Jun/101
When To Say No
The other day, an artist friend of mine asked a question:
How do you know when not to collaborate with someone?
It’s a great question, and begs an even larger question:
How do you know when to say no to a project?
There are a few different things you should consider when making the decision to enter into a working relationship, whether with a publisher or another artist, or whatever form of business comes your way.
Risk vs. Reward
One of the most common concepts in business is weighing risk versus reward. If a project is too risky, meaning there is a high degree of standard deviation, then often it becomes not worthwhile to take a risk on it. Standard deviation is how much variation there is around an expected outcome. For example, in calculating an average, a wide range of numbers has a high standard deviation, while a small range of numbers has a low standard deviation, as depicted in the graph below.
But how does this concept apply to art? It comes down to your investment weighed against the payoff. What is the likelihood that your project will “deviate”, and you won’t get paid? If you think that it is pretty high, you may be better off turning it down unless the potential reward is very high as well.
Opportunity Cost
Your time is money! Whenever you make a choice to undertake one project versus another, you are missing out on some opportunity. In economics, the money you might have earned from the “next best” project you didn’t take is called your opportunity cost. For example, if I started a gallery and wanted to find out my accounting costs, I would factor in my fixed and variable costs for construction, electricity, rent, etc.; but if I want to find out how much I spent in terms of an economic cost, I would factor in my opportunity cost. Let’s say that if I hadn’t opened the gallery, I could have made $20,000 working at my old job. The opportunity cost in this case is $20,000.
Whenever a project comes up, think about the opportunity cost. If working on that project will afford you no time to work on anything else, you should think about how much you are earning from each project, and what opportunities they will afford you in the future.
Let’s take an example:
- Project A will take 100 hours and pay $1500. You’re earning $15/hour.
- Project B will take 50 hours and pay $1200. You’re earning $24/hour.
Clearly, Project B is the better choice. But, let’s add a twist.
- Project A will take 100 hours and pay $1500, and will promise $2500 worth of future contracts.
- Project B will take 50 hours and pay $1200, and has no promise of future contracts.
Now, there is a $2500 opportunity cost associated with Project A. In this case, Project A might be more worthwhile.
Building Relationships
Sometimes there are other opportunities associated with taking a project besides money– sometimes there are relationships which can help build your reputation and your portfolio. These kinds of projects have to be looked at on a case-by-case basis, as there is no right or perfect answer for every artist. Whether taking on a project for little money is worthwhile to you is completely your call.
Intuition
Don’t knock it– your gut feeling about how it will be to work with someone is very important! I cannot count how many times Jeff and I have come across this. It usually goes like this: he will get a gut feeling about a project– some inkling that something is wrong about it. I push him to take the risk, and the project flops. His gut has always been right, 100% of the time. (I’m going to regret saying that my husband is always right on the internet, I just know it…) Once this happend a couple of times, we learned to just trust his intuition.
If you’re like Jeff and you have good instincts, follow them! If your spidey-sense starts tingling, turn the project down.
Do you have a great story about turning a project down when you shouldn’t have, or taking on a project that you wish you hadn’t? Share it in the comments!
Nov/094
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.