In part one, we covered how to figure out what it costs you to do a shoot. Key to this was having a business plan with accurate numbers to know what it costs you to be a photographer each year. With this post, we will delve into retail 101 and show how to figure out how to see if you are making money and pricing your products and services to break even and make money. This means learning some math and vocabulary. I know, you are a photographer and not a mathematician or English major. Try to understand some of this math and vocabulary as it is well worth it. First the vocabulary.
Cost of goods sold (costs) – The cost to you for the products you purchase to sell to your customers. This is often reffered to as COGS.
Markup Percentage – The percentage you earn with each of your sales in reference to the sale amount. If your markup percentage is less than 15%, you probably don’t have a viable business.
Price – What you charge your customers for product and services.
Margin – The difference in price and costs of a good sold expressed as a percentage. Most people mistake this as being Profit, but this doesn’t include all your costs.
With this out of the way, let us start talking about a simple 8×10 print that costs you $12 to print professionally. This means our COGS is $12. We want to make 100% on everything we sell to recoup our costs. That means our markup percentage is 100%. I have chosen this number to be easy to work through the problems (you need to choose your own based on what you learned in part 1). This means the price should be $24.
Price = (cost * (1 + percentage)) = (12 * (1 + 1.00)) = $24
Margin = (Price – Cost) = (24 – 12) = $12
Going back to our original situation listed in Part 1: A lawyer’s office comes to you for head shots. You find out that they heard about you from being a member of the local chamber of commerce and saw some of the work you did for XYZ company. They want six head shots taken a their specified location downtown. How much do you charge?
If the lawyers only want six 8×10 images, that means you will make $72 of the $430 needed without a sitting fee or you need to charge $358 for your sitting fee for this job. As a business person, you need to decide if they are going to purchase more than the six 8×10 images and if so, then you can reduce your sitting fee to a lower amount. For instance, say they wanted a package of images mounted and framed for the office and your margin on them was $680. In this case, you wouldn’t need to charge a sitting fee at all and you would clearly be making a profit on your business with the law firm.
If you create packages, your margin percentage will be lower but you will be making more money (higher margin) from with the package increased dollar amount being sold. The reason for this is like when you go into a store and buy something on a buy one get one half off. Once you purchase that first item, wanting a second item goes down and takes more to convince you to buy it. To get you to buy the second item, they lower the price of the second item. In doing so, the total margin percentage goes down, but the total margin amount goes up. As a practice, many people use packages to encourage the behavior they want customers to take and increase their margins. By doing this, you can encourage your clients to purchase higher levels of packages and make more money on individual sales as a photographer. Just remember when you package items together, you must be making a high enough margin to cover your expenses related to the products you sell. If you don’t, you are paying your customers and losing money.
I hope this gives you some idea how to create a sustainable business for you as a photographer. Every trip and click you make costs you money as a photographer. You should be paid for your efforts where you at least break even. Appropriate pricing depends on you creating an accurate business plan and knowing your costs as a photographer.
All information and images are ©2013 Don Krajewski on this post.