Bordeaux & Bordeaux CPAs is a Supplier Member of CCSA (Contemporary Ceramic Studios Association) which is a organization representing paint your own pottery studios (PYOP) and ceramic arts businesses. Donna Bordeaux, CPA provided the webinar to CCSA association members as a benefit of their membership in the organization. Their CPA firm specializes in growing PYOP studios with industry specific key performance indicators by helping them grow their studios and minimize the impact of taxes.
Episode Transcript:
Our topic today is we’re going to discuss the never-ending battle of all-inclusive versus studio fee. I will open it up to some questions near the end so I will temporarily just for everybody’s listening ability I’ll mute all of our participants and allow you to ask questions at the end. I will unmute everyone and you can let us know if you have some questions and I’ll be happy to answer those for you.
Again, I’m Donna Bordeaux. I’m with Bordeaux & Bordeaux CPAs. I’m located physically in Lake Wylie, South Carolina but we work with PYOP studios all across the country. Hopefully some of our knowledge that we’ve gained throughout the industry will help make your life easier, your studio more profitable and help you save money in the long run.
We’re going to talk about the all-inclusive and the studio fee today. First off, I wanted to start off by just letting you meet our team a little bit. I’m Donna. My husband Chad is also a CPA here at our firm, and we have our son Zack. He’s a budding CPA. He is 10 years old so we won’t let him work on your stuff just yet, but he loves his Excel worksheets and loves the math side and he has a propensity for it. Also, Nancy is my mom and she is our administrative end here and manages our office, and occasionally you may hear some barking in the background. That is Dixie, our security forces here. Hopefully that will give you a little bit of insight into our firm.
First we want to start off with comparing the two models of pricing that are used in most studios. The all-inclusive side, what we mean there is pricing on the shelf. Just what the customer pays. There are no hidden fees, no other fees on top. So if your customer sees a mug on the shelf for $20, they will pay $20 plus tax, of course, and maybe any add-ins that you may be able to upsell there.
The studio fee model is generally based on the customer paying a price for the items and they pay a studio fee to cover their time. This was originally meant to cover a sitting fee or to cover the paint, the supplies and the time that they are sitting in your studio. So if they paint five pieces, three pieces, whatever it may be, they pay one studio fee for the day. There are usually different policies depending on the studio as to what happens if they don’t finish today, if they want to come, if more than one person paints in the studio on that one piece at a time. We’ll dive into a little bit of those nuances here in a few moments.
I always look at this as comparing to how an airline charges. There are a lot of different things, and I’m not here to tell you what’s right or wrong today but I will give you some opinion sides that we hear a lot in the industry.
When the airlines switched over to start charging and nickel and diming, you have a charge for your bag, you have a charge if you want to buy some food on the plane. They no longer serve the snacks. If you want to upgrade to an aisle seat, those are all different fees that they add on. We know how most people feel about the airlines doing that, so if we want to maybe take a little hint from that industry practice and look at what we can do in studios to make sure that our customers are happy and have a great experience.
Let’s talk a little bit about the pros and cons of each side. The pros on the all-inclusive side are that it’s easy for customers to understand. They walk in, they see a piece, they see the price, that’s how much it is. It also allows your customer and your staff to both concentrate on a great experience rather than having to explain on how the pricing works or how the studio structure works. You could really focus your energies on the experience. For those of you who have heard me say this before, remember that your studio does not sell bisque. It does not sell glass. It does not sell canvas. It sells an experience and that’s what people are paying for. We all know you can go to Walmart and buy a coffee mug for probably a dollar at the dollar store, or Walmart maybe $2. That’s not what they’re buying. They’re buying the experience and the memories that they are creating.
In the studio fee environment, as I said, originally this was meant to cover the paint, the supplies, the sitting time in your studio. Many studio fee models use this as a promotional item, and I see this quite often. One of the controversies over moving towards all-inclusive is what would I do for my promotions? I often give the studio fee away. Let’s look at what that really means though and decide if that’s really an effective promotion for you.
