Cost of Sales
Looking at those costs again, you've got expenses like a camera props overhead, some of you are thinking maybe I want a studio I want, you know, that kind of thing, but then there are cost those our fixed costs there, they're changing if if you have a a new studio and you hire an employee and you have utilities and rent payment in the internet, access those air staying the same, whether you have one client or no clients, ok, so we've got to be really careful that we know our numbers before we jump into some of those commitments, and I know there are a lot of you out there your dream is to have a studio, and I can tell you guys, you can do that if you want that you don't have to do that to be profitable, especially if you do the branding and all the other things were teaching the key is to understand those numbers. So actually, I'm gonna pull up a spreadsheet that I have on here. So talking about having financial management software in doing projections, these air your income at the top...
and your expenses on the left, this is a sheet that you should all be able to look at and be super comfortable with. I described what it made up some numbers for a random company ok, and again I could spend hours on this. I love this kind of thing, but I just want you guys to see a high level of how you're making decisions all of these decisions on the bottom below expense those are expenses, rent, utilities all of those kind of things up at the top. You see the one eighty nine number that is this projected business's income. The second line is what we call cost of goods sold. Okay, this is where we spend money on what it takes to please our clients, the things that they buy. Okay, so this would be paper from our lab. It would be framing it would be any products that they're paying for. So if we don't have any clients, that number would be zero. Look at it that way. Okay, so when we talk about pricing this afternoon, we're going to be talking about that phrase cost of sales cost of goods sold. Everyone should know off the top of your head what your cost of goods sold number is professional photographers of america. People has a study. If be a member, get this study it's a benchmark study, and what we do is we can compare our numbers to their study to see what is the average studio doing what is the best performing studio doing what we know is an industry and and again, these air just ranges, but for a healthy business cost of sales wise, you should be between twenty two and twenty seven percent. Ok, so you guys at home add up all the money that you're spending on producing your products and look at what you're charging for it, and it should be twenty two to twenty six percent. But where most people get into trouble is they're not including their time they're up all at night, you know, back in the film days, it was easy because we paid fifteen dollars for an eight by ten, it was easy to calculate cost of sales now that we pay two or three or what, I didn't know what we paid two or three dollars, but we're spending, you know, two hours, retouching and editing and doing all this stuff, so we have to put a value to that, and that number needs to be reflected in there, and I know again I want this to be very high level because it's not something that's easy to teach in a group I know people are sitting there with their heads spinning a little bit, like in the cartoons, the birdies that go around their head, and I think we will probably be offering a more comprehensive course. At the joint marketing later this year where we go through and we teach people through this whole bump process, but really getting tactical in the numbers part for people at home who are saying hold my hand, so stay tuned with us, you know, be a part of our community at the joy of mark neto learnt that but what I want, what I want you guys to know is cost of sales and understanding that and we actually have a student of ours who has gone through this process so let's bring gen out. Neither is you're gonna feel better when you meet jen let's, do a little squeeze I wake up every day at the end of our little class. So jen robyn, it is from not too far from here in vancouver, vancouver, south, and in washington. She got up early in trucked here for us, but we wanted to bring general because she has been through this process of having to learn cost of sales. She's been through some of our programs and felt like many of you and many of you at home are feeling like I have no idea what she's talking about the square root of seventeen divided by forty seven times nine and then highlighted with yellow marker, and it is scary that way, right? Yeah but use come out the other end you saw the light at the end of the tunnel, you've got down and you figure this out. And how how did that go? And how do you feel now? Looking back on all of it? Well, it came from doing sports photography, which I still do, and so numbers was really difficult for me because I kind of jumped in to the business, not really even knowing what I was doing and high volume and we price for that it's totally different because you don't have the amount of overhead to worry about. And so coming into the studio a couple years back when I very first started it, I didn't get that, and so I was thinking, well, I need to price myself higher, obviously, than my force photography, but I didn't realize how much higher, and so I just kind of started with it. What I thought was a good