How Should You Price Your Packages and Services?
Whenever we ask clients how they come up with their pricing, the typical answer is "our peers are charging X, so we base our pricing off of that". We get it, you don’t want to come off too expensive and scare clients away, nor do you want to come off too cheap and give the clients a wrong impression. So where should you start?
Ultimately, pricing comes down to the value of your time. The value of your time has two components, the amount of money you want to make, and how much you want to work.
How Much Money Do You Want To Make?
The first decision you need to make is to figure out how much money you want to personally take home. You'll need to look at your personal expenses (your cost of living) and determine an amount that will satisfy those costs. These costs include, housing, cars, paying down debt, retirement savings and paying taxes. You've sat with your accountant, done the math and have determined that in order to keep your current lifestyle and satisfy your cost of living, you'll need to bring home $50,000.
The next step is taking this base number and using it to back into how much Gross Revenue (total amount earned from the events you work) you will need to earn in order to bring home $50,000 for the year. We've come up with a simple formula to help you achieve that goal. We call it the 2-3-5 Model.
2 – 20% of the total amount charged should go to any contractor you hire (second shooters, planning assistants, etc). If you do not have a contractors, this extra 20% goes to the business owner.
3– 30% of the total amount charged should cover all of your fixed costs. Fixed costs include rent, website hosting, supplies, professional fees (accountants, lawyers, insurance, etc), workflow tools and anything else you pay every month, regardless of how many events or projects you work on.
5– 50% of the total amount charged goes to the business owners. This is before taxes.
50% of the total gross revenue goes to the business owner (you). With your goal of bringing home $50,000, you will need to do $100,000 in events or projects per year.
How Much Do You Want To Work
Now that you have your target gross revenue number, you will now need to decide how often you want to work. This is a personal decision, and one that should consider your lifestyle and income needs. Let's make a couple of assumptions (these assumptions can be easily replicated for any vendor or project based business). Let's assume you are a wedding photographer and you want to shoot 25 weddings a year. $100,000 of Gross Revenue divided by 25 events means you have to average $4,000 per event. Furthermore, lets' also assume that on average you spend 16 hours working with a couple per wedding (this includes time at the venue, traveling to the venue, meeting with the couple, etc). Breaking this down to an hourly charge, you will be earning $250/hour. You will need to keep this $250/hour amount in mind when you build your pricing. Below is an example of how to create pricing around your per hour need.
Pricing Package A (this is your most expensive package) - you estimate you will be spending 20 hours working on this wedding. $250 x 20 Hours = $5,000
Pricing Package B (this is your average package) - you estimate you will be spending 16 hours working on this wedding. $250 X 16 Hours = $4,000
Pricing Package C (this is your cheapest package) - you estimate will be spending 12 hours working on this wedding. $250 x 12 Hours = $3,000
Pricing can be overwhelming, but by breaking it down to "How much do I want to make vs How much do I want to work" you can calculate how much you need to be charging per event and market your services accordingly.
Hitched Advisors is the only accounting and advisory firm exclusively working with wedding vendors. We offer a refreshing approach to the typical accounting experience. We strive to add value to your business by working towards saving you time, saving you money, and giving you peace of mind. For more information, visit us at HitchedAdvisors.com