007 The #1 reason most creatives undercharge

Let's chat about the #1 reason creative business owners undercharge and learn a simple, proven pricing formula to boost your profitability. Perfect for photographers, copywriters, designers, and freelancers looking to optimize their pricing strategy.

Chapters:
00:00:20 - Root cause of undercharging in creative industries
00:01:00 - Pricing formula for service-based businesses
02:40 - Calculating your target revenue and client capacity
05:40 - Factoring in expenses and taxes
08:20 - Strategies for gradually raising your prices
10:40 - Accounting for "odd jobs" in your pricing structure

We're covering:

• Understanding the importance of confidence in pricing
• Reverse-engineering your rates based on income goals
• Considering taxes, operating costs, and owner's pay
• Incrementally increasing prices to build confidence
• Adapting pricing for various service packages and custom projects

Ready to finally be confident in pricing your creative, 1-1 services? Get my custom pricing calculator: https://www.emilykim.co/photo-pricing-calculator

Even though it says Photography Pricing Calculator, this spreadsheet + guide works for anyone who offers a 1-1 service. Enjoy!

Thanks for listening!

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Chapters

• 0:00 Root cause of undercharging in creative industries
• 1:40 Pricing formula for service-based businesses
• 3:20 Calculating your target revenue and client capacity
• 6:20 Factoring in expenses and taxes
• 9:00 Strategies for gradually raising your prices