number came up with a couple packages, and then I started realizing that I'm selling these packages and my bank account is dwindling very quickly, and I'm spending more than I'm making. And so when you had this coaching community, I found out about it, I just graduated from a minute a year last august and I just it just made sense that ok, I've got to really hunker down, I've got to figure this out because I can't keep my studio afloat forever off of the income that I'm making from my sports, because then I'm not making any money at all, you're doing many where they're not making your working here to pay for this exactly what you want well know, exactly, and so and I wanted to work less, and it said, I'm working, I was working more because now I'm taking on two separate businesses, and so you you gave us a spreadsheet, the cost of goods, and I never really understood the concept of the fact that yeah, an eight by ten million that cost me two bucks on dso if I hypothetically charged client thirty dollars, on making, I'm making twenty eight dollars, right? But it wasn't like that at all, and it wasn't until I actually started sit down and go through the papers, and I love it because you guys have a formula it's not like I had to come up with my own formula and do all of this stuff the next cell that add all the columns together and figure it out that was kind of I was worried about that very intimidated by that, but when once I got in there and I just started figuring out how much time to actually spend on, and I have different cause for different things, like I do fairy pictures and their many sessions and there's smaller and the packages are different, and so I have cost of goods for that versus customers for, like, when I have ah, an actual full session in the studio, a senior or a wedding or a family, and it just started to make more sense that ok? So right, I'm only paying two dollars, but then I'm also spending time, and I'm doing consultations that I'm doing this, and I'm doing this, and that all adds up and, you know, if you do any kind of framing or albums or in the time you spend on that and before you realize that you're like, ok, well, now it really makes sense to charge one hundred dollars for an eight by ten versus, you know, thirty dollars on then you know, you're starting to then understand that there really can be a profit up, and then you understand how to kind of, like, do with the clients who are price sensitive, you know, because you know that you can charge that way because you know what, what you're putting into it, and you could feel confident about it. I think we all it was brought up yesterday the guilt that we have of what I'm doing, what I love and I only paid three dollars for this so how can I possibly charge? And then I think that's what learning these numbers and especially cost of sales does for you it made you say ok? And you're a great example to because you have three different ways you're doing things you're doing these very things and it's totally different I mean, if you're building a sea said or you're driving three hours and where whatever it is you're doing, you have to account for that and I've done these exercises I have a good grip on it, the cost of sales and I look at that number in my report each month, but I haven't gone down into each product and I do that every now, you know, every couple of years and eyes like we're totally spending way more time than I thought things have changed and we start looking at it and you go my gosh, when I look at how much time I spent, I don't feel bad yeah, I've become a better sales person, I become more confident and and all of a sudden the right clients start coming and they start referring us instead of us saying, well, it's thirty dollars for anybody tend to know he only paid too dollars way all kind of have that guilt that we wrestle with and I think this frees us from that to understand, especially when I mean, as artists were kind of more empathetic people and so and you talk about your client, you know, who's your who is your client and I am definitely not my client because I'm bargain shopper I look for the bargain price is, you know, and so I when I go to some place and I'm I now appreciate other businesses more because I understand what goes into it and so yeah, it is it's really eye opening it really is and it's really not that scary it's just got to do it and just carve out time and make it happen because you'll really find it. It does benefit you just jen. One of the things that you mentioned is that you have different costs of sales depending on the different lines of your business and what you d'oh. But this isn't something like, you know, sarah mentioned before and jerry mentioned of like your income and your expense that you need to be looking at all the time you do this once and you come back and you do it again, you know, if you offer a new product, then you need to look at it for that, right, but you do the work once and again, it empowers you and all these other areas of your business to then be able to be a better sales person to then be able to not have to apologize for your prices to then, you know, I understand that you know what? I am in this to make a profit? I'm not in this is as a hobby anymore. It's fun, I love doing it, but I don't want to pay somebody to take for the privilege of taking their photo. Yeah, because that's, where a lot of people are right now, they're paying someone for the