In our example here, if a customer creates a $14 mug and you have a $6 studio fee, if you in fact gave away the studio fee as a promotion that’s really the same as a 30% discount. Ouch, that kind of hurts. In an expected situation, we expect that a studio will have about 15% profit margin in a good time going to their bottom line, so in fact if you just gave a 30% discount, you’ve just taken a loss by selling to that customer, and that is not always what we want to look at from a good sense perspective.
Some of the reasons with the studio fee also that cause some confusion is explaining to customers. I know nobody has gone through this. If you have studio fees how do you explain if there’s more than one person that’s paying you a fee. If a mom and a child paints the same piece, do you charge the studio fee twice? Do you charge it once? Do you kind of have employees who may just skirt the issue and not see that that’s happening because it’s too difficult to explain? Oftentimes as well employees may forget to explain the studio charge to somebody up front and if that happens and they check out then they may forget or randomly not want to explain that after the fact if somebody is fussing about it, so you may lose out on that studio fee that way. Sometimes we all get in a rush and we just forget.
Those are some potential downfalls to explaining or having to charge a separate studio fee.
When should you make a change or why would you want to consider making a change to go to an all-inclusive model? First off, increased sales. If you have someone come in that paints three pieces, two pieces, you’re only catching that studio fee once, so you may be able to – if you’re incorporating the studio fee into the piece – increase your sales and your bottom line with have the effect as well. There’s also a factor of the confusion on the customer’s side. We want the customer to have the greatest experience that they possibly can and minimizing any confusion is probably part of that great experience. We can help with less confusion.
Also, it’s less effort for your staff and less that they can possibly forget when they’re ringing out your customers, so you maybe miss out on less lost revenue.
The last function, it’s easier for you to determine what your proper pricing should be on your products that you carry in the studio. When we look at pricing and you’re using a studio fee model, we actually have to go back and figure out for your studio how many pieces on average does a person paint under one studio fee to determine proper pricing and make sure that your margin is still there. This eliminates that focus on pricing. We can price easier by using a true mark-up model – and we do a whole session on that and I have some blog posts on our website if you’re interested in more information about the pricing side. That’s not an area we’re going to dive into much today but I wanted to throw that out there for you as a reference point. Okay?
Those are some possible upsides to moving to an all-inclusive. In talking with many studios over the years, I think we’re probably at about 50/50, maybe now 60/40 towards all-inclusive but there’s a really wide variety out there so we want to make sure that we’re doing the best that we can to help studio owners survive and thrive in the marketplace.
If you decided that all-inclusive was a method that you wanted to switch to ultimately, let’s talk about some guidelines. How do you make that transition and make it a smooth transition for you, your staff, as well as your customers?
We’ve developed a few steps to help you keep these factors in line and help make sure that it can be a smooth transition, so let’s take a few moments and walk through these. I will also send these slides out to everybody in attendance on our call today so don’t worry about taking notes. I’ll send this out. You’ll also be able to access the full recording of our session today.
First off, set a date. This is an important guideline because just making a transition is hard enough but you need to have realistic date expectation in mind. I recommend at least 30 days for the implementation; probably it would be better if you can get it 60 or 90 to allow you to retrain, reprice and do all that those steps and have a good bit of time to think through it without feeling rushed.
The next part that you have to do, and I realize timing is an issue here but you will need to reprice all of your items and that is on the shelf, relabeling your shelves or your pieces and you’ll also have to do that within your point of sale system or however you price your items for your checkout.