Transcript

0:40

Hello, and welcome back to the profitable creatives podcast. I am Emily Kim. And today we're talking about. The number one reason why most creatives undercharged for their services. You are undercharging for your photography or other creative services, because you are probably looking at what other people in your industry are doing for the answer. But looking at what other people are charging isn't necessarily the cause of undercharging. It's a symptom. The root cause the main underlying issue of why you're undercharging is most likely because you are not entirely confident. In your service or. Your worth. And I'll look. I am not just going to sit here and tell you, oh, just charge your worth. Okay. This is the profitable creatives as podcasts. So I'm going to tell you how to do it. So let's get into pricing. There is a formula you should be following to develop your pricing. It needs to be rooted in something. And when I'm talking about services today, I'm mostly focused on one-on-one service providers. So photographers, copywriters designers. Anyone who. Offers a service and an exchange. Your client gives you money to do that said service. This could also work. If you do things in a group capacity, like a group coaching program, you can work with me a little bit here, but the examples that I'm going to give are for service-based business owners, not products or something like that. And in this formula, you don't need to look at what other people are charging to come up with these prices. It's very exciting. I want to caveat this because doing your market research and looking at what other people are charging. Is part of being a business owner. Right? However, if it is currently giving you anxiety, stop doing that. Right. I don't want you to spin your wheels. We can look at that later. Once you are confident in this framework. So we're going to dive into the framework. Now your pricing needs to be rooted in something. So let's dive into my super simple pricing framework. Now, first you need to decide how much money you want to make. Then, once you have that number, what we're going to do is a reverse engineer, how much you should charge based on that goal. We're also going to take a look at your capacity. And what I mean by capacity is how many clients you can take on per year. Now let's start with a straightforward example. Numbers wise, let's say you want to make$100,000 per year. Right now let's take that. We're going to make it our goal gross revenue and gross revenue means. Revenue. Before expenses. So that's all of the money that comes into your business. We are not even taking expenses into account yet. But when you look at your expenses, which we will take a deeper dive into momentarily, there are three categories that I want you to take into account. And I am simplifying this. You can divide it up into more, but the three main ones are number one, your taxes. Number two, your operating costs and number three, your owner's pay. So one taxes, very straightforward. How much money do we need to save for taxes for your estimated quarterly payments or at the end of the year? Number two operating costs. How much does it cost to run your business? Right. If you have a website, you have operating costs, you are website hosting. If you have a virtual assistant, your domain, your emails, um, what else? Some gear could be considered operating expenses, any software that you use, that's all operating costs. And then the third category is your owner's pay, which is money that goes to you. Okay, again, I'm simplifying this. And if you listened to last week's episode with Brayden, We go a little bit more into detail here, but this is just a high-level overview. Now remember. If you want to bring home a hundred thousand dollars. That does not mean a hundred thousand dollars in photography packages sold. That means after expenses. After taxes and yes, after gear purchases for my photographers that are listening. But going along with this example, we have our target gross revenue. Let's just say it's a hundred thousand dollars now. Let's think about how many clients do you want to take on per year? Now, this doesn't have to be exact right now. We are just estimating. Let's say you want to take on two clients per week. Well, there are 52 weeks in a year. So two times 52. You follow me. It's 104 clients total. We also want to factor time off holidays, vacations, et cetera. So just to estimate, let's say six weeks out of the year, you don't want to take on clients and that doesn't just have to be vacation or personal time. That could also be time where you're working in your business and you don't have clients. If you are working on an internal project. Stuff like that. Right. Just not out doing client work. So. If we look at that, what does that 52. minus a six. Is 46. So that's 46 working weeks out of the year. If we are still maintaining that two clients per week on average. Then that actually means you have capacity for 92 clients per year if you want to bring in a hundred thousand dollars per year, With 92 clients for the whole year that puts you at minimum, you need to make 1000. And$86 per client or per job per project. But wait. There's more. We, like I mentioned earlier, we got expenses. We're spending money on expenses. So let's say 25% goes to expenses and then we can't forget taxes. another 25%. For taxes just to be safe. with these numbers. That would mean. At 92 clients per year. At a little over a thousand dollars each. With 25% going towards expenses and 25% going towards taxes, then you were only taking home 50% of that. Of a hundred thousand dollars. So, what does that mean? If you were taking home 50% of a hundred thousand dollars. What that means is you actually need to double your price. So if you were like, oh yeah, thousand dollars based on this calculation. No, no, no, no. We have to take the taxes and expenses into account. So double it. Which means we need to be charging a little over$2,000 per client to. Take on about two clients per week for 46 weeks out of the year. Okay. Does that make sense? And yeah, it does add up quickly. And also keep in mind, this is just your fee. If you have add on. So for my photographers, If you help your clients, book, hair, and makeup artists, if you help them book studio, rental fees, the$2,000 ish that's money that needs to go straight to you. So if you're including these other things in your packages, we are out of up at even more. I am not saying that you need to jump in pricing right now as an example, when I first did this exercise for myself at the time, I was just throwing numbers at the wall. I wasn't really analyzing anything. It was just for fun for me at the time. I was offering my signature package, which was a three hour brand photography package. It was$600. When I did this exercise, I learned that I needed to be charging$2,000. That's a huge, huge increase. And I don't expect. You to jump from$600 to$2,000 for the same session. Or the same offer, right? that is a lot. And for me, I was like, there's no way I'm going to be able to say$2,000 confidently because at the time I had not. Charged$2,000. So now what is my process for raising prices to account for this mismatch? Odds are you probably are not charging what you should be charging based on this exercise we just did. How do I know that? Because I've taken dozens and dozens of entrepreneurs and small business owners through this exercise and every single time we're like, oh, you need to be charging triple what you're charging now. Okay. So how do we get there? My process for doing this was every three clients that I booked at that current price. Then I would raise my pricing by two or$300. So about like what a 20 or 30% increase. So I was at$600. I booked three clients at$600. Then I raised my price to$800. Booked three more clients at that price, raise it to a thousand dollars booked, two or three more rates or 1200, et cetera, et cetera. And maybe you don't need to wait three clients. Maybe you need to wait longer in any case. Give yourself. Your very next milestone. So when I book one client or two or three clients at this rate, then I'm going to raise my prices. And then it became a very steady routine thing for me, where I wasn't even questioning it. And the jump from 600 to 800 from 800 to a thousand from a thousand to 1200, those are small and incremental. And when you raise your pricing like this. In increments, you're building your confidence along as you go. Now fast forward, what? Three, four years. Let me get this right. I did this in 2019 or 2020. Yeah. Yeah. four years. After I first did this exercise for myself. The first time I did this exercise. I needed to charge$2,000. Now I'm charging$4,000 for the same package. It's a three hour brand photography package. Now, of course, I've added a couple of things like now I offer video. Now I include a hair and makeup artist and I take all of that into account. In this calculation. But this isn't like set in stone, right? We want to play around. With these numbers and the exercise that we just went through, this is how your pricing would work out. If you only sold one signature package that costs the same for everyone. So if everybody comes to the door and everybody buys the same thing from you, This works flawlessly. Now, this is great in theory. But in practice. That's typically not how your business works. Right. We have random one-off projects. We custom quote things. We have what I call odd jobs. And I would say that 20 to 30% of my total revenue goes to these things, these odd jobs that aren't on my services list or their custom quoted projects or their returning clients who get a slightly discounted rate. Oh, uh, sometimes mini session days, just other random gigs that I take on, but. I don't really market or advertise or include on my website. So you'll want to take these odd jobs into account when you're pricing your main service as well, because those take up your time to. Right. So 20 to 30% of my total revenue comes from these odd jobs, I would say relatively. About 20 to 30% of my time also goes to these odd jobs, which takes away from the weeks that we mentioned earlier that I can dedicate to this project. Is that making sense? So play around with these numbers. And I know this is probably a lot to handle like audio wise, but if you want to play around with these numbers even more, I actually have a pricing calculator for you that takes you through all of these numbers and it takes everything into account and more. It also comes with a step-by-step video tutorial so that you can understand how to update the spreadsheet for your specific life and business. And it also comes with a bonus workbook that goes into marketing the packages that you create based on this pricing calculator. So I will leave the link to that. In the show notes. But that spreadsheet I've already done the hard work where you just go in and put it and it's color coded. So you know exactly where to input it. It's it makes it a lot easier to play with the numbers versus you trying to like repeat everything I just said Hope this was helpful. I am here because I want us all to be profitable creatives. So, if you enjoyed this episode, if it was helpful for you. I would really, really love and appreciate. If you could leave a review, a written review in the apple podcast app for this podcast, it really, really helps get seen by the algorithm. And it'll help me bring on guests in the future because I'm on the lookout for people to come and talk to us about all things business. I want to bring more people in. And if there are reviews on the podcast, then. I look more legitimate. Okay. So I would, so super-duper appreciate that if you need the step-by-step spreadsheet for playing with these numbers, I got you check the show notes. If you want to just listen to this again and go through it yourself. That's also fine, but. In any case, I hope this is helpful and I'll see you in the next episode.