"Undercutting" Part 2

A few days ago I posted about setting prices with confidence but I wanted to readdress the issue with a greater focus on pricing for profitability.

The original question was about how cheap a person can set their prices without upsetting their competitors (in this case, people who are also surely friends as well). My answer was not to worry about upsetting them, but to price at a level that reflected your skill and confidence.

But I also said that you have to price for profitability.

And when you calculate profitability there are a lot of things that are almost always missed.

It is not uncommon for a birthday party magician to charge $100 and think that he's making as much as his doctor! I mean, $100 an hour is GREAT money! But it fails to recognize that it isn't $100 profit. It's $100 GROSS. Here's how you calculate how much you really make:

• Deduct the cost of all the balloons, confetti, lemons, candy, clown makeup and make up remover, and other consumables you used in the show (about $5)
  
• Deduct the cost of having your clothes cleaned ($5)
  
• Deduct the cost of travel ($5-10)
  
• Your props don't last forever. Most won't survive more than 100 shows without some major repairs or modifications. Calculate the cost of repairing and replacing your props at a rate of about 1% of the prop cost per show (about $10-25)
  
• Deduct the cost of marketing necessary to get the shows. When I tracked my birthday party advertising, I knew it took about $25-35 in advertising to book a show. ($25-35)

After deducting all your expenses you are left with NET INCOME. In this case about $20-50. Now you have to deduct the income tax you owe, at about 25%. That leaves you with $15-38 in net profit.

First inclination is to the say "Still, $15 an hour is pretty good pay". Except that you aren't making that much per hour. The work is not the work. The work is getting the work and getting to the work, and getting set up for the work. Performing is the only fun part of the whole thing!

Usually you have to leave your house AT LEAST an hour before you are supposed to start performing so that you have time to get there AND have time to set up. It will take you an hour before THAT in order to pack your stuff, load your props, shower and dress. Once you are done it will take you another hour to get home, unload, and get cleaned up.

That's 4 hours total.

Which means that you are making somewhere around $3.25 - $9.50 per hour. That hardly pays for a deck of cards!

In short, don't worry so much about undercutting your competition. Worry more about undercutting YOURSELF!