerations, such as the reputation of your business, your own reputation as an artist and/or teacher, your neighborhood, the wealth of your customers. And, of course, the quality of your merchandise – both your own art and resold items.

When you have written down your pricing philosophy, you can sit down and get the job done.

Your own art

As to your own art – meaning pricing a one-of-a-kind item or line, such as sculpting or throwing in clay, you should take what I call a dynamic approach.

When you start and put your feelers out you are likely to be shy about pricing. This is natural – you will get over it. All artists started with similar trepidations. Here, the calculation of cost as an influencer does not apply nearly as much as for your other merchandise. The dynamic process means that you start out as high as you dare and – over time – adjust your price up or down until experience has kicked in and you have learnt some tough lessons from rejection and some pleasant ones from acceptance. Here is where the angle as pricing being an art kicks in.

As you keep working on offering your one-of a kind item or line, you build your name – and your name is everything. We will discuss name-building in more detail in the next chapter of Promotion. The rules of gross profit apply. The main ingredient in your cost is your own time. See further below.

The dynamics are in the process of finding out what sells and to whom and what does not sell, how to offer it, how, when and where to present it, its environment at presentation and above all – its uniqueness. The experience will shape your approach. Exchanging and comparing pricing experience with other artists is of great help. But remember, you make your own decision.

Setting profit targets

 

Different items and services will have different profits. Your main concern is to reach your targeted profit on your overall mix. I refer back to the chapter of profit planning. As you now have a plan, check out your profit mix against your plan. If you fall short, pay heed and work on improving it, item by item, line by line. If it beats your plan, count your blessings, figure out why and keep improving. Remember, pricing is a daily weekly and monthly exercise, part of your duty as a business person.

The basic terms of pricing

 

To know how to price and to interpret your results, you must become familiar with three business terms: Cost of goods sold, gross profit and mark-up.

If you buy or make an item for $40.00 and sell it for $80.00, this is how it works:

Cost of goods is $40.00 or 50% of sales.
Gross profit
is $40.00, also 50% of sales
Mark-up
is $40.00 or 100% of cost.

Keystone mark-up, a frequently used term, means that you double your cost of goods to arrive at your retail sale price. In this case, your gross profit – key to your success – would be 50%. Keystone pricing is often used in retail business, but does not mean it is enough. You decide the mark-up which in many cases has to be four times your cost. This allows you to give discounts and offer “specials”.

I recommend that you always think, calculate and speak in terms of Gross Profit (GP). Gross Profit is expressed as a percentage of sales, and since you always think in terms of sales, it becomes easier to analyze and understand the results if expressed in those same terms.

One word of caution. Gross Profit should never be confused with Net Profit. Gross Profit is the profit before all other expenses of your business are deducted. The cost leading to your Gross Profit, is simply your cost of buying (for re-sale) or making the item. It is the final net profit that really counts in the end. Therefore, depending on how high your expenses are, your gross profit has to, sometimes, be very substantial.  Frequently your gross profit might have to be 70-80% of sales.

Mark-up is only useful as a formula for setting a price, not for measuring and judging profitability.

 

Grasping these basic pricing terms is important. Make it a habit to use them until your understanding becomes second nature.

Calculating Cost of Goods Sold

 

Let’s use one more example. This time, we will look at a one-of-a-kind item. The cost consists of the sum of three items:

  1. What is your cost of raw material such as the clays or your slip and other ingredients you are using?
  2. What is the cost of you or somebody else’s time to make the item?  An employee’s time is easy to calculate. However, do not under-calculate your own time. What is your time worth? $40, $60 or $80 or more per hour?
  3. The cost of amortizing your equipment, such as your mold, extruder, wheel, etc.
Pricing formulas

 

Based on this knowledge, you are now ready to create some simple pricing formulas for your different kinds of merchandise, including your own art work. Try to have as few formulas as possible such as bought-in merchandise, your own art-work, your manufactured items and the all-inclusive approach of the contemporary studio.

Based on your personal business plan you can now figure out the factors to use. If you have a problem with certain items, consult with your accountant.

Setting your fees for teaching

 

You must charge for your teaching, even if the customer buys your products at your established prices. There are substantial costs attached to:

–          Your time. Just try to assign a value to your own education
–          Your cost per seat in your studio (rent per square foot, cost of table, chair and other items)
–          Your reputation as a good teacher
–          All the work to prepare for a class, including invitations, preparations and materials
–          Check out what other studios charge – there is a limit to what you can charge unless you teach something truly unique.

Conclusion to the process of pricing

 

The longer you run your business the better you get at it. Here is when your quarterly reading from your accountant will tell you the truth. Remember the ongoing process. Your costs will seldom go down, but always up.

Let me conclude with a short story. Many years ago I landed in Australia on one of my business trips. When exiting the luggage area, a woman I never saw before was standing there, looking at me. After exchanging names, she handed me a small gift. When I showed surprise, she said “because you saved my business. Until I read your articles, I never knew that you could charge for each chair during a class. I teach all the time and now charge $8.00 per student just for using a chair. For the first time I show a profit”.

I never saw her again but the episode stuck in my mind.

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© 2011 by Rolf E. Ericson, Oneonta, New York, publisher. All rights reserved. Photocopying, reproduction , copying, or redistribution of any kind in printed or electronic form is strictly prohibited without written permission from the publisher.