Pricing In The Luxury, Power Luxury and Ultra Luxury Market

All luxury is not the same.  We as creative businesses need to better at saying what area of luxury we inhabit.  There are three categories that come to mind: luxury, power luxury and ultra luxury.  Each of these markets demand a different business model to reflect the needs of the clientele who inhabit each level.

This post will be a lot of what I covered in my very first post for The BBC Collective last June but has become ever more important today. We have yet to define markets to create models that serve those markets.  We are still a hodgepodge and it needs to change.

Critical to the conversation though is the fundamental idea that all creative businesses have a subjective component and an objective one. The subjective are those ephemeral items like design, concept and vision. Objective is the cost to implement the subjective in real time. Smush the two together and, I do not care who you are, subjective becomes worth zero. Today, more than ever, no one sees the value of design in its production. In fact, quite the opposite. And even more than that, if you do not charge specifically for the subjective, it is worth what you say it is – nothing. Free is free.

So if we are going to value the subjective, we have to make it plain that that is what is getting paid for. Regardless of the category of luxury, all luxury creative businesses have to get paid in some form for the subjective.  Easy enough, but not nearly good enough. On to the different categories we go.

Luxury.  We live in a fluid world and we have to recognize that variables have to be in relation to expectations and project size until they are not.   Overall cost of luxury in the wedding market should not be less than $700/pp all things being equal. Really it is closer to $1,000/pp, but I will let the floor be slightly lower. So 200 person wedding, base $140,000 cost. Less than that is not compelling as luxury – just not enough there there. What that means is that to support a creative business with projects lower than this sort would require a volume that takes away the attention that luxury clients demand.  You can do beautiful work there but the level of specialness and trust in the relationship between client and artist just cannot be there.  You have to work too much to make this promise of specific attention a reality.  All of you should work in your markets to define the floor but I am not going to be too far off.

The floor is the easy part. From the floor to a certain level where power luxury will begin, all the stars align for luxury – you get to make the money you need relative to project expense and work as much as you would like to make it. Expectation and relative cost of a project align. Let’s say your average wedding is $150,000, you make your 20% or so and you would like to work 15 times a year. $500,000 in fees with a 50-60% margin and all is good. You take home $250,000.  For those businesses with no or little cost of production, fees for these events also make sense. $15,000 for a photographer, $7,500 for a DJ where margins are much higher (say 80%) and it works.

The value for professionals in the luxury market is predicated on expected attention (i.e., how much you want to work) and relative value to the project (how much you cost relative to budget). This is the meat of the bell curve. What this looks like in each respective market should be absolutes and known. And all of you should set them. For instance, a luxury DJ in Toronto spins 35 times per year and on a $200,000 wedding deserves 2.5% of the budget or $5,000. Those are the easy standards to set.

However, to make those standards effective in the luxury market, we have to define the next strata of luxury, power luxury, where the relationship between subjective and objective breaks, where expectations and scarcity become the primary drivers. 

Power Luxury.  For weddings, events from $2,500-5,000/pp I would consider power luxury.  Pretty outrageous but not ultra anything. Here we are starting to see the need for a new model focused on the relationship to expectation as opposed to relationship to cost. Relationship to expectation is: what should something like this cost from a creative business like yours? If the steak should be $75 in this category, pricing at $50 excludes you from the category. This has to be paired with scarcity – how much time are you willing to devote to each project so that the premium client gets the attention they deserve.

In the power luxury category, you can still bastardize the luxury model, but only to a point. 20% can become 15% and design fees can rise. Your fees can grow incrementally and still make some sense. Just know you are pushing it though. Power luxury looks a little like luxury and a little like ultra luxury. It is a valuable market and allows luxury players to stretch and ultra luxury players to dip down. Completely dangerous though as it is neither luxury or ultra luxury. The model has to be a specific hybrid and needs to be well defined by everyone. There has to be a design/subjective component that is far more substantial than any objective one. For instance, in the power luxury category, design itself needs to approach 10% of a budget. Think about it. Execution is relatively static in the luxury/power luxury world, it is not multiples harder to do a $1,000/pp wedding as it is a $2,500/pp one, harder sure, but less than 2.5 times.  However, the pressure on design is enormous. These clients expect original and special and should receive it.  So you HAVE to charge a premium of design to fulfill your promise of couture.  Percentage on production just does not get that done.

