When it comes to money, most creatives entering into business make the mistake of selling themselves short. They worry about competing with the cheapest guys out there instead of pricing their work at a point that is both fair and profitable—or they simply don’t know how to arrive at that point. I’ll make it simple:
- Determine how many hours you’ll spend on the project
- Multiply by an hourly wage that suits your skill and experience level
- Add overhead costs
- Compare this sum to the price of comparable products or services
- If necessary, adjust to remain competitive
Let’s try an example. Say you get offered 50% of royalties to ghostwrite a book; is this a good deal? Well, how many hours do you anticipate working on the book? 250 hours (or 10 hours a week for just over six months) is conservative but reasonable. Now, what is a typical hourly wage for a writer of your experience on this particular project? Let’s say it’s $35. You have no overhead. That’s $10,000 for the project.
Now. The typical published book sells less than 99 copies. If you accept the 50%-of-royalties-only-deal, that gives you approximately $200. Congratulations—you just made $0.80 an hour for your work. Unless you’re independently wealthy and writing simply out of virtue or pure, unadulterated joy, probably not the best deal. Negotiate a fair rate or move on.
Okay, now let’s say you’re a designer who has just created a fall line of clothing. Let’s say it took you 15 hours total to produce a skirt, matching jacket, and coordinating blouse. There’s your hours spent. For simplicity’s sake, let’s say an appropriate hourly wage is $35. But what’s your overhead? $300 for high-end material? To recoup your money and be paid for your time, you would have to charge $825 for the ensemble. And you have yet to earn a profit for your BUSINESS!
Now, let’s say you happened to produce The Look of the season—every store is carrying it at every price point. In order to stay competitive with comparable products, you might be forced to come down on your pricing, say to $775. Next season, you might choose less expensive fabric, or find a way to decrease your own time on each outfit in order to produce a higher profit.
These are loose guidelines, of course, in an area that is rife with variables, but they should be enough to help you start seeing your product or service objectively. Which, by the way, is one of the keys to building a successful creative business.