privilege of taking their photo, and so when you get into your numbers and you understand your numbers and again, it doesn't have to be this big, huge, scary thing. You do it once you get your arms around it, and then you're good, get up a keeper, get a local bookkeeper given accountant, get a side job to pay to invest. You know, I talk about this, some of these certain things that you have to do, like getting a professional designer for your logo find the money somehow to get that have garage sales, I don't care what you have to deal, this is that same kind of thing get a bookkeeper to sit down and explain this, you ask them what teach cost of sales to me they do this stuff every day they should know it in their sleep they should be able to do it in an hour two hours and we're not talking talking with for them for date, right? And studio management services as well that is great also helps you out with this too. So if your people remember, you can look at studio management service it's been re sources like jerry a p w d labs where what I love about what he does is instead of an employee cost where you're paying this employee, whether you have business or not he's a cost of sale where you don't use him unless yourself something it's included in the price and then you don't even feel bad you're done boom! You know, you know you can pay him versus the scariness of bringing on a full time or even a part time employee and weathering the seasonality of our business so the compatibility of personalities you could get a big one when you're trying to I use jerry out from my sports for my sports, everything they do a very good job, so little plug for jerry yeah, I'm very happy with our service is us and it's very affordable yeah and you especially you're talking sports photography so that that charges yeah, that lower margin and yeah it's very affordable and they do a good job that's great and what I love is they get to know you so they do but but yeah, I wonder can I do you have questions for us for for jen are one of our fabulous clients you have a question go I think I got all confused between cash flow and projections okay, so I just is cash flow part of projections or separate that's a great question so I build a spreadsheet that has twelve columns so it is the top instead of saying january through december says january, february, march, april may and I go through and I put all of my projected expenses so I know I have rent I have employees I know what I have or I guess for you guys knew I guess and then the top one is my income so I look at last year and I say ok, last january did x this year I'm traveling three weeks I probably can't do that much sewing project it lower cases that I look at the bottom and I see my what money is left so it's this minus this gives me this without using any big words just simple what you bring in minus what you're going to spend that number is your cash flow okay, so I can look down the line because we had some big like when you have a big expense, something that comes in, we know okay, way no our years going to rock, but we're going to have a few months of low cash flow, so I'll tell my team like, if we could put off purchases if there's something day, we're gonna have to wait because there's just no cash flow and I don't want to take on debt. Yeah, and it doesn't mean that your business is it healthy, it doesn't mean anything along those lines it's just about being aware of when your expenses hit, so you've done, you know, event jerry's example of the event was great because you know, you're going to have a lot of costs if you're doing a wedding and you know that you're going to, you know, be producing a very expensive album, and maybe you've gotta have pay out a second shooter and, you know, maybe you're coordinating a lot of things. You're going to have a lot of expenses for that particular gotta rent a couple wins is maybe, you know, you're gonna have a lot of expenses for that particular wedding. So you've got to make sure that you get some of that money up front because those expenses they're going to hit the next month and if you if you put all your eggs in that basket you can't afford to pay the lab you can't afford to pay the album company you can't afford to pay these people so that's why it's so important to get your arms around that and it's basically just all of this we do it in our personal life we do it our personal and I'm getting a christmas but my husband's getting a christmas bonus in december we'll have the money to take the kids on a trip right that and and it goes back to that big business plan thing I want to have the time to be with my family and go home to my family and if I'm freaking out about my business because I have a a low cash flow couple months and I don't I didn't know that it was coming that and stress and pressure to our lives and we panic we go put a half off sale on groupon to get people in so it's it's really a mind set and the reason we want these numbers is so we can build a business that doesn't kill us pretty much right yeah we don't want to be killed and I say that is the extreme like we're going to die but I mean come on I spent christmas eves in tears for the first couple of years I was in business because I was let my business take control of me and it was crazy and and I just decided I'm not going to do this I want I'm doing this business I'm giving people great artwork and great service in this amazing experience and