Wednesday, October 14, 2009

Growing Pains: How Should You Price Your Photography

While reading some information on photographer's Rod Evan's Facebook page, I came upon this link to an amazing article about how portrait photographer Jodie Otte of Black Horse Studio answers the question: "How should I price my photography?" Otte was a guest blogger on the MCP Actions Blog. I found the ideas both right on and also worrisome because if her model is correct, then I am a long way from ever being able to be a full-time professional photographer. I'm definitely one of those kind of people who worry about charging too much and making sure people can afford me, especially when I - along with everyone else - is reeling from the economic downturn. But Otte carves away emotion and gets back to the practicality of what is essential for having a successful business....and that means you've got to set your prices to make a profit!

Here is Otte's advice:

As a general observation, I am shocked at the low prices of a lot of photographers - especially new photogs, and I hope this isn’t offensive to anyone, but what is more important than your photography, is your business skills when running a business. This industry is completely saturated with underpriced photographers - many talented. Think of this — the stats are something like 95% of all photography businesses fail. What makes you feel that you should be in that 5% that does not fail?

Business sense, that’s what. Have you marveled at a local photog who does really boring work, yet they are always busy and their prices are more than yours? Why is that person a success and you can barely bring people in even though you are always hearing how everyone loves your work… It’s because he/she knows how to run a business.

Everyone asks - how should I price? so and so has $25 8×10s, so I can’t go higher than that. Okay, so research all the local photogs and find out what they are charging. Use that as a guide, but understand, many photogs do not have their pricing on their site, and there is a reason for that. You need to price yourself for profit. If you are new and still portfolio building, something that is great to do is set your prices based on turning a profit (as I will describe below), then sure, discount your prices and be CLEAR that you are portfolio building. That way, when you are done PBing, you can return to your already advertised REAL prices, and you won’t make your previous customers angry because they knew at some point you would move on to them. The problem with starting too low is when you start realizing you aren’t turning a profit, and you start to raise them, you are going to be without business because people will get angry with you for raising them. So be honest and upfront and clear about what exactly is going on, and you will continue to have clients who have built a relationship with you and understand what’s going on. Don’t drop a bomb on them, by any means. Once they have invested with you, they are invested, it’s a relationship, maintain it.

Another thing - if you do not need the money right now because your spouse is the breadwinner, now is a GREAT TIME to build an exclusiveness about your business. You don’t need the money, so why not price yourself to make it well worth it. So you get a few sessions a month. You are PAID WELL for your time away from your family, and then as word of mouth builds, you are viewed as a higher priced, more exclusive photog - and that can be quite desiring for many crowds.

The thing about running a business - you have to take emotions out of it. By emotions, I mean “I want people to still be able to afford me” “I don’t think I am good enough” “I’ve never done this before” “I can’t afford me (I beg to differ - how much did you spend on your living room furniture? $3,000? How much did you spend on that big screen TV with surround sound? I have news for you - pictures last longer and are more important in the longrun. Clients will not value your work, if YOU don’t value it. News Flash: WalMart’s a la carte pricing is $50 for an 8×10. I’m not talking about the coupons. I’m talking about for one of those crappy ugly 8×10 a la carte backdrop pictures of your child with a fake Christmas tree, where you only got 15 minutes to get your child to smile printed on substandard photo paper is $50. You offer WAY better than that to your clients, don’t you?

When I see some charging $200 and that includes all the digital files or even some of the files or even a $100 print credit with $20 8×10s, I cringe because that photographer can be making less than minimum wage and has no idea.

Do you have a reason for pricing the way you do? Do you just toss it out there and hope for the best? Or do you have concrete logical reasoning for why you are pricing the way you are. You need to take your EMOTIONS out of this and think like a business owner. No business owner should be making less than minimum wage. You really need to think about business management (classes would be a great idea).

So how do you price? Work backwards to figure out what clients need to spend. So many people want to skim over this because they are “arteests” and think it’s all about the talent, not about the pricing structure. WRONG! Artists work from emotions, and you better step outside of that for a moment and keep those emotions and business separated, or you will BE a starving artist who will one day look back and say “my kids are grown, where did the time go? I sat in front of that computer for hours for less than minimum wage… I wish I had that time back with my kids….” No one looks back and says “I wish I would have worked more away from my family….”

Ask yourself how much you want to make per year. My personal goal is always well into six figures, but I’ll back this down to a more reasonable goal for newbies.

Okay - let’s say you want $50,000 SALARY for a full time BUSINESS OWNER. When figuring this out - what do you value your family time at? $50 an hour? $100 an hour? $10 an hour (REALLY???? You may regret that one day years in the future - don’t set yourself up for regrets) Don’t laugh - some people do this for $10/hour and then pay a babysitter $5/hour. It boggles my mind.

Work backwards to figure out your pricing structure.

1. Income desired is $50,000. Again, you are a business owner, you don’t need to be working for pennies. Add 35% to that (that’s for your taxes as a sole proprietor). Yes, you need an additional $17,500 to cover your taxes. So now your income has to be $67,500 as you are going to owe Uncle Sam a nice chunk.

