When it comes to being a creative, finances and math are not the first traits that come to mind. Let’s be honest, you became a photographer because you love making beautiful images. We all did, but the reality is, we are also entrepreneurs. Understanding how to successfully run a small business is crucial to creating a sustainable and profitable business. At the end of the day, it takes money to run a business and the more money you have left over, the more profitable your business is.
Profitability is the lifeblood to any business surviving in the long term. In order to maximize profitability, we need to understand the costs associated with the production of our final product and service.
As a professional photographer myself, I can honestly tell you that it took me two-plus years to figure this out on my own because no one was teaching this stuff 15 years ago. It was very taboo for educators to really push on understanding and maximizing profitability in the photo industry. Today, I believe it’s 101 for any business owner to understand these things before putting their pricing together.
By definition, cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the goods. It excludes indirect expenses, such as distribution costs and sales force costs.
Clear as mud? Of course. So, what I’m going to do is break it down into simple terms and concepts that I have used for the last 15 years to build a very profitable and successful wedding and portrait studio.
First, let’s get rid of some baggage and some really bad advice that people have exposed over the years. The worst piece of advice I’ve ever seen taught is the concept of a multiplier being added to your costs. So, in this model, you take the cost of a product—for argument’s sake, let’s focus on an 8×10—and you add a 3x multiplier to come up with the price you should sell this for. So, in this example, most of us can get a professional 8×10 for about $2 to $3. If we were to use this horrific business advice, we would price an 8×10 at $6 to $9 per print and believe we have done our job.
This is the worst possible thing you could do for your business and one that is going to ensure you fail. Why? The reasoning should be obvious. The cost of the print is merely one cost in producing that print. Your time, travel, editing, marketing, computer, electricity, etc. all go into making that print. The mere act of printing is one piece of the puzzle. In fact, we could argue it takes me the same time to create an 8×10 as it does a 20×30, as it does a 4×6. See my point? We have to consider more than just the cost of the print. This is where photographers often go wrong.
If you’ve read this far, you are making me smile inside. It means it’s clicking, but you are thinking, “OK Sal… give me more, what’s next!”
Well, let’s chat about this a little more to get rid of some common misconceptions that get in the way of profitability. I’m a huge believer of package-based pricing. A la carte pricing is a very difficult way to succeed in photography. It ignores the fact that we are not selling a single product that is mass produced like, let’s say, a water bottle. We are selling a creative product that takes years of experience, editing, creativity, etc. So, in a nutshell, a la carte pricing ignores our creativity and turns our art into more of a commodity product like a water bottle and that just won’t work.
Instead, I believe in pricing my a la carte products so high that it makes no sense to come in and buy one item. I would rather you buy a bundle. This way I can add value to the package with things that have higher profitability like slideshows, digital files and web galleries. This is how you maximize profitability. When it comes to COGS, an online gallery costs us pennies on the dollar compared to, let’s say, a 20×30 framed metal print. However, an online gallery might have more value to a client. And in all honesty, it costs you little to nothing. This is where we can increase profitability. Adding items like this to a package will add more value for the client and allow you to charge more all in an effort to drive down your COGS at a package level vs. an individual item level.
So back to the concept of COGS. Where should you be? If you were a large corporation, they literally calculate every item that goes into producing a product down to the square footage in the warehouse or the tape used to seal a package. Well, we are photographers, not accountants with an endless amount of time to figure this stuff out. We need something a little simpler to implement in our everyday lives. And after doing this for 15 years now and a degree in finance, I think I’ve found the perfect number to work off of.
For our photography studio, we use a package-based sales system and try to ensure our COGS for any given package is at about 15%-20% MAX. So, what does this mean in
lay terms? Here is a breakdown of what’s included and what’s not.
Package A = price to customer is $1,000. This means that with a COGS of 15-20% I can only have products in the package that have a hard cost to me of $150-$200. You can break this down however you like. Twenty 8x10s, one 30×40 acrylic, etc. as long as these costs do not exceed $150-$200. This is not an article about building packages, rather it’s about ensuring the packages you do build are profitable.
You must be thinking, “Wait, what?!?! It’s that simple?” I hate to break it to you, like most things in life, the simpler you keep it the better it is for your mental health.
Now, it’s important to understand this number and what it represents. I’m only accounting for HARD COSTS of product. My time, marketing, advertising, rent and electricity are not included here. Why? Those costs can be near impossible to apply on a shoot-by-shoot basis. You would have to pay someone or spend an exorbitant amount of time trying to calculate these things for little to no gain when it’s all said and done.
What I have found is that if I keep my hard costs of goods to about 15% this gives me 85% to work with. This is where the remaining costs and profits come from. This allows me to have money for rent, electricity, hiring employees, marketing and most importantly, paying myself a salary.
I hope this sheds some light on how to create a profitable business and pricing model that will yield the most for you and your family. Take some time this off-season and dissect your packages and your costs, and plan for a successful and profitable year. We all work hard enough as it is, let’s make sure we are maximizing our profits!
