Pricing: A Practical Approach

This post originally appeared on the NewMusicShelf blog on June 10, 2011.

In an effort to make pricing my scores easier and less subjective, I’ve been tinkering with a series of formulas to tell me what I should charge, and I think I’ve come up with some good stuff.

However, before I get into the math of it, I want to quickly paraphrase my post Pricing: The Goldilocks Zone where I talk about my philosophy on setting prices. Until now, I’ve set mine by asking myself two questions: 1) “If I were buying an identical score by another composer, what price would be most attractive to me?” and 2) “Is that price something I’m willing to accept for my own work?” It’s worked well so far, but is hardly objective.

I actually designed a whole Excel spreadsheet that does double duty as my catalog and a price calculator. All I have to do is plug in what it costs to print one copy of the score, and it spits out what I should charge for print scores on one sheet, and what I should charge for electronic scores on another. It took me an afternoon to create, and is a lot of fun to play with.

Let’s walk through an example of how the formulas work with a bit of math. For this example, I’m going to assume that the score costs exactly $5.00 to print and bind, and that there are no other costs associated with the production of the score itself. Your score will cost more or less depending on the number of pages and the quality of the materials. But for right now, we’re going to take $5.00 as our starting point.

The other assumption we’re going to make, aside from the starting cost, is that we want our works picked up by distributors like J.W. Pepper or Theodore Front; so we’re going to figure in the discount that distributors take, which is typically around 40%.

Print Scores
So we start out with our $5.00 cost to produce the score.

Step one is just about the only subjective step in the print pricing process: figuring out our base profit per score. This can be a set dollar amount, or a percentage of the sale. I prefer the latter because it’s flexible, and it helps keep the final price more reasonable.

For myself, I’ve chosen a 20% base profit*. Meaning: 20% of the price after adding the base profit to the printing costs. Not 20% of the printing price.

So: “Cost with Profit” = $5.00 + (20% of “Cost with Profit”).

The easiest way to figure this is to subtract your percentage from 100% and turn it into a decimal: 100% – 20% = 80% or 0.8.

Then divide your cost by this new number: $5.00 / 0.8 = $6.25.

I may have lost some of you already. Let’s do it backward to show you what just happened. 20% of $6.25 is $1.25. So we have our $5.00 printing cost plus our 20% ($1.25) base profit.

Good? Good.

Step two: we add the distributor discount, which is typically 40%. We add this into our price because we have to price our scores the same as the distributor sells them. The discount they take is their incentive for buying scores from you, as well as their profit. Why is theirs twice what mine is? Because they have a staff and I don’t.

So, we do the same trick to calculate the distributor price that we used to get our Cost with Profit.

$6.25 / (100% – 40%) = $10.42

One final step, just for the sake of aesthetics. Let’s round up to $10.50. It’s just a prettier number.

So there’s your print price for a score that cost you $5.00 to print.

If a distributor wants to sell this score, you sell it to them for $6.25 per copy (or $6.30 since we rounded up, and that counts for something), and they sell it for $10.50. Of the $6.30 you got from the distributor, you paid $5.00 to print it, and end up earning $1.30 – your Base Profit!

To sell it on your site, you sell it for $10.50 and make $5.50 after your production costs. Awesome.

A quick recap:

* The base profit here is not 20% of the gross price, but 20% of the price net of the distributor’s discount. I figure it this way to keep the price more affordable. See “Another Approach” below for an example of how calculating the base profit against gross affects the gross price.

Electronic Scores
So let’s start with our final Print price of $10.50 and go from there to find the price for our Electronic score.

We have a few options of how we want to deal with this. You’re entitled to keep the same price, but I don’t particularly approve of that since you have no printing/binding costs for an electronic score.

I prefer to just subtract out the printing costs, so $10.50 – $5.00, leaving you with $5.50, which is pretty damned good for a product with no overhead costs.

Some other composers take half of the print price, which in this case would be $5.25. A negligible difference between this and what I do.

Assuming you sell the electronic scores on your own site and use PayPal as your payment solution, you’re going to pay $0.46 on $5.50, leaving you with a net of $5.04.

Or you can set your price taking the PayPal fee into account. If you want to net $5.50, you can set your price at $6.00 and net $5.53.

If you were to use NewMusicShelf as your distributor, the fee is 14% of the gross price plus the PayPal transaction fee (2.9% + $0.30). So if you want to end up with $5.50, you’ll set your price at $7.00 to account for the $0.98 NewMusicShelf distribution fee and $0.50 PayPal transaction fee, and you’ll net $5.52. (To start at $5.50, you’ll have a total of $1.23 in fees and net $4.27.)

Obviously there are lots of choices here, and a lot of wiggle room. There’s no overhead to take into account, although there are various transaction fees that you might pay, depending on where and how you sell your electronic scores.

Another approach
Another approach that can be taken is to calculate the base profit and the distributor discount together. This changes the price because the profit in the example above is not calculated against the final gross price. Instead, it is only calculated taking into account the overhead costs. Calculating the profit and discount together looks like this:

Gross = $5.00 + (20% Gross) + (40% Gross)

Or

Gross = $5.00 + (60% Gross)

$5.00 / 0.4 = Gross

$5.00 / 0.4 = $12.50

I prefer not to do it this way because it actually raises the price more than I’m comfortable with. Because I don’t expect to have a print distributor for a while, and because I anticipate selling the bulk of my scores through my own website anyway once I do get one, I’m content for the time being to have a profit of $1.25 on this example score sold through a distributor. After all, I’ll be making a $5.50 profit when it’s sold on my own website.