2. Add your expenses to your desired income - $67,500 plus $25,000 equals $92,500 -Don’t think $25,000 is a lot for business expenses. That’s not a lot at all. Last year alone, my expenses were $70,000. Expenses means everything - gas money or mileage, office supplies (paper, ink, packaging, file folders, pens, pencils, envelopes, sticky notes, light bulbs, batteries, whatever….etc.), office equipment (computers, software, actions, mouse, keyboard, file cabinets, books, internet etc. etc. etc.), studio supplies and equipment if applicable, portions of gas and electric bills, telephone bills (if working out of home, it’s portions of this vs. full amounts if you have a studio) photography supplies and equipment (cameras, lenses, memory cards, lens cleaning supplies, flash, strobe, softbox, camera bags etc. etc.), packaging supplies (bags, boxes, bows, tape, labels, etc.), postage, props -yes, all those baskets, newborn hats, wraps, backgrounds, chairs, stools, etc., marketing supplies - print samples, business cards, etc. oh and your business insurance. Do you have studio rent? Then think much more than $25,000 as expenses. The figure I am using is based on not having a studio - and I am being nice, most with even part time businesses have higher expenses than $25,000.

3. So you need to bring in $92,500 in sales every year to get your desired income of $50,000. How do we go about that? Okay, ask yourself - how many weeks per year do you want to work? Let’s say 48 weeks per year (don’t forget, you may have your kids home for spring and winter breaks, etc.. $92,500 divided by 48 equals $1,927 per week. You need to have $1,927 per week in sales.

4. How do you want to achieve that? How many clients do you want per week?

If you want 2 clients per week, you will have to have two sales of $963.54 (if you are selling albums/prints, make that $1,163.54).
If you want 4 clients per week, you will have to have four sales of $481.75. (if you are selling albums/prints, make that $681.75)

Umm… okay, why did I add the parentheses? What are your COGS (cost of goods sold). If you sell an album, some prints, and a canvas, you are looking at COGS of being around $200 per customer - factor that in.

A little note, how many hours exactly do you work for your client. Hmmm… An hour in transit, 2 hours in session time, 4 hours proofing/editing, an hour uploading and doing office tasks, 3 hours between phone calls and scheduling and emails and questions from client and client sale finalization, packaging, ordering etc.. So you did 10 hours for that client? (we didn’t include other things like marketing and bookkeeping and in person ordering, but I’ll skip that for now - challenge: log in while you work on a client, EVERYTHING you do related to that client, I bet it will be close to 10 hours or more per client). Well that’s not bad, that’s about $50/hour toward the business for option one, having two clients per week. That’s half of what plumbers make, though… and guess what, your PICTURES LAST LONGER! :laugh: … but option two puts you at about $25/hour toward the business. Not TOO bad either - but you SHOULD be making at LEAST $50/hour as a BUSINESS OWNER (although myself and others would tell you as a business owner, you should actually be making more like $100/hour because you don’t want to forget having retirement, college funds for your kids, etc. and as a business owner, you should accept nothing less in my personal opinion or you may as well just work a job for someone else that is less stressful than dealing with the public). I challenge you to plug in lower numbers in this equation as well - let’s say you only want to make $20,000 per year - I’ll touch on that at the end. Although don’t forget, life happens, and you may find yourself in a pinch one day to where you may actually need an income to support your family on your own…. which begs to go back to - what do you value your time away from family at? One customer takes you away from your family for 10 or more hours. Is that only worth $250 to you? Not to me personally…. but to each his own.

5. Back to what do you price? I personally like to work by worst case scenario so I figure at the very least, I know I will have 2 clients per week, even during slow time, so that means I would want to guarantee two sales per week at $1,164. So therefore I would price my work so that every client would spend at LEAST $1,164 which means my lowest print package should be $1,164 (or $682 if going to take on 4 clients per week).

Personally, this is just my opinion, but I don’t think a business owner should be making less than $50,000, but that’s just me. You should network with some other local BUSINESS OWNERS (not photogs, but business owners) and see what they are making. Want to work with lower figures? “Oh I just want to do this part time for fun… $20,000 is plenty for me to have part time…”

Okay, let’s work with lower numbers.

Goal: $20,000 Add 35% to that for taxes equals $27,000

Expenses: Add all your expenses up - I’ll be nice and pretend you aren’t spending on all those group buys, trendy items, and you don’t have any SUPER expensive equipment, so let’s say your expenses are $15,000 per year (do you REALLY think that is high? I don’t - not at all - see above list and I challenge you to REALLY evaluate what you are spending every year - most photogs are spending at LEAST $20,000 per year in expenses if not much much more. So $27,000 plus $15,000 equals $42,000

So for you to make $20,000 per year, you need to have sales of at least $42,000

$42,000 divided by 48 weeks per year of steady work equals $875/week in sales without cost of goods sold factored in. You need $1075 (including COGS) per week in sales to have an income of $20,000 per year - so if you are only taking 2 clients per week, you need sales of around $640 for each client. Just keep that in mind…

Also keep in mind, if you are taking on 4 clients per week so that your sales need to be much less HOWEVER when taking on FOUR clients per week - you are working 40 hours per week - that’s FULL TIME for $20,000 per year… umm… That means that you are working a full time job for $10/hour - your time away from your kids is valued at $10/hour? You are missing 40 hours per week of your kids’ lives for $10/hour as a BUSINESS OWNER. Makes you think, doesn’t it?

I just challenge all new business owners to really look at their figures and use these simple concrete ways to project your income, to define your income, to price yourself out, and actually structure your business as a real business, and operate as a business owner who knows basic business management 101 now. Work your business proactively with good reasoning behind it. Remember, IF WE DON’T VALUE THIS INDUSTRY, NO ONE WILL.

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