price floor

The Power Of Pricing

by Paul Strikwerda in Articles, Career, Freelancing, Money Matters 23 Comments

Snow stormSNOW EVERYWHERE… and Max was in the thick of it.

His client was expecting him within the hour, and he was all dressed up but couldn’t go anywhere.

This was the account he had been grooming for months, and today was D-Day: Deal or No Deal. Snow or no snow. He had to get out of that airport.

“This is the worst snow storm we’ve seen in decades,” said the dispatcher. “No cab driver is going to go anywhere today. I’m afraid you’re on your own.” Max headed out anyway. Perhaps he could hitch a ride with one of the other passengers that was being picked up by brave friends or family members.

As the snow was coming down, visibility was at a minimum. All flights were canceled until further notice. Just as Max was about to head back inside, a black SUV came out of nowhere, and stopped at the pick-up spot. The driver rolled the window down:

“Need a ride?”

“How did you know?” said Max, as he hopped in. “I have to get to my presentation. Are you here to pick somebody up?”

“No one in particular,” said the driver. “But I’d be happy to take you.”

“Well, that’s awfully nice of you,” said Max. “Thank G-d for Good Samaritans.”

“Dream on,” said the driver. “It’s going to be one hundred dollars. Cash only.”

“You must be joking,” replied Max. “They said a cab would cost me no more than ten.”

“Well, why don’t you get a cab then?” asked the driver. “I’ll go and rescue some other grey suit in a hurry.”

“I’ll offer you 50,” tried Max.”

“Listen,” said the driver. “You look like a smart businessman. You and I, we don’t run charities. We’re both entrepreneurs. We see an opportunity. We jump on it. We take risks. Today I am risking my life and my car just so you can get to your meeting. That must be worth something, don’t you think?

“How about 60?”

“You don’t get it, do you?” said the driver. “My economics teacher taught me: ‘When something is scarce, it becomes more valuable.’ You have a major problem. I am offering you a solution. No one else will. If you want to stay, you’ve got to pay.”

“70?”

“Think of it this way,” sighed the driver. “This meeting you want me to take you to, must be important, right? Otherwise, why bother? Is there a lot of money at stake?”

“You got that right,” answered Max impatiently. “I’ve got one shot to seal a deal.”

“Well,” said the driver, “It’s none of my business, but what’s 100 bucks compared to the money you’ll bring in after that contract is signed?”

“Alright,” said Max as he took out the cash. “I get it. Now, drive!”

While the SUV was battling the elements, Max looked at his chauffeur and said: “I gotta give it to you, man. You know what you’re worth, and you’re not afraid to ask for it.

Some ten years ago, when Max started his freelance business, he had had such a hard time putting a price on the service he was providing. To help him focus, his startup coach had asked him a couple of simple questions:

  1. Do you consider yourself to be a pro?
  2. Do you want to run a for-profit business?
  3. Do you want that business to grow?
  4. What are the costs of running that business?
  5. What’s your break-even point?
  6. How much do you want to make?

In the past, Max had always treated his services as a hobby. That’s exactly what it was. There was no plan. No purpose. Just a passion. He spent hours and hours helping people and never worried about what to charge. That is, until he lost his day job, his benefits, and his security. Perhaps this was an opportunity to turn his hobby into a real business. That’s when things got serious and complicated.

“Here’s the good news,” smiled his coach. “You’ve got clients, don’t you? I mean, you’ve been helping friends all along. If you want to turn your hobby into a genuine profession, why not start close to home. You obviously offer something people want. You already have a market… Go for it!”

“Here’s the problem,” said Max. “I never really charged my friends anything. Most of them gave me pizza and a six-pack. I can already hear them say:

Why would we ever pay you if we can get you for free?

“Good point,” admitted the coach, and he went on: “My brother is a computer geek and he’s crazy about technology. But if he would do every single friend ‘a favor,’ he’d be fixing broken laptops all day and night and not make any money. Free pizza does not pay the mortgage. Besides, I don’t think he’d make the guys happy who repair computers for a living.

Now, I’m not saying that it’s not okay to help out a friend in need, but as soon as people found out that my brother knew how to fix a computer, everybody wanted to be ‘friends’ with him. He had to draw a clear line between real friends and those who were well below the rank of Facebook buddies. That’s what you have to do too, Max. No more giveaways. From now on, you run a business; not a charity.

One of your jobs as an entrepreneur is to manage your client’s expectations. Let me give you an example. If you take on a project you know you can easily do in two days, tell your client you can get it done in three. Guess who’s going to look good when you hand it in 48 hours later?