I want to do it in the name of having a great life and this kind of information helps me do that and if you got any other questions from our friends at home, great questions today by dawn's light ask and speaking of including your time and cost of good soul is saying to include this as part of your county like inputting your hourly salary or just to have your finger on how much time you are spending no so we actually when we work with photographers it's it's again it's a little harder to explain without like some spreadsheets and things that we didn't want to totally overwhelmed the audience but we had a sign of value to the those hours I think we assigned duty do we sign thirty dollars an hour? I think so if you're if you're hiring an employee depending on what market you're in, you could get someone from ten or twelve dollars to eighteen to twenty dollars, possibly as a full time employees to come in and do retouching but then you've got we know we pay extra for employees we've got workers comp we've got all these extra things that we don't really think about and let's hope that we want to make a little more money then, if we were just someone's employees being a re toucher, so we kind of you, we assign a value of thirty dollars an hour and what's nice about that is you have plenty of margin if you need to outsource it, because if you're not accounting for your own time, you get sick. You get in a car accident when who's going to pay to get this done, you haven't charged the client for it, so we just really a sign that value. So on a high level, if you are spending two hours retouching an eight by ten at thirty dollars an hour, that sixty dollars needs to be included in the cost of that eight by ten, and you can get into the tactical of what about the editing time and this and that you have to you want to account for that? We actually take an average of so six images and average it out, so it kind of our formula is kind of complex, but there's no exact, every client is different, so you you go with averages, you create a price that sometimes you may win, you may lose if someone comes in and on ly orders one eight by ten, no matter how you slice that, you're not going to be profitable, so that's, where the whole plan and and the products and everything that thrill your client's comes in. But, yes, you want to assign a value to it so that if something happens to you, you can pay someone else to do it. This is is such a strong topic for people. And there are there are a lot of people who are have have a ton of questions, but also how is it again? How is it that you value your time? Lots of people asking that how? Stacy sixty six how do people just starting out do a spread sheet like this? And what will benefit from them if you when used, talked about setting up averages, but again, how do we start? So let me jump in. Okay? Um, start, start by, okay, so even if you're if you're part time, you're just starting your going at it full time, whatever you very much have to start by this month. I want to do this many sessions and what would make it worth my time is is maybe to make three hundred fifty dollars from each session polling number. I mean, it doesn't matter, but just you have to pull a number, you have to pull it from somewhere and have a goal. Because otherwise you're going to go into it and you're going on, I guess I'm happy I sold in eight by ten a couple wallets, right? So you want to go into it with I want to shoot this many sessions and I want to have this medicals that's what you start with, ok, to start with that just for this month, you don't even have to look the whole year out just say it's, my first month, this is one I want to do my first month, then you get open up your spreadsheet and say first month, it's october my projection for this month is that I'm going to dio five sessions, three hundred fifty dollars, so I'm projecting that I'm going to bring in, you know, that seven hundred fifty dollars, or whatever it is that's where you start with, ok, very, very simple you're starting with that, and then you say, you know, then I want to try to do that again next, but I may be going to have a couple more clients and maybe I'm going to be a little better at this, so maybe I can up my average to four hundred dollars, so I'm now I'm shooting for ten sessions at a four hundred dollars average, now I'm looking at four thousand dollars that's where you start with it, okay, so starting with that piece and knowing what you're averages are it's not an exact science you you just look at and you go ok? I think I feel good about, you know, about putting a client out there that I would feel good about my time in the time I spent if they spent three hundred fifty dollars with me or it may be three thousand and fifty dollars, it just depends on where you are, so there's no science to that, and I think on a it can go into a higher level. A lot of we work with so many photographers who want this to be their income, so let's let's, face it if you were, if you're if you have a college degree and you're coming from a career where you're making mohr or you're just new in the job field, you're going to make say, thirty thousand dollars is just a benchmark. So what's it going to take for you to do thirty thousand dollars in your photography business or if we even say twenty four easily divisible by twelve that's two thousand dollars a month that you need to bring in in your business, how are you going to