ANN MONTEITH'S BUSINESS FAQ's

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PRICING

Q. When you are determining your costs for pricing individual products, is it O.K. to apply these costs to your session fee instead of to the item you are pricing, such as an 8x10?

A. Here’s how the session fee piece of the puzzle fits into pricing your photography for profit:

  • Start by calculating the Cost of Sales for all items you sell.
  • Next, mark up the item by your appropriate mark-up factor (3 for a home studio / 4 for a retail studio).

Example: My COS for an 8x10 is $51. Marked up by a factor of 4, I need to recover $204 from my client in order to be profitable.

With a session fee of $100 and an 8x10 cost of $125 ($100 + $125 = $225) I am more than profitable.

If I wanted to charge a smaller session fee (say $50), I would have to sell at least one additional  8x10 pose in order to spread the cost over 2 units. 

Remember: The first unit of sale bears the biggest cost burden: So you need to sell multiple 8x10 poses from the session or a larger print that has a better profit margin than an 8x10 in order to be profitable. 

Consider your session fee to be part of your sales strategy: It helps you to be profitable at a lower per-print price than if you had no session fee. You'll drive yourself nuts if you try to apply costs to your session fee. It's neither helpful nor necessary . . . thank heavens!

Q. If I'm purchasing more expensive packaging, such as a shopping bag with my logo that clients are likely to use . . . which is good advertising for me, should I account the expense to Cost of Sales or to advertising?

A. The guideline for determining whether an item is a Cost of Sales expense or a General Expense item is this: If you have no business, you have no Cost of Sales. Since packaging materials are required only if you have a sale, then ALL packaging materials are accounted as a Cost of Sales expense. Even if its purpose is advertising, it's better to account the expense to Cost of Sales, which will insure that this cost is included when you are pricing. In that way, the client will pay for the bag, and as a COS item, it is marked up; thus there's more profit for you. If you account it to advertising, the cost becomes a drain on your business, and there is no pricing mark-up. The bottom-line difference is huge: In my opinion, there is nothing sweeter—or smarter—than having clients pay for your marketing!

Q. How do you justify such high print prices now that photographers can do the printing themselves?

A. I've heard this question asked many, many times. In fact I've been told by numerous photographers that they are reducing their prices — to be more competitive — now that they can do the work the lab used to do. My response is always the same: This makes no sense, particularly when you consider that digital images typically are more expensive for you to produce than the film variety. Inevitably, I get this argument in reply: "But it costs me only a few dollars for the paper and ink. My lab charges were so much more."

Well . . . in my studio, my husband shoots film, and I shoot digital, and I can prove that it costs more for a digital 8x10 than it does for an 8x10 produced using film — whether you use a lab or not — simply because it takes more TIME to produce it. Whenever a photographer takes on production work . . . or when you hire someone who does production for you . . . you must establish a time charge when pricing.

The figures shown below are from an exercise I did recently for a Studio Management Services class. It was based on charging $30 an hour for production time. This is a very reasonable figure, as if you have an employee doing the work, you want to make some profit on that employee's work; and $30 an hour is the rock-bottom figure any owner should be charging for doing his or her own production work. Owners can simply make more money doing work that will grow the business. Production is merely a by-product of studio growth, so you need to put your efforts toward the things that actually propel growth.

COSTS FOR INITIAL 8x10

$ 7.50 . . . Acquire & backup 50 RAW+JPG images (15 min.)
$ 2.50 . . . Import images to ProSelect (5 min.)
$ 20.00 . . Prepare 25 images for presentation (40 min.)
$ 5.00 . . . Retouch 1 image for 8x10 (10 min.)
$ 2.50 . . . Produce hi-res image in ProSelect (5 min.)
$ 2.50 . . . FTP image to lab (5 min.)
$ 2.50 . . . Backup finished print and file order (5 min.)
$ 3.00 . . . Lab cost for 8x10 print
$ 2.50 . . . Lab shipping
$ 1.00 . . . 8x10 mount
$ 2.00 . . . Digital media charge
$51.00 . . Total Cost of Sales (excluding packaging)

Note that only $8.50 of the costs for a first 8x10 are "hard costs" for the goods that go into the portrait. The remaining $42.50 is made of of time charges billed at $30 per hour. Everyone's workflow varies, so you need to work out these costs and charges for yourself. (For the record, I believe most studios are better served when they outsource their work to a lab. But that's a subject for another day.)

The premise used for this 8x10 costing example is as follows: All presentation and production accomplished in ProSelect, using Ron Nichol's Production Retouching Palette controlling Photoshop. Production time charged at $.50 per minute or $30 per hour. No time charge for RAW conversion or color correction on the assumption that RAW+jpg mode allows images to be viewed in jpg version, converting only the RAW image that is selected for the 8x10 before it is retouched.

So what should the 8x10 price actually be?

Studio Management Service's 2006 Benchmark Survey recommends that home studios can be viable at a 35% Cost of Sales (requiring a mark-up factor of 2.9); however because studios in a retail location typically incur higher overhead, these business need to operate at a 25% Cost of Sales (requiring a mark-up factor of 4.0).