That way you not only create the expectation that you can beat a deadline. You’re also showing your client that she’s a top priority, and that you really know your stuff. Meanwhile, you’ve allowed yourself an extra day should anything unexpected come up. Does that make sense?

Pricing is one of the most important tools for managing your client’s expectations, as well as your bottom line. Your price point sends a clear signal to your market:

This is what I am worth.

Like it or not, there is a clear link between perceived quality and price. Otherwise, every wine connoisseur would drink Beaujolais out of a box, and Pottery Barn would be out of business.

Remember this: Your fee structure will help you attract the kind of customers you want to be working with, and the type of jobs you are shooting for. At the same time it will weed out the folks that cannot or will not afford you; the ones that are most likely to give you a hard time anyway.

Here’s the deal, though: Your fee must be backed up by experience and expertise on one hand, and by a realistic sense of your value in the market place on the other.

Simply put: Be an expert and do your homework. Don’t just pull a rate out of a hat. That’s lazy and crazy. Find out what the competition is charging. Then ask yourself: “Do I want to charge more, less, or the same?”

“I can’t imagine it’s that simple,” said Max.

“It’s not,” answered his coach. “Smart pricing decisions require at least three elements:

  1. Facts about your own cost of doing business
  2. The client’s evaluation processes
  3. Competitive activity

I know you really care about your work, Max. To you, it’s much more than a way to pay the bills. You’re an artist and somehow, some artists (and clients) believe that there’s a clash between creativity and cash. Doing what you love should be enough of a reward.

I don’t think Andy Warhol or Keith Haring would agree with that. Being creative and being commercial can go hand in hand, and since you’re in business to make money, let me give you a simple formula:

Profit = sales volume x price – cost

Have you ever heard of Hermann Simon? He’s a German economics professor and one of the leading experts on pricing. Together with Robert Dolan, he wrote a book called Power pricing: how managing price transforms the bottom line. He calls volume, price, and cost “profit drivers.”

Simon says something very interesting:

“The customer’s willingness to pay is not determined by the costs of a product but by its performance and resulting value to this customer.”

In other words: when people get a haircut, they conveniently forget that they’re also paying for the rent the salon’s forking over every single month, or for the training the staff receives so they can make every teenage boy look like Justin Bieber.

Clients don’t care about your costs.

You should.

That’s why you have to figure out the answer to this question: How low can you afford to go? What is your Price Floor?

A Price Floor is a point below which a product or service should not be sold. In the long term, the price must obviously cover the full costs of a product. Otherwise the seller cannot make a profit and will not survive. Volume never makes up for selling below cost. 

Every year, tens of thousands of self-employed people file for bankruptcy because they made one big mistake: they followed a dream and forgot to run the numbers. They are what I like to call ‘under-estimators’. Literally.

Knowingly or unknowingly, they started selling below cost in an effort to drive out the competition or even out of ignorance. Some started giving their work away for free, hoping to get exposure and attract business. Last time I checked, my local baker was handing out free samples but never entire cakes. And between you and me: he doesn’t strike me as a marketing genius.”

“Speaking of prices… a friend of mine just bought a brand name watch at a price that was too good to be true,” said Max. “It turned out to be fake.”

“Were you surprised?” asked the coach.

“Not at all,” said Max. “You get what you pay for.”

“That’s right. In part, price is about perception. That’s probably why your friend wanted to buy that Rolex rip-off in the first place.

Professor Simon puts it this way:

“Price is the economic sacrifice a customer makes to acquire a product or a service. The customer always compares this sacrifice with his perception of the product’s value. (…)

“In essence, a customer buys a product or a service only, if its perceived value -measured in money terms- is greater than the price. If selecting from several alternatives, the customer prefers the one offering the highest net value, i.e. the greatest differential of perceived value over price.”

Go to any tattoo parlor and see for yourself how much pain people are willing to suffer in exchange for the pleasure derived from a name, permanently painted in the perforations of their delicate flesh. Years later, they spend a fortune burning out their ex-hubbie’s initials with a laser beam… turning the man in question into an ex-boyfriend, once removed… But I digress. We were talking about perceived value, weren’t we?”

“You’ve mentioned volume, price, and cost,” said Max. “How exactly does the market factor into this? Isn’t a certain price ultimately the result of the interaction between supply and demand? That’s not something I have any influence over, is it?”

“Great point,” smiled his coach. “First off…

*          *          *         *         *

THE BLACK SUV slowly made its way through the winter weather.

“Care for some hot cocoa?” asked the driver as he pointed at a thermos.