bring in two thousand dollars a month? You have no idea of what your products are in your prices are anything you may look at a really low average, say, one hundred dollars or two hundred dollars, so you have to figure out how to get a cz many sessions to create that so it's all a game, it's all kind of a game and playing with numbers, and then you start working really hard and you say if I could take my average from two hundred to four hundred dollars last month, I would have made an extra five thousand dollars and it's like, ok, I gotta figure this out, I've gotta learn and that's, why I'm such a fan and investing in education, you know, we teach this stuff every single day, we break it into bite size chunks because the answers are out there, we don't have to reinvent the wheel. I just I want to hammer home one more point, because I don't think that it was made made maybe clear enough for just, you know, I like I have your things multiple times from to sink in for me, sara mentioned that best performing photography business is their cost of sales are between twenty two and twenty seven percent. What does that mean? What that means is that if you if you are charging one hundred dollars for an eight by ten, that your costs for that eight by ten and that means the lab costs that means your time to retouch it that means every cost that that you have to get that eight by ten out to your client cannot be more than twenty seven dollars ok bottom line that's what it is so that twenty two to twenty seven percent is how much that your costs need to be so you know it's basically you know you if you want to do it easily just do a fourth your cost should be about a fourth of whatever you're charging your clients so that seventy five percent should be your profit a little slide here show that cost of sales make better decisions so here here's the example if the cost to produce the product is fifty dollars if you're taking a times for twenty five percent cost of sale if you're taking a times five it's a two hundred fifty dollars cost of sale and I know some people are saying well again I paid twelve dollars for it if I charged fourteen dollars I'm making money and when you start to realize your ten dollars product has to be sold for forty or fifty dollars that's when you realize ok I need to go back and fix my brand I need to make sure my products are clear in my prices and that I am different because if you want to run a healthy, profitable business you have to be able to charge money for ins, okay, so I hear a lot of people in industry saying, well, you know, I don't want to be a commodity photographer. Well, we're teaching you how to not be a commodity photographer. We're teaching you all the things that you need to do and understanding cost of sales is one of those things. And is it scary? Yes, it's scary. I went to my first people convention two weeks before I opened my first studio and my cost of sales were like six years, seventy percent, and I learned that back then we were film and the rule of thumb was under thirty percent and I was I had to come home and make some tough decisions I had to take. I don't have to just double my prices had to take it like four times, and that was really scary was jellies and your yeah it's very scary. I think the scariest part about it to use when you've been in business for a while, the fear of the clients that you're going to lose, and are those other clients, then going to come through the door and actually pay the price is that you have set so that's the number part of it is scary, but then the actual implementation of it is very barrier. And I've been here and I got through it and you've been there yeah and I'm still getting through but you know the coaching community that you guys have it was it really was like a turning point in my business and a lot of avenues you know but just like figuring out how I could actually make money to pay for my husband is all the time he loves what I do and he supports me one hundred percent but he's always like you spent so much time and so much energy on it and you're not getting paid for what you do and you look at all these other industries and people you know, people are going to get paid you know, five dollars you know for something that they do they're there they're getting paid for their time even if they're getting paid by another employer they're getting paid for the time that they put into it and we should as well and you have to be educated in order to figure that out and I was not educated until I did this and it really helps in the congress you know, putting in everything like you know you can't just consider an eight by ten and your time you've got to think about you know, my framing and my mounting and my putting a spray on it and my you know the different things that go into it and that all adds in and because because if you don't, you forget about that, you've set your cogsa at one hundred dollars, and then you realize, oh, wait, there's like fifteen, twenty other dollars of expenses and you didn't have that in. So yeah, you just talked about how you raise your prices. Yeah, we and how long ago? Just well, I'm still in the process of, but I'm started out when I first started out. Like I said, I just kind of hypothetically through together some basic packages and threw a price on it and didn't really understand, like what? I was actually going to make off because I see a two hundred seventy five dollars sale to me