Ultra Luxury.  My presumption is that we are at $6,000/pp and up for this category. Here it is all about expectations and scarcity. My position is that there should be absolutely no relationship to cost of production here. It just makes no sense. The conversation should be that it needs to cost $x to do this work with ALL costs of production shifted to a monthly fee. How many of these projects undertaken per year matters too. Let’s say we are talking about a $3mm wedding, I would start with the premise that there will only be 5 events like this per year and target revenue for your business for these projects is $x. For arguments sake, let’s say $x is $2.5mm. Design would be $300k per event with production running at a monthly rate necessary to produce the event and based on a 4 month production schedule. Call it $50,000 per month. Presuming this makes sense as a business and relative market expectations, there you have it. If the event takes over the ability to do 5 (say it is a $9mm event), everything adjusts accordingly. Think about it as if the $9mm client is buying 3 events: $900k design fee, with $150k/month production fee.  For the ultra luxury market, we are talking about being commissioned as a high artist and the price for that has to be almost entirely skewed to design (aka, the creative aspect of what you do).

Can you inhabit more than one level of luxury?  Sure.  I just do not think you can inhabit all three.  Way too confusing and you will just wind up cannibalizing yourself.  Better to focus on what you do and how you fit in the market(s) you wish to call your own.  Knowing whether you consider your creative business luxury, power luxury or ultra luxury gives you permission to act accordingly.  It also gives you permission to tell clients who are in the wrong market that they are comparing the wrong metrics.  Ultra luxury has no substitutes, luxury does.  If you are in the ultra luxury market and compare yourself to any other creative business, you are lost.  Likewise, in the luxury market, you are allowed to be at the top of that market but not act as ultra luxury. Lanes matter for everyone and set the stage for better art and better business.

Chicken or The Egg? Self-Confidence or A Solid Foundation?

The idea of The Impostor Syndrome has gotten a lot of presence of late.  You feel like no matter how much you have done with your art, your creative business, that you just do not belong.  The table was not meant to include you.  The feeling then goes that the intimidation prevents you from manifesting the fullness of your true self.  Whether by self-sabotage or simply by keeping yourself and your creative business stuck in a familiar rut, the “next level” remains ever elusive.

Without being overly dismissive of the issue, I have another take.  Without a solid foundation of a business that supports the art behind it, celebrating what you, the artist, care most about, you will be increasingly exhausted by your own creation.  Literally, the bigger and stronger you and your art get, the more most creative businesses compete with both you and your art. Another way of putting it — the more you envision bigger, the more your creative business calls you a fraud.

No wonder you can never feel satisfied by the effort, nourished by the creative experience.  Instead, your business is the voice in your head saying you do not belong since it is only by luck that you were able to accomplish what you did.

Instead, what if you started with intention?  With an appreciation of the value you offer?  With a deep understanding that you simply cannot build your business on the end result but only on the integrity of the journey?

To dive deeper into the integrity of the journey, a little review.  Write down every step of your process from the moment a client comes in until the moment the project is done.  Could be ten steps, could be a hundred.  I do not care.  Now group these steps into categories that matter to you — say design, production, installation, performance — whatever sings to you.  With the categories and sub-categories in hand we can create percentages of value. First, as a percentage, how much is each category worth to you?  Yes, it has to add up to one hundred percent.  Second, how much is each step in the category worth to the category?  Again, it has to add up to one hundred percent.

Now you have your actual value proposition.  Not some in the air, get paid what you are worth sentiment, but a real statement from you saying what your creative process is worth at each and every point along the way.  Time to get paid this way.  Getting paid is not just money, it is also permanent decisions by your client, often both.  With your value proposition in hand you have to make sure you are getting paid the value each big step (the category) merits with each smaller step (the subcategories) building to the ultimate payment.

Presuming you know what you need and how much you want to work, you can now have your business nourish what you care about.  A straightforward example: You need ten thousand dollars.  Your reputation is worth twenty percent, design forty percent, pre-production thirty and installation ten.  Other than reputation and installation, if design, pre-production each have two equal steps, then you have it.  Your deposit is $2,000, Design is $4,000 and requires two steps, Pre-Production $3,000 and requires two steps, Installation $1,000.  Scale that however you want to given what you need for your art and your creative business.

My vision is that this has nothing to do with confidence or the ability to express your self-worth (i.e., avoid the impostor syndrome).  Instead, it is about recognizing that the path matters and communicating the value of that path matters more.  Sure you might hide from expressing your value this way for fear of being perceived as being different or being an outlier from the rest of the industry (local and/or national).  Then again, you are an artist and isn’t non-conformity the whole point?  There can be no debate that the value proposition I am challenging you to create (and then refine as you grow) is the truth of who you are as an artist and creative business.  Call it what you will but anything else is a lie.  While you might not consider yourself less than authentic, having no integrity to your value proposition sure does undercut the statement.

The chicken or the egg then?  We have spent an enormous amount of time and energy to giving credence to the impostor syndrome, driving you to focus on capturing your worth, living your core values, understanding your why.  All worthy efforts to be sure.  How about we let our creative businesses speak first and for us for a change?  Own the truth of what is most valuable and when about your art and your creative process and then allow the faith in yourself and your vision follow suit.  If the truth will set you free, I, for one, would like to see where it takes you, your art and your creative business.