Pricing Art

This is something I’ve wanted to talk about for a while now, but with exams finally over, I now have some time to write!

Very often people will ask artists, “How do you price your work?”  The short answer here is… it depends.  There are a lot of interesting market factors that go into that decision, some of which I want to look at more in-depth.

The Economics of Art

The irony is they are marketing a product to people who, by their product definition, have no money...

In economic theory, a firm can set their price for a good or service at the average variable cost of their competitor to drive them out of business. But when you’re an artist, especially a sole proprietor, how do you measure that cost? And even if you priced below what your competition could afford, why would you want to?

Additionally, when a firm is pricing too low for a product or service, they destroy the market.  In these cases a larger market player can simply acquire the business and fix this problem.  In the illustration market, this is not possible.

My point here is that so many of the rules that apply to businesses when it comes to pricing go completely out the window when you are looking at an industry as volatile and preference-based as art.  Many people can agree on what a good meal tastes like and should cost, few can agree on what is good art and what its value is.  As a result, artists must make the assessment of the value of their art themselves, which can be extremely difficult as artists can tend towards overvaluing or undervaluing their work based on their confidence level.  If not the artist, though, then who has that price-making power?

The simple answer here is: the market.  Unfortunately, because there are relatively few customers to a relatively large number of highly differentiated suppliers, the artist has limited power to negotiate on price until their work is differentiated or renowned (we could say “branded”) enough to let them set prices.

My overall conclusion is that the market for art, when first starting out, starts out as an monopolistic competition.  The artist then reaches a certain tier, if they are lucky, hardworking, talented, and marketing-savvy, among other factors, and then they move into a more monopolistic market.

There is a huge problem here, though, which is that in the long run, monopolistic competitive firms make zero economic profit.  This means that you will be scraping by– breaking even– which is fine, but is probably the basis behind the “starving artist” stereotype.  The key, then,  is to move yourself from that pool of “working artists” into the pool of “famous artists”- moving from a monopolistic competitor to a monopolist.  As with any product or service, there is no secret formula for how to do this.  There are, however, some business and economic theories that can be helpful in determining ways to get your prices up to start that process.

Bargaining Power

You never want to have just one supplier or one customer- having two at least keeps them in competition, driving your costs down and your prices up.  If your work is in demand by Company X, you can tell Company Y “Sorry, I have another offer, unless you can match or better on price.”  You’d be amazed at how well this works.  It works for other areas of life, too- phone, internet, etc.  (Just don’t try it dating…) The trick here is also not to get caught on the other end of this trap!  You don’t want Company X to say “Well, we have another artist we can go to for this.”

Willingness to Pay

Customers are willing to pay for a more differentiated, higher quality product.  Increasing the willingness to pay is tricky, but doing top-notch work repeatedly for clients will go a long way to earning customer loyalty, increasing demand, and increasing the dollar amount per piece that you will receive.

Pricing Rules

Or should I say, the lack thereof?  There are no hard and fast rules, per se.

From an economist’s standpoint, to maximize profit you should be pricing at the point where your marginal costs equal your marginal revenue.  In order for you to do this, you’d have to have to know the demand equation for your work.  If you are interested, let me know and I can do a blog post explaining this in much more detail, but for the sake of brevity: it gets complicated.

Simple solutions:

Price by Cost + Margin: Figure out number of pieces you can make each month, figure out what your bills and food cost you each month.  Divide your $bills/#pieces = lowest price per piece you can charge.  Add a margin for profit.

Example: Sam pays $2000 per month in rent, food, bills, etc.  He can create 8 pieces each month. $2000/8= $250 per piece to break even.  He wants to make a 20% margin so he has some money in the bank: 20% of $250 = $50.  Sam should be charging $300/piece.

Price Hourly: Another pricing strategy is to price by hour.  This is very difficult to do, since sometimes a brilliant piece will take you only a few hours, and other times you struggle with it for weeks.

Price = Materials Cost + # hours * $ wage per hour

Example: Sam wants to make $25/hour (art is a skilled profession after all and $25/hour is pretty low!).  He works digitally and so has no overhead.  On average, he spends about 12 hours on a piece.  12 * $25 = $300 per piece.

Art as a Firm

The last thing that I wanted to look at is the “Studio” phenomenon- artists collectively working together in order to increase their pricing power, share profits, and think more business-like!  I love this model, and I think that if the industry trends towards this structure, art as a profession will become much more feasible for more people.