at the time, coming from a fifteen dollars, regular memory made from sports with a a big chunk of change. And then I would put that in my bank, and then I would spend all this money, and I would I'd be like, wait a minute, I just made two hundred thirty five dollars, where did it all go? And so what I did is I went through the cox and I'm worked on it on my fairy pricing and I do pirate pictures as well and that's kind of where it started and now I'm going on to the baby program that I do and what I've done is I just I've just taken it and I figured out what I had charged originally how that works into my cause and what I was going to need to add to that to make it even better and even more and then when I did too is I got rid of a lot of the extra product that I thought I had to offer that I didn't really love but I thought other people would love but the kinds like he said they don't really know what they want you've got to tell him what they want I had everything but I came from sports so I was used to having so much because in sports you overwhelmed parents with stuff you have mugs and memory aid says buttons and you know t shirts and bobble heads and you know it's everything and so so what I did is I found the products that that I loved and that I thought that my clients would love and so I narrowed it down from I had albums and I did prince and I did meddle and I did jewelry and I mean I just had a gamut of stuff and and so I just really narrowed it down to the albums that I liked, you know, the little five by five albums that I thought would be great for mom's purse or great for the coffee table and then great win that child has been gone on to the next year to put on a shelf and keeping a category for them I didn't feel like I had to offer fifteen varieties of sizes because then I know that if I went in even as a photographer I went if I went into another photography company and they have fifteen I would love all fifteen and I wouldn't know which one to choose and then you know, then it becomes price and then I'm not getting what I I would love what I'm being told I would love and so that is scary when you realize it's scary for a lot of people it's it's very scary and it's sickening to realize but but when you realize it that's the first step in making the changes but then how you were able to continue without, like every client running and abandoning and buying billboards I mean that's our fear like are never massive mutiny everyone's gonna leave me but you got through it successfully, right? Is there anything you can say to give them hope that you can do this and you can present it as a positive and create new things to get your client's excited and yeah, and I have you know, I've maintained almost every single client they're still like pricing that I haven't adjusted yet so some clients that once I adjust those may or may not come along but you just have to you have to be confident in yourself is the biggest thing and I think that you are you are you are your only you and you are the only u photographer in your community and so if those clients who've been if they've been price sensitive with you before and they can't come along with you to be okay with that and just believe in yourself and know that there is going to be a client that you're going to find I mean, I I found I just I made my first big sale on three biggest two thousand dollars everybody on and it's a it's a client that came to me by word of mouth but there's a client that I love, you know, there they're the mom with the kids that I was looking for and they found me through someone who I actually barter with and but they were ok with my pricing because they've seen my work they'd heard people talk about me and they knew that I was going to provide the service to them that they were paying for and so clients like that will come they will come and you just have to be confident that they will come, and once you get your branding down and all that base and structure underneath you, then you could be confident to market to those people as well. And you have to have that to be calm because I have not been confident in the past to market to those clients, and you have to be confident in your work as well, like you're you're only you're you're only you no one else will photograph like you, no one else can be like you and somebody out there will love you, so all the requests are going to come in for james to be way wanted to show is that she was there where I was, where you many of you are your, you know, your underpriced, even though you maybe haven't seen actual numbers and you can get through it and you can drive and I'm still going through, but I have the confidence now t keep plugging along and keep moving forward, and I know that I'll be success and is you're adding these clients who love you and invest in you if some aren't right and that's okay, there's, someone for everyone, you feel okay with it because you're getting some of these clients who really find that some of them will will. Start saving their pennies now for you for the next year. They may not. Now that you've changed your prices, they may not be able to forty this year, but they still love you, and so they're like, ok, I'm setting aside money now for next year because, yeah, I really want to have you as my photographer, so and those who don't. They really probably weren't meant to be your client's first place and that's, a hard lesson to learn. It is very hard.