While you’re at it, one of the things we highlight to get is to set a minimum experience price for your studio. Also, many people get a call and they’ll say, “Well, how much does it cost to come paint,” or to come do some service at your studio? I think if you look at competitive pricing as far as the experience, you’ll find that there’s probably a minimum price that people should pay for the experience. For example, if you go to the movies, your minimum price for the experience is probably $10 to $12 depending on where you are at in the country. That’s how much it costs for a ticket. You don’t have to buy the popcorn or the drink but many people will, and a lot will. That’s why the price of popcorn is so high in a theater. They want to grab those customers who are willing to pay more for the experience and part of the experience at the theater is the popcorn and the drink, the candy, the snacks. That’s part of it. They don’t want to turn away their lower-priced expectation experience customers but they want to offer a higher experience for those who are willing to pay it. We suggest you set a minimum experience price in your studio.
I suggest that that probably should start out in the $15 to $20 range depending on your demographics and your area of the country. Some of you probably have smaller pieces and sometimes you’ll find that a family will come in and the kids will be migrated back to the cheapest thing in your store. Those smaller pieces should probably be reserved for your parties or summer camps or other events that are already including the price of the experience and the teaching in it. I’d suggest again $15 to $20 for your minimum price experience.
Next let’s take a look at some marketing in our transition. One of the things that always helps your marketing, and this is one of the other reasons I would like to have a little bit longer timeframe, is to build anticipation. We’ve all seen when a new storefront is opening and they’ve got a ‘Coming Soon’ sign. Maybe it doesn’t exactly say what’s coming soon but gives you a lead-in as to something fun is coming or something tasty is coming. You want to build anticipation.
First, advertise that you have some exciting changes that are coming for a lead-in to the upcoming event. You don’t necessarily want to market for 30 days in advance that you’re moving to all-inclusive pricing. You want to market to your customers that you have some exciting things; build the anticipation.
Secondly, use social media and your in-house advertising to promote this excitement for at least two weeks in advance. Three or four weeks is probably even a little better but at least two, right?
Next, have new signage created and be ready to announce these changes. You want to kind of set that date so that you can unveil the new experience as of a particular date. Make sure that you’ve got that timeline built in.
Lastly, shake it up. Maybe you don’t tell your staff either. You tell them that something new and exciting is coming, that you have some big plans in the works but you maybe have a staff meeting to unveil it and talk about it. One of the things you don’t want to do is to tell your staff, “Yeah, we’re thinkin’ about moving to all-inclusive,” but not give them any details at the time, or tell them what’s so good about it because as we’ve all seen, sometimes somebody put a negative connotation on it and it spreads throughout. You want to do the same thing that you’re doing with your customers with your staff. Get them excited about the practice of change, tell them what’s in it for them, that they won’t have to explain the studio fee. Make sure that they’re excited because remember they’re your window to your customers.
Let the excitement build. You might want to have a kick-off meeting where you can have a nice little get-together and announce it to your staff, explain what it means to them and how they will practice telling the customers. That all leads in to number three, preparing your staff. If your staff is not onboard, your customers won’t be either. I think this is a pretty easy thing to get your staff onboard with but you want to make sure you do it the right way.
Have a fun staff meeting about three to five days prior to the change to fill them all in on the exciting things that are coming and going on, and let them be excited too. Remind them of the benefits of not having to explain the studio fee and do some role playing. Practice the scenarios that they’re going to use to explain the new pricing method to your customers and have them be excited about it when they explain it too. Set yourself up, set your staff up, pair them up, have a little contest, make it really fun, and also remind them not to let the cat out of the bag until the big announcement day.
Next step, the big day is here. What should happen? First, let’s get that social media rolling. Announce the changes through your social media. Have your constant contact or your email system lined up and ready to go to let them know all about the new changes that are exciting. Give them another reason to come back and see your studio too. Post new signage to announce how the new pricing works. Remind them of the benefits; always selling the benefits of no longer having a studio fee – they’re paying one price.
One of our CCSA members did a constant contact and her headline was ‘Breaking News” and then in the message it said, “Breaking news, no more studio fees. Prices at the studio for all projects now include everything you need to complete your project.” I think that’s a great tie-in, and she was very pleased with the results, had a lot of success on that.
I challenge you, if you’re on studio fees to look at this methodology and seeing how it could benefit you and how you can build some excitement.
