The Art of Pricing: Breaking Even
Eat your vegetables okay? It's it's it's hard nobody likes him but especially the green ones but a scary overwhelming time consuming insecurity breeding nuisances what pricing is to most people? Okay, just when you think you've figured it out something or someone comes along and just ruined it for you that doubt it's george that george on your shoulder, whether it be another photographer's website or the shooting burner down the street or the luxury high end photographer down the street who's killing it somebody goes in there george and says you suck change it shoot him okay that's negative energy that someone not giving you good information, okay, not information substantiated with factual evidence so I doubt is your enemy when it comes to pricing, if you know the strap, the strategies and the science behind pricing, you should be able to create your own pricing with confidence that you're doing it right because nine out of ten photographers out there don't know what they're doing and...
they just copy everybody else don't be one of those, okay? So I really have to recommend that you don't look at other photographers websites for price for pricing unless you are dating sure they know what they're talking about okay don't undervalue yourself this is a big one, this is what we talked about about not feeling like you're work is good enoughto charge that much if you do that to yourself, it's going to make the work harder for you down the road because it is much harder to start low and then have to jump when you realize you're not making a living and free market to a whole new group of clients and lose all the other ones then it is to start with okay, this is my pricing and we're going to grow up to here and then we'll move on and those clients will stay with you they'll grow with you and you can also develop different pricing lines within your studio this is what we do in our studio we have the platinum line, which is what I photographed let me have the gems line, which is what tiffany photographs and the jumps line is kind of just getting off it used to be I used to shoot the gems line and then when tiffany came in we turned changed it up a little bit now she photographs and it's still kind of in its growing phase and I'm still figuring things that something's out with it you know it's not it's, not doing what I thought it would d'oh not that it's unsuccessful just the opposite but it's just not what I expected, so but this lower and line allows the people who maybe can't afford the custom work to come in and get it to get images okay, I still have the same priceless for all those people but it's the way we structure the session fees and do that and those people those are the people who just want the digital files those people who just want to eat by tens the planet people are the people who want the finer okay so you khun develop those kind of strategies for battling that issue of oh my gosh people won't pay what I want them to pay they will and people always ask me well don't you have crossover don't the people who like have the money don't they just buy the cheap line because it's cheaper no remember if you have money and there's a perceived value of something being better because it's more expensive you're gonna buy it and the way I brand the two lines the platinum line is higher end it's you get more it's, more luxurious and people who have the money want that okay so don't wing it be strategic about your pricing your pricing has got to be effective to get to those high value sales that you want okay, you have to create packages if you wanted to a package system that meet your happy place money goals every single time a client walks through the door what is your happy place? I'm going to show you that in a minute it's different for every single person evaluated pricing of course according to your cost of good cost of sales um and evaluate your pricing from your client's perspective where is the best value for the money so it's that same challenge of going okay I'm looking at this from a business standpoint this is profitable but then I also have to turn around and look at it from a client's perspective and assess where the value is for the investment so you have to look at it from all angles in order to know if it's truly effective so evaluate your strength okay your strength will help you price in some ways what is your niche? Ok my nation babies that's going to determine ah lot of my pricing structure what things I'm going to sell when I'm going to charge form what entry point I need okay so when clients called they want to know the entry point I have to give an entry point that's affordable to the twenty one to forty year old mother who's not at the height of her career ah high school senior it's completely different because those parents are at the height of their career so it's going to be a little bit of a different strategy? What is your brand? Are you a high end brand? Are you are you a high volume brand? Your pricing is obviously going to be higher if you're a boutique studio than if you're high volume studio okay, what type of business model do you want in that regard? Most photographers are in that boutique model because they're one man shows I was in one man show for years five years I was a one man show okay did it all for five years by myself it's totally possible to dio I also started out my home and when we get I think it's tomorrow we'll talk tomorrow no maybes today sorry they're all running together I'm going to show you my home studio and what it looked like okay who's your demographic who's your client neo traditional remember those who is your client and how does price dictate how you present that product to them? Okay, so how much money do you really need? That's the question most photographers don't answer which is tragic they just kind of go out it and charge well my gosh, I made money no the first question you should ask is how much money do I actually need? What are my expenses? Do I have a space that I'm paying for? Do you think you're home costs you money to run a business out of you live there you're there every day and started skating in the garage that's free rent right? Is it no it's not that space in your home is completely tax rideable off credible off that's the word it's completely tiffany's laughing over she knows I'm getting tired she knows me so well it's a tax write off the percentage of the square footage of your home that you use for your business is a tax write off that means that you could rent that space as the homeowner to the business at that rate your house is a thousand square feet you used two hundred of it this word problems algebra one o one yes, let's go thousand square feet two hundred square foot garage that's your studio. Okay, so that's, what? Twenty percent of your house right outside your house. Okay, what's, your mortgage your mortgage is two thousand dollars a month. Twenty percent of two thousand is what? Somebody do the math for me, please. Four hundred thank you. I'm such an artist like get for the price of that garage is four hundred dollars a month that's how much