“Yes please!”said Max.

“And help yourself to a muffin too,” said the driver. “This might take a while.”

“Well, you certainly know how to treat your customers,” remarked Max.

The driver smiled. “Always exceed your client’s expectations. That’s my philosophy.”

“Will you pick me up when I am done?” asked Max.

“Of course,” said the driver.

“I love return business!”

Click here for part 2.

Paul Strikwerda ©nethervoice 

PS Be sweet. Please retweet!

photo credit: It’s been DUMPING snow at Heavenly… via photopin (license)


Picking Bodalgo’s Brain

by Paul Strikwerda in Articles, International, Internet, Journalism & Media, Money Matters, Pay-to-Play, Studio 13 Comments

“I’m being offered $200 to narrate a 120-thousand word audio book. Do you think that’s a fair rate?”

“A client wants me to record a movie trailer for $150. Should I do it?”

Not a day goes by without someone asking these types of questions on Facebook, LinkedIn and Google+.

Sometimes I stick my neck out and I respond to these questions, especially when I get sentimental and remember the early days of my career.

I was young and unafraid and incredibly ignorant. Back then there was no Internet. Picking brains became my specialty.

On other days I’m not so sappy, as I remember the kind words of my business coach:

“If you’re a Pro, you know what you’re worth. If you’re not, go do your own homework! You won’t learn a thing if I hand you everything on a silver platter.”

He was right.

These days, getting info has never been easier. Search Google for voiceover rates. You’ll get about 5,600,000 results in 0.52 seconds. How’s that for starters?

MONEY TALKS

Bringing up rates usually spells trouble. Talent likes them to go up. Clients love paying less. Where to begin?

The Freemarketeers will tell you to leave everything up to the unregulated forces of supply and demand. After all, it worked well for subprime mortgages, didn’t it? The Interventionists fear a free fall for all. They want rates to be regulated.

Unfortunately, it’s not that black-and-white. Voice-Over rates reflect many variables, and unless you belong to a union or you have an agent, it can be tough to put a price on your pipes.

Enter a parade of Pay-to-Plays. You pay for the privilege of being offered the opportunity to audition and bid for projects, together with thousands of other privileged colleagues. Here’s the catch.

As a member, you often have to subject yourself to an agreed price range per project deemed reasonable by that site. Whether or not you choose to accept that range depends on your personal Price Floor.

A Price Floor is a point below which a product or service should not be sold, or else you’d incur a loss. I bet you anything that most people reading these words right now, have no clue what their price floor actually is.

Be honest. Do you?

A EUROPEAN PERSPECTIVE

If you’ve read my work before, you know that I have written about U.S.-based voice casting sites and their perceived influence on dwindling voice-over rates.

On January 8th, 2008, a new player entered the market: Bodalgo. Based in Germany, Bodalgo is the brain child of a man who once had a very boring job as the deputy editor of Penthouse: Armin Hierstetter.

Armin’s no dummy.

He studied the existing P2P’s carefully, as he set out to take the good and improve the bad to create something beautiful. Unlike similar sites, Bodalgo is available in German, Spanish, Italian and English (American and British).

Now, if you think that you can buy your way into Bodalgo, you are wrong. No matter the credit limit on your Visa Card, if you sound like crap, you can’t join the club.

Bodalgo caters to clients from all over the world, but because it’s based in Bavaria, it’s a gateway to the European voice-over market. This brings me back to rates. How does Bodalgo compare to its American counterparts?

I (PS) decided to check in with the boss: Armin Hierstetter (AH). Here’s a transcript of the interview.

PS I just saw a project posted on your site in the 100-250 USD range. It made me think: Is Bodalgo going in the direction of its American counterparts, or did I miss something? Has $100 always been the minimum?

AH In USD the minimum range starts at 100 dollars (the Euro has a 50 to 150 minimum range as – for example – a local radio spot in Germany is usually 50 to 55 Euro).

If jobs are posted that are budgeted too low (intentionally or not), Bodalgo contacts the voice-seeker suggesting what we believe is a fair rate. Sometimes the voice-seeker sees our point and is willing to raise the budget, sometimes not. If the voice-seeker does not agree on increasing the budget, the job simply does not get posted. Period.

Of course, we hear many times:

“What? You want me to pay 250 USD for a job that is done in five minutes? You must be insane, you [censored]”

Well, depending on my mood, I sometimes try to explain why voiceovers cost what they cost (knowing that with these types of folks it really does not help at all in most cases), or I simply press the delete button and go on with whatever I am doing.

PS Bodalgo’s been in business for a few years now. What’s your overall take on how voice-over rates are established and where they are going?