At a $51.00 Cost of Sales, here is the math for the two scenarios:

Home Studio: $51.00 X 2.9 = $147.90
Retail Location: $51.00 X 4.00 = $204.00

You can spread this price out between a session fee and a print fee, or you can spread it out over numerous prints in a package, since duplicates and additional poses do not incur all the initial costs. That's your choice. But what won't work is to charge only for the hard goods and not for you time. If you do so, you're likely to have more business, because your work will have a very appealing price; but the business you get will not be profitable. In short, you simply won't be able to pay your bills or take out a salary. You'll have the rough equivalent of a very expensive hobby. Remember: Time is Money . . . even for photographers. Charging for your time is the ONLY way you will be compensated for your time, talent, and business investment.


SELLING

Q. In my children’s portrait business, my clients (upscale moms) will pay on average $800-$1500 with me. However, I often hear comments like “my husband’s gonna freak,” “My husband’s probably going to divorce me,” “I’d better pay out of 2 different checking accounts so my husband doesn’t find out I spent this much on pictures,” and “When I told him how much I spent, he thought it was outrageous.” The feedback afterward, however, when the  husband finally sees the photos or canvases is very positive . . . he loves them. But I’m unhappy with the negativity attached to the experience for my female clients, both in anticipation of telling their husbands and in enduring their husbands comments until he sees the photos. I know that it’s much easier for a woman to make an emotional purchase than it is for a man, but . . . can you suggest any language I can use/pass along to my clients to help offset this husband sticker-shock?

A. I can certainly understand this photographer's upset and the negativity being directed at her business by a "third party" — in this case the husband. My experience has been to get the husband involved from the beginning if at all possible. If he participates in the design session, he becomes as committed as the mom. And typically he's the one who ultimately will defend a larger purchase. But I also wanted to ask Houston photograph Carol Andrews, my good friend and fellow Studio Management Service consultant, for her viewpoint on this, as I consider Carol to be the "Female Finance Diva." Here's what she had to say:  

"I educate my clients IN ADVANCE of the photo session to help identify a budget for "them." This gives my clientele a security level. Generally, I will ask the female client is she is comfortable going out to buy a new couch or china cabinet without her husband. If she says yes, then I'll say great, so he'll be comfortable with your decisions without being present. If she says no, I'll suggest that its very important that he be involved in the decisions, and won't feel left out and resent HER decisions, so we'll find a time when he can be present also. I'll tell her that I want to respect their relationship, and do what works best for them.

"It works beautifully, no problems. Very smooth. There is a problem only if Dad gets sandbagged with a huge surprise on the Visa bill. How would the wife feel if Dad goes out and buys the biggest screen Hi Def television, has the furniture moved and the monster media center installed? Stand in our customers shoes . . . 

"The entire key is to handle the situation IN ADVANCE . . . get everyone on the same playing field, with the same rules. Stanley Marcus used to have a sign on his desk that said 'no surprises.' Our businesses run much more smoothly with that philosophy."

Great answer Carol! If this wisdom doesn't work with your client, then let her give you a "subterfuge payment." After all . . . it's her marriage. Thank heavens we're not responsible for this issue!


PARTNERSHIP MARKETING

Q. A local dentist has allowed me to decorate his offices with my photography. He has a new baby that he would like for me to photograph. I'm not sure whether I should offer him the portraits at my cost or charge him full price, since I'm already doing him a favor by decorating his office. I'm afraid that if I give the work to him at cost, it's devaluing my work.

A. I strongly recommend that you give the dentist the portraits of his child. When a retail store owner or a business professional allows you to hang your work for qualified prospective clients to see, the value you receive for this exposure is priceless. Yes, you are decorating the office, but the relationship you have established is far more than a business-to-business one: it is a friend-to-friend relationship. Keep your partnership marketing friends happy! The more you do for them, the more they will do for you! Every really successful photographer I know who credits marketing partnerships with their success will tell you the same thing.

STUDIO MANAGEMENT SOFTWARE

Q. After years of running my business using Quickbooks to keep track of the financials and ACT! as my contact database, I’ve decided that the time has come to switch to a studio management software package that does both functions AND is also geared towards photographers and marketing. I know you endorse Successware, and was wondering if you have a comparison of that with some of the other products. Why Successware over other products?

A. I recommend SuccessWare because it is the industry's ONLY fully integrated financial and business management software that encompasses all of your studio business needs—business and marketing planning, product pricing, scheduling, client and prospect tracking, order tracking, client management and remarketing, bill paying, payment plan management, and complete financial management and reporting. Everything you need is always in one place: no double entries, hunting for cheat sheets, etc.

I've lived through the days when you had to do daily hand entries and then spend three days each month to hand-create your financial records. Things improved with computers, but without SuccessWare you have to work or in a minimum of three different applications and create your own personalized reports, and you still can't get all the information SuccessWare provides. With SuccessWare, once you enter data and pay your bills, reports are automatic, and this is the way it has to be for busy, successful people.

SuccessWare is set up according to industry standards for financial management and accounting, making use of managerial accounting, which provides data that is consistent with tax preparation needs, but also provides information that allows you to make informed decisions throughout all aspects of your business.

When you look around and see who's making money in this industry, it's not a coincidence that most of them are SuccessWare users.

You can learn a great deal more about SuccessWare by going to their website (SuccessWare.net). You'll find all kinds of resources—from video tours to a free download demo. Just click here to take a look.