Monday, April 06, 2009

How much are you paying yourself?

WIP - The Kittie Sitter (or Uncle Cosmo does his share of childcare)
coloured pencils on Arches HP

copyright Katherine Tyrrell

This post is about how much you get from a sale after you've taken out the costs of creating the art and the costs of sale.

On Tuesday last week I posted the results of the March Making A Mark Opinion Poll Results of "How do you price your art?" together with a commentary. In it I promised that I'd explain how using the cost plus approach to pricing backwards can help you see what sort of net earnings you're actually getting for your art.

An overview

The basic approach takes the money you get for a sale and then
  • deducts all the materials and media used to create the art
  • deducts the cost of sales (commission etc)
  • deducts other overheads
  • adds back all allowed expenses/tax allowances
  • deducts tax and pension contributions
to arrive at a figure for earnings which equates to the sum earned from the sale which you can spend on stuff which isn't connected with making art. It's a proxy - but it's also an eye-opener!

If you divide it by the number of hours you took to create the work then you can arrive at a notion of what your hourly wage might be.

So - now we do it slowly and unpick pit by bit. I've split out all expenses incurred from all expenses allowed for tax purposes. This enables a review of what is/is not allowed as an allowable expense (or a tax allowance) in the current tax year.

How to work "cost plus" backwards

To do this do the following:
  • start with your set price (or price per square inch multiplied by your most frequent size of image sold)
  • deduct commission or sales fee at whatever percentage applies
  • deduct any specific cost of sales items which are unrelated to price or size (eg advertising; entry fees; cost of printing catalogues; transport/courier etc). You might want to share these across however many other artworks they cover - but be realistic about how many you actually expect to sell.
  • then deduct the cost of matting/framing
= income net of sales costs

Now you need to deduct the costs of making the artwork. Another way of looking at this is you are about to find out how much money should be deducted from the sale to replace the materials you've just used up.
  • deduct the notional cost of raw materials. This isn't an exact science - you are allowed to use approximations! ;)
= income net of variable costs.

This is the sum available for your wages and payment of your fixed costs of making art (eg studio, insurance)
  • Identify your total fixed costs related to art (eg studio space and costs of equipment; professional insurance; professional fees)
  • Next step - divide your fixed costs by the number of works you sell each year and deduct the proportionate share
= gross income before tax and deductions and tax allowances

Remember that in cash terms this is what drives the cashflow until such time as you get the benefit of the expenses you can set off against tax. It's a useful place to start when you need to think about how much working capital/cash buffer you need to have to be a full-time artist.

Now add back all allowable expenses that you've incurred where
  • you kept the receipt and
  • which you are allowed to claim as a tax allowance or is allowed as an expense to reduce your tax bill.
This is where getting help with what's allowed and what's not allowed can be very helpful.

= gross income before tax and deductions

Dividing this figure by the number of hours generates your gross hourly wage for that artwork. This is the figure to use when comparing income to other occupations. See for example, this is website which purports to give an indication of the median hourly rate for a graphic artist/designer in the UK

Now we need to work out much net income you 'take home'
  • now work out how much you need to be contributing from each sale to your pension fund - because you are planning on having an old age when you just paint for pleasure!
  • then deduct tax at the variable percentage rate. (You may well have a tax allowance but let's assume for the purposes of this exercise that this basic sum is generated by other income which absorbs that allowance.)
= net income which you get to to spend!

Now divide that sum by the number of hours it took you to produce the painting - and you have your net hourly wage for that artwork.

Frightening isn't it? Try also reading The art income shock by Robert Genn.

Do remember to keep all you receipts and to claim all expenses allowed by your tax system. Remember that every country's tax system is unique and what applies in one place might not count in another.

Note on "The Kittie Sitter"
The work in progress at the top is another 'try-out' for the SOFA show later in the year. My scanner is cropping off the bottom and this is not the crop I'd use but it's good enough to show where this one is going.

[Apologies!!! I lost track of time and published just before rushing off to the doctors and missed out a vital step in the equation in the original published version. The post has now been revised to take this into account. You are allowed to claim for some of the expenses of making art against tax!!!]

9 comments:

Sharon Wright said...

Love those kitties, they look so...well....furry! Soft and cuddly and comfy. Interesting post. I have to get my act together as I price according to size and what I think it will sell for....no thought to costs at all!
Why I am skint probably.

Robyn said...

So Cosmo is just an old softie after all but beautifully portrayed.

I'm not going to do your suggested calculation, Katherine because my inner financial controller, would have to speak to my inner manager about letting me go because I'm obviously an enormous financial drain on our micro economy ;)

Lindsay said...

Great, if depressing , post. And I love Uncle and Nephew!!! You make beautiful kitty art.

diddamsdigitalart said...

Yes, this calculus is a little depressing. The buyers think we charge too much (just a piece of paper after all), while most of us know we charge too little.

The buyers need to be educated and values need to be changed so that a work of a contemporary artist can be seen as equally or more valuable than an Ipod (god forbid!). The education and change in values can start with us, the artists (talking to myself, now...).

Sue Favinger Smith said...

I think that's why Robert Henri said "The only sensible way to regard the art life is that it is a privilege you are willing to pay for." But hey - by the time I take off all my deductions I'm showing such a loss that the government refunds me tax money - they're my best patron!

Jeanette said...

Scary. And unfortunately true too when you consider that the average 'working' artist in Canada makes less than $20,000 a year.

Pricing realities and consumer education are a difficult mix. Often the buying public want masterpieces for the price of a mass produced print from a department store.

Felicity said...

I was thinking along the same lines as Robyn (I'm not going to do this because...)!! It's why I don't sell and I consider myself extremely lucky not to have to. It's just so depressing that art has so little value ans so few make a living from it. No-one would expect accountants or doctors to have a 'day job'. I prefer to keep my stuff and have my family value it and if I need to, I'll get a job at Tescos stacking shelves where I'd expect - and get! - more per hour!

Felicity said...

Oh, I forgot to say how much I liked your drawing - the fur looks so incredibly soft and again, the colours are fabulous!

Elin Pendleton, AAEA, WAOW said...

I was sent here by a friend... I've been supporting art materials manufacturers for over three decades, and now realize that I can survive by drawing (pun intended!) on my years of being a trained teacher to reach out and positively affect art students. But I paint continuously because I love to do so. My blog of daily and lesson paintings are here. Thanks for the left brain thinking!



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