AH There are many factors when it comes to rates. Here are few of them (this is by no means meant to be a complete list):

Your voice:

  1. Experience
  2. Skills
  3. Uniqueness (most important if you ask me)

Your studio:

  1. Equipment
  2. Recording skills

Other factors:

  1. Currencies
  2. Inflation

I see a link between equipment becoming more powerful yet more affordable, and declining voice-over rates. Let me share three trends with you:

1. The costs for your own studio are coming down, so you can make this beneficial for your clients as well;

2. Because many talents build their own studios, there is much more competition which also leads to lower prices. That’s how the market works.

PS Sorry to interrupt, but clients are saving money due to the increase in home studios. They no longer need to pay for studio time, an audio engineer/editor and a director.

It is my impression that these savings are simply pocketed and not passed on to the voice talent. In the end, we end up doing more for less. Shouldn’t this give us some leverage to raise our rates?

Armin Hierstetter

AH I fully understand that voice-seekers already save a lot of money because they’re used to getting the finished audio from the talent without paying for a studio.

I want to be honest with you. I really think that’s one of the biggest mistakes talents have made for a very long time: They did not charge properly for the studio work, only for the rate as a talent. It will be VERY difficult to change this to an approach where talent charges their normal rate plus editing costs;

3. More and more people of the type “My friends all tell me I should host a radio show,” buy a Shure SM58 microphone and think that their laptop recording is God’s gift to the audio world. Untrained amateurs seem to flood the market.

What’s worse, there are many voice-seekers out there that listen to crap demos thinking they are actually good, because they don’t have a proper recording at hand to compare.

But one thing is for sure: Bodalgo will never start to accept amateurs. Yes, there are a few talents with Bodalgo that have just slipped through the net that might not have passed if I had been pickier the day I activated their accounts. Still, the level of Bodalgo’s talent is much, much, much higher than with any other Pay2Play site that we’ve come across.

PS What’s your advice on how to best play the game? Everybody loves to win an audition, but not at any rate. Do you expect voice-over rates to go up any time soon?

AH If you ask me, the reasons why rates should go up are purely to be seen in costs of living. If those prices would be stable, I’d say it’s fair to assume that our rates would stay stable as well.

With financial markets facing the issues they face at the moment, including all the effects like higher inflation, increased costs for energy, food, rent etcetera, I think that we’ll see rates rising over the next years to cover the rising living expenses.

PS Inflation correction keeps rates at the same level. Talent won’t be making more just because the number on a check is higher. If we wish to increase the amount of money coming in, we need to compensate for the rise in the cost of living, and add e.g. 10% to whatever we’re charging.

AH Well, U.S.-based talent benefits from the weak dollar when paid in Euros by Euro-Zone clients. The opposite is true for Euro-Zone-Talent paid in USD. U.S. clients will not accept higher USD prices just because of exchange rates. It’s really just bad luck for us Euro-Talents. 

So, to cut a long story short: Yes, I see higher rates over the next years. But this is only because everything else will go up in price as well.

PS So, how can we best prepare for the tough years that are ahead of us?

AH 1. If you have not done so already, invest in your own studio.

2. Buy the good stuff (like Neumann or Brauner for mics, for example) as it will serve you well many, many years. Personally, I would no longer waste money on analog equipment. I would solely buy digital stuff (like the TLM 103 D from Neumann).

PS Quality equipment is essential, but owning a state of the art camera does not make one a top-notch photographer.

AH I do appreciate that a cool mic does not make a great voice talent, but this is not where I am coming from at all. I am just a firm believer that successful talent simply needs both: A well-trained voice and great equipment to deliver high-quality audio. There are too many Samsung USB mics out there in my opinion.

I know, of course, that those top shelf brands are pricey. But when you look at what you (and your client) get for the money – it turns out to be an excellent investment.

3. LEARN HOW TO RECORD PROPERLY!!! It’s really, really, really (I mean it) horrible to hear how bad, bad, bad many of the auditions are recorded (hiss, bad miking, bad levelling, bad everything). Use proper headphones to proof-listen your recordings and be super critical about the work you deliver. [Armin insisted this should be printed in bold]

PS Can Bodalgo keep both voice-seekers and voice talent equally happy, or is that impossible?

AH That’s easy: Our main goal is to attract more and more voice-seekers that post sanely budgeted jobs. We want to provide them with the easiest solution available to find high-quality talent without paying any commission. That way, both sides will win.

PS Herzlichen Dank, Armin.

Paul Strikwerda ©nethervoice