August 10th, 2010

  • tyrrlin

Hourly Rate and Commission pricing

Since this community is also for dicussing artistic business transactions (and partially to mitigate a recent post pointing to a guy who has ....hmmm... not the best intentions on hiring), I dusted off an old post from my personal LJ to share with you. I think it's quite informative for someone who is/wants to be/will be self-employed.

(Originally posted back in January of 2009. I graduated in December and managed to get a great job early this year.)

One of my classes this semester (and I'm doing these backwards a bit, so the info is really more pertinent to those of my classmates who are planning to graduate this May) is called "Shop Management Practices." Basically, it's "how to run an instrument repair shop" and deals with everything from MSDS sheets to basic accounting.


On Friday we discussed the idea of figuring out what your "hourly shop rate" needs to be. In Band Instrument Repair an hourly shop rate of $40.00 is considered about average, based on location. Ahhh, but how does one figure this out?

It's a very simple basic formula: Total expenses / Hours worked = Hourly Shop Rate

Let's take a look...

First and foremost, figure out YOUR ANNUAL SALARY (as in, a reasonable salary to keep your lifestyle). Let's say $36,000 per year. That divides up quite neatly. So, per month, you need $3,000.

On a sheet of paper, list your *monthly* expenses. This includes (but is not limited to):

- salary (mentioned above)
- rent (if you have a shop, as opposed to working from home)
- utilities
- cost of supplies (not JUST art supplies, but also things like staplers, printer ink, mailing envelopes, stamps, etc. Don't be stingy with this list as your supplies are the basic core of your revolving expenses.)
- taxes (sales tax, business tax, etc. Check with your local rep. to see what applies to you)
- vehicle expenses (Gov't rate is $0.42 per mile, which is pretty accurate to include fuel, basic maintenance, etc. Calculate how many miles per month you think you'll drive that's business related, and that includes supply runs!)
- insurance (especially if you're working with expensive items)
- legal (a very good idea if you might be dealing with art theft and copyright violation)
- advertising (this includes attending cons and keeping a website, not JUST your traditional advertising mediums)
- investments and expansion (Ooh, I know I'll need to buy this really expensive airbrush if I want to start doing -insert art style here-.)

I'm sure there's more, but I honestly can't remember it all. We had an amazing checklist in class.

Okay, once you figure out your monthly expenses, look at how many hours you will devote to working. Your basic 9 to 5 job is considered 40 hours per week. Multiply that by 4 to get 160 working hours per month. Now, I'm going to pull a monthly "total expenses" number out of thin air to demonstrate. Let's say $4200.

You divide $4200 by 160 and get $26.25. THIS is what you *should* be earning per hour of work.

So we're done, right? Noooo..... How do you KNOW this is what you're earning? Let's take a look. (I have NO idea what you guys really make, so please don't kill me for my made-up numbers, okay?)

Let's say "Artguru" has her own business and primarily does commissions. For the month of January, she takes in $400 in week 1 with pre-con badge orders. Week 2 sees an additional $520 with one or two large commissions. Week 3 is the con and she does well, bringing in $1200. Week 4 dips down to a rather sad $380. "Artguru" is very good about setting work hours and averages 40 hours per week. (Again, I'm just using these numbers as an example!)

So, 400+520+1200+380 = $2500 With monthly expenses at $4200, she's not making enough to support her business. Her "shop efficiency" is at about 60% which means she's making a little less than $16 per hour. (actual / proposed or 2500 / 4200). Most shops can survive at 75-80%. 100% is theoretical... ya gotta go to the bathroom sometime!

What can we do? Well, if "Artguru" wants to support herself, she can do one of two things. She can work longer hours to make up for the lack of income, OR she can charge more on commissions and prints. If she were to work longer hours, she would have to work (theoretically) 40% more to make up the difference. That means, her 8-hour day just became an 11+ hour day. Yikes!

Might be better to charge more. How do we figure that? Well, right now she's making about $16 per hour when she needs to make $26 (yes, I pulled out the fractions, don't kill me. XD )

This is where I become hazy in my remembering.... so I'm going to *realllly* compress things. I'm also going to "dumb it down" a bit so my brain doesn't explode from math overload!

Let's take a look at commissions. "Artguru" has several levels of commission. The most popular are her con badges which she currently charges $20 for a full-color badge. On average, she can crank out six badges per work day. This means it takes about 1 hour and 20 minutes per badge on average. To keep her business afloat, she needs to charge around $34 per badge, keeping her $26/hour workrate. Larger, more time-intensive commissions will also need to be progressively more expensive. However, as she works on commission (no pun intended) and doesn't see the full amount until completion for the larger works, how does she stay afloat?

Simple. (Kind of) Keep a rotating roster of quick and time-intensive jobs so that you can balance out your payments as well as keeping your mind fresh with new material. Build this rotation into your "finish date" on your contracts so that you're not rushing to complete a HUGE job at the last minute. If it takes 50 hours to paint a large piece and you know you need to do 3 con badges a day to keep money circulating, then factor in that you can reasonably expect to put only 4 hours a working day into that large commission... meaning it would take nearly three weeks to complete.

By including your salary into the equation of expenses, you should be able to keep a reasonable supply of cash in your personal account to tide you through lean times. Mind you, your shop rate is an INTERNAL number, and is NOT the customer's business to know.

This is just a basic intro to shop practices. I have not factored in things like reputation or location, so also please bear this in mind. I hope it helps! Comments are encouraged.

Also crossposted to my personal LJ from a looong time ago.