Hi all … it’ great to be back following a break in this blog due to a very busy stage in the Masters I am currently doing in Sales Management, which is focusing on the quality of online customer service at the pre-purchase stage of the buying process from the perspective of the buyer. Anyway back to this first article on pricing policy resulting from the above question put to me by a photographer in the last few weeks… I take great photos but what should I charge for them?

This question is a very broad question and can be affected by a whole number of other issues. However for now let’s visit the types of recognised pricing strategies which include the following four core strategies of:  1.Cost plus pricing; 2. Competitor Analysis Pricing; 3. Customer request pricing and 4. Added value based pricing. So let’s have a quick look at all these four pricing strategies. This week’s article will focus on the first of these which is Cost plus pricing.

Cost plus pricing – This is the method promoted by most accountants and works on the principle of knowing your total costs for a year, how many units you expect to sell adding a profit margin and fixing your price from there. So to look at this in a simple let’s say you do weddings only, you only have one wedding album package on offer, expect to sell 50 weddings a year and have total costs of £75,000 a year to cover all my costs for the year including salary, lighting heating transport and whatever 50 albums are going to cost me. On this basis your album package would need to be £75,000 divided 50 weddings which is £1500 per wedding. You should add a profit margin to this which you keep as retained profit. Most small businesses do not build a retained profit reserve for those rainy days that always happen as our economy as it works through the standard economic cycle of boom-bust. So let’s say we are going to add 10% for retained profit. Then our average package price for 50 weddings a year is £1500 plus 10% which is £1650. So I hear you say that I have more than one package well then your average package price must be £1650. So how can you ensure this… well firstly lets introduce 4 more packages including the dreaded but increasing disc only wedding. So let’s price these options up … but first let’s decide what the cost of the album including prints is for our £1650(incl. vat) wedding. Let’s set this at £350 (incl. vat).  So what should our disc only wedding album cost for us to keep our margin? The answer is £1650 less £350 which is £1300. So Disc only will be £1300. Our next package will be £1650 and let’s say our top package album which will be say the Magnum which costs £720 then this package as a minimum should be £1650 plus (£720-£350) which is £2120, however this would be a minimum and I would add a few hundred to this to reflect the higher album cost and say £2400.

The advantages of doing your pricing this way is that you are guaranteed to cover your costs on 50 weddings regardless of how many of each package you sell with the added benefit (cream) on every top package you sell.    

The disadvantage of this pricing policy is that it is making the assumption that you will sell 50 wedding packages; that your competition is selling much lower or perhaps higher for a similar offering or worse still you customer perceives this as very good value and would be willing to pay more for your offerings so you are leaving money on the table.

In my next article I will look at the other pricing policies and then we will look at various selling strategies that might allow you achieve the highest price possible for your great photos.

Would you like photoval.com to create and publish a FREE cost plus calculator to help you calculate your pricing? Remember to allow for Vat in your pricing calculations or you could find yourself down an unexpected 17.5% when your accountant gives you your vat bill for the year. 

Bye for now.

PV Photoman