you could rent it back to your business force or your business would have to pay for dollars a month for that space that's overhead use that to your advantage that's an expense all the utilities, electricity, the gas everything you use in your house twenty percent of that is the studio's problem, right? Nobody thinks about that! How many seniors or see how many sessions their weddings do you want to do every year you wanna work your butt off and be there every weekend do you want to work weekends do you care I don't work weekends it's half the reason I wanted to babies I don't have to work weekends okay what didn't come do you want to make if you were in a steady job which I know a lot of you are in how much do you make I mean are you guys full time photographers are you a full time starter her full time so if you if you're in your job now what do you make in your job now and what does that need to be in photography so let's say forty thousand year two decent salary right okay so I want to make forty thousand dollars a year pretax now remember self employment taxes are a lot more than corporate taxes you got to cover medicaid's of security all those things I know if you're in another country this is a little different I don't know all those factors but you have to take into account that taxes maybe more self employed than they would be if you were working for someone because when you're working for someone the company pays part of those expenses for you okay how do you foresee your growth do you want to double your business every year do you want to grow by ten percent all these factors play in the price okay I am about to depress you okay, so warning I'm sorry in advance let's go to my computer to my excel spreadsheet and a few this spreadsheet was written by a very dear friend of mine we don't see each other very much, but I adore her name is michelle panero and she is a photographer in portland and at one time we were harsh competitors very harsh competitors and I tried to she was closing down her studio space and I tried to rent her studio from her and it actually turned into this thing where it just didn't work out and I am not moving to bend and always hunky dorry and she kind of got out of photography and and had babies and has a wonderful family and now we're friends again and I'm so glad that that that that happened but it's just one of those examples that being friends with the photographers in community really make a difference because I asked her if I could show the spreadsheets like oh yeah, sure that's so that's so great of you to say I can't believe you're doing it's mine I can't oh my gosh, I can't remember that thing I did it so long ago like michelle, this thing is amazing and it shows photographers especially those just starting out it opens their eyes to what they need to make, so I'm about to depress you a little bit this sheet is a break even analysis? Okay, the numbers and blue are changeable by you by the way, if you want to do this for your own business there is a link to this spreadsheet in the freebie packet the download the workbook that you can download off of our facebook page so you can do this yourself and it is a little depressing I'm sorry. So like I said, the numbers in blue are changeable so you could determine that now some of them will change right away because it's calculated into the spreadsheet but here we go. I want to make forty thousand dollars a year okay, that automatically sets my owner's benefits at I'm blind here sixteen thousand dollars. Okay, that includes things like insurance, medical expense, middle medical insurance things that you have to have that you would have with any other coming. Okay, part time office assistant. Okay, so if you if you don't have one, so we'll assume we're just starting out and we don't have one so zero dollars okay, we're not putting them in there. If you have somebody who works for you, you want to put in their annual income so like what you would pay this is over a year, so what? What? You would pay them annually? Okay marketing market generally runs about five to ten percent of gross sales that includes everything from your web page to print advertising brochures, client materials that you provide them anything like that. I have a pretty high end brands, so my mark expenses are on the on the more expensive side. I'm more like about fifteen thousand a year, okay, so but I'm gonna keep that let's put that at the ten thousand mark, which is a little bit more reasonable for you guys, okay? So administration, this is the day to day expensive running your studio and twelve thousand x actually very cheap, okay, but I'll just we'll just assume that this is maybe a home studio or a one man shop, that kind of thing, and we'll keep that number right around twelve thousand that is very low. My costs for that are probably about thirty or more it's just the day to day running of your studio off supplies things you purchase, you know, stuff like that automobile expense. If you're in on location photographer, you need to factor this in your mileage and your gas to goto location shoot. I'm a studio photographer. Julia, do you mind if I jump in? Just not at all? Awesome. So when you are when you're when you're figuring out the list of all the things that you need to add to this excel sheet what's the process that you go through in making sure you've covered all your cues and yeah it's a it's a huge undertaking and I am being very general here, so forgive me for that because I didn't want to get overly complicated about the science of it. Do you really want to talk more about the art of it? But the people benchmark survey is a wonderful all tool to look at us for all those things that you need to cover and your expenses. It includes everything from buying a creative live course two memberships that you belong to two computer equipment that you buy two software that you upgrade to the camera that you purchased to your insurance or liability insurance you pay to the gas bill at your studio all those expenses that you paid constantly every month to run your business perfect thank you okay, great automobile expense so you want to put in mileage and gas that you use for on an annual basis for your studio to goto on location sessions ok building overhead myron is a thousand bucks a month I have dirt cheap rent, I have eighteen hundred square foot, place and bend and I have low overhead that is something I drastically negotiated and I strongly encourage you to do that I have gotten away with it now for four years I don't think I'll get away with that for much longer, but enough that so I'm going to go ahead and put that in let's call it what's four hundred times twelve times twelve forty eight right so let's put that in his forty eight hundred dollars ah year assuming that you used two hundred square feet of your thousand square foot house like we talked about before okay equipment purchase this is things like props camera gear, computers all that kind of stuff that you would buy for your studio lots people upgrade their cameras every time a new model comes out ten thousand dollars for equipment in one year is