Pricing Artwork (2/2)

Contents

1. Factors intervening in pricing art

1.1 Cost

1.2 Profit

1.3 Factors to be considered

1.4 Example

1.5 Conclusions

2. Selling Directly and Indirectly

2.1 Selling Directly

2.2 Selling Indirectly - Scenario 1

2.3 Selling Indirectly - Scenario 2

2.4 Comparison: Selling Directly and Indirectly

3 Conclusions

1. Factors intervening in pricing art

The topic is well researched - books are written, posts published... Below are highlights of what should be considered.

Market Price = Cost + Profit

We all understand that one is to price iPad's (quantity) and a totally different scenario is to price art (uniqueness). The formula above requires further exploration.

1.1. Cost

The sum of all expenses incurred: your price/hour (usually ignored), materials, shipping and handling, marketing campaigns, etc.

Cost = ($/hr x hours creating art ) + ($/hr x hours marketing art) + (materials) + (Shipping And Handling) + (Marketing online and offline) + ...

The golden rules:

1. Pay yourself first
2. Profit must be protected

Example:

• Prices asked (= Market price): $1,100
• Hourly rate as Artist: $20
• Hourly rate as Art Seller / artwork: $25/hr (this should include time spent in art fairs, participating in exhibitions, online activities, etc.)
• Materials: (i.e. canvas, etc.) $300
• Shipping and Handling: $50
• Marketing Cost: $300
• Extras: none

Cost = ($20 x 10hrs) + ($25 x 10hrs) + 300 + 50 + 300= $1,100

This is also your Break Even Point (profit=$0), which means:

- You will be paid for your work

- You do not have a profit

- You do not have losses

In order to protect the profit an Art Seller should always clearly identify (and remember) the Break Even Point .

Assuming that you have more than one artwork to sell, you can consider averages.

Also, not addressed in this post: indicators allowing for an approximation of the average cost (i.e. cost/dimensions, price/cost x 2, etc.)

1.2 Profit

What is the relevance of profit ? This is how companies survive in business. The profit is the one allowing a company to pay salaries, utilities, marketing related activities, etc.

In Visual Arts the Profit is a reflection of perception, reputation, how well one understands the market - just to enumerate but a few.

Identifying who the potential buyers can be is referred to as the Market Niche.

The mandate of an Art Seller

- Identification of the Market Niche (i.e. who is buying / might be interested in buying)

- Identification of the price range the Market Niche is willing to pay.

In order to establish the Market Nice consider:

- On-line (Social Media) and off-line (art fairs, exhibitions, etc.) presence

- Research the market for art similar to yours

- Identify a price range (min, max)

- Try to find out the sale price (ultimate validation)

- Position yourself in the middle of the range and, gradually, increase the price

- Do not compare yourself with an art galleries as they have costs, experience and contacts you don't, hence your price must be lower due to the fact that your cost is lower (see the formula above).

1.3 Factors to considered

For clarity purposes: the Market Price is not the single, most important factor when selling

Consider:

- State of the economy

- Branding

- Explanatory Contents

- Loyalty Points

- Discounts

- Value added

For instance, in a thriving economy price can be increased and Loyalty Points and Discounts can be ignored. Obviously the opposite is true when the state of the economy is such that buyers became more careful with their purchases.

1.4. Example:

Let's assume that you did your market research and found out that the price range for artwork comparable with your is $1,200 - $2,300 and that your cost for the given artwork is $800.

- Calculate the average: (1,200 + 2,300) / 2 = $1,750

- Optionally, consider a mark-up based on the Reputation, Recognitions, ... : $150

• Market Price: 1,750 + 150 = $1,900
• Profit: $1,900 (market Price)- $800 (cost) = $1,100

This is how the commodity market around us looks like - and so, you should align yourself with it, as buyers are already familiar with it.

As far as the Art Seller is concerned:

• Based on all factors $1,900 might not be the appropriate price and a potential reduction/increase should be considered
• Contents matter - if nothing else, look at this in this way: if you attend an art fair/exhibition and a potential buyer approaches you, you will provide relevant information. This is exactly what you must do on Internet - attach Essays to your artwork (=talk to buyers).
• It is unlikely that, approached by a buyer expressing an interest in purchasing your art, you will not negotiate. This is where the discount is important and the price calculation above vital as when you negotiate what you must be interested in is not the Market Price but Profit which you should try to protect
• Notice that it is easier to sell to a person who has previously purchased from you than to a person who doesn't know you. This is referred to attraction (new buyer) vs. retention (previous buyer).
• It is cheaper to retain than to attract (marketing costs lower)
• Obviously, the post ignored probably the most important factor when addressing marketing of artwork: your imagination is the most important tool you have

1.5 Conclusions

- The Market Price is a reflection of many factors which should be considered

- Market research is essential

- Identification of the Market Niche is paramount

- Being in the middle of a price range and gradually increasing the price is highly desirable

2. Selling Directly and Indirectly

Many artists prefer to sell directly (i.e. Internet, direct contact with buyers) and indirectly (art reps, art galleries).

As far as the Break Even Point and Profit are concerned, a comparison between the two scenarios is probably the most contrasting and relevant

2.1 Selling Directly

Market Price: $1,900

Cost: $800

Break Even Point (profit=$0): $800

Profit: $1,100

Room for Negotiation: $1,100 (the profit)

2.2 Selling Indirectly - Scenario 1

Let's assume that a 50% will be charged off the Market Price when artwork sold and, for simplicity purposes, the artist pays for all marketing related expenses.

Market Price:  $1,900

Cost:  $800 + $950 (50% markup) = $1,750

Break Even Point: $1,750

Profit: 1,900 - 1,750 = $150

End Result:

• The artist covered all expenses
• The artist paid himself/herself
• The artist made a profit of $150

2.3 Selling Indirectly - Scenario 2

Let's assume that a 50% will be charged on profit

Market Price:  $1,900

Cost:  $800

Break Even Point: $800

Profit: (1,900 - 800 ) * 50% = $550

End Result:

• The artist covered all expenses
• The artist paid himself/herself
• The artist made a profit of $550

2.4 Comparison: Selling Directly and Indirectly

Let's compare specifics for the 2.1 and 2.3 above.

Selling Directly

• Market Price: $1,900
• Cost: $800
• Profit: $1,100

Selling Indirectly

• Market Price: $1,900
• Cost: $800
• Profit: $550

End Result:

• When selling directly, in order to have the same profit as when selling indirectly, The Market price should be:

$800 (cost) + $550 (profit) = $1,350

• Reasons for art galleries selling at a higher price: their costs and the need to make sure that you have a profit

3. Conclusions

• Selling Directly or Indirectly is a matter of preferences
• Selling Directly implies market research
• Regardless of the path chosen, profits must always be protected