The last step in the transition, mark your calendar for next year. Remember that pricing changes shouldn’t just come every three or four years. If it takes that long to increase your prices you’re always going to be behind. You should look at your prices and raise prices each year a little bit rather than having to make a drastic jump to get your margins and your pricing back in line. We suggest September and February are great months for this because it’s traditionally a little bit slower in the studio, you can catch your breath and go ahead and make the changes in your point of sale as well as your shelves throughout the system. If you don’t raise those prices annually you’ll have a difficult time keeping up with your marketplace, and they’ll be much more noticeable so I highly suggest that you look at this every six months to a year, and one year at an absolute minimum.
One of the things that we do with our clients is help them walk through all of the financial systems including the pricing, looking at things like all-inclusive versus studio fees. Making sure that all of their accounting and tax information and payroll processing are up to date. If this is something that interests you I’d be happy to talk with you through our website at PYOPaccounting.com. We have several different blog posts there for you. That’s all free information that any of you can access, and if you want to take it the next step further, we have free consultations and you can schedule that right through our website.
I hope this has been helpful to lead you down the path of looking at the all-inclusive versus studio fee debate. I am going to open up our mics for everyone, so be careful. Let me know if you have any questions that you would like to ask.
All right, everyone should be unmuted. If anybody has got anything, please feel free to jump in.
Our state has of course sales tax. Right now we don’t have to put tax on studio fees because we use it as a service. Do you account for that in your margin?
Sales tax is not a responsibility of the studio so even in the situation where you might have to begin to charge sales tax on the whole piece, that is something that is completely paid by the customer so it should not have any effect on your internal pricing.
I would also encourage you to look at your states because many states used to discount the studio fee and it was not part of sales tax but I’m finding that about half of the states now are taxing sales tax. We’ll be doing a future broadcast on sales tax specifically to work on the ins and outs, but I’m not sure of your particular state but that is definitely something you want to revisit if you haven’t done that recently.
Any other questions?
All right, well if we don’t have any other questions, I want to let you know I appreciate you taking the time to be with us today and if anything else comes up or if you have any general questions, please feel free to let me know. I’ll be happy to help you. My email is here on the screen and you will also get a return email from me today with this information, so let me know if anything else comes up that we can help you with.
I have a question.
Yes.
Sorry, I came in a little late. I was having computer issues, but my question is are you finding that more and more studios going to the all-inclusive compared to the studio fee? Or do you find that if studios have started as all-inclusive gotten the reverse and gone into the studio fee part?
I’m seeing two things. That’s an interesting question. I am seeing more studios move towards the all-inclusive. I think the marketplace is just kind of asking for that ‘make my pricing easy’ kind of thing. I’m also seeing that new studios as they start up are mostly going all-inclusive. Now, there is still again this ongoing debate, and I’m not by no means telling anybody who has a studio fee that they’re wrong. I’m just suggesting that there may be a more straightforward way to approach your pricing, and also, this is also a great fix for those of you who may have not raised your prices in a while, whose pricing may be off kilter a little. This is a nice methodology to roll that all into one and adjust your pricing accordingly too. You kind of get two birds with one stone.
I am seeing this as the trend. The trend, you can see this in a lot of different industries. For example, go look at the McDonald’s menu, the Value Menu. It’s an all-inclusive bundle of something. Rather than piecemeal charging you for each individual thing, they want to get you onboard with the Value Menu; you just pick one thing, it includes everything. It’s straightforward pricing.
That’s just one example. The airlines, Southwest gets a lot of publicity because they do the all-inclusive model for the most part versus the other airlines, so you could see that trend is a national trend just in all retail. One of the things that studios can look at is moving with that trend too.
Thank you.
You’re quite welcome. Any other questions? If you’d like I’ll hang on here for a few moments. If you have anything else you’d like to ask, feel free. If you need to move on and getting your studio running and getting your day’s business done, I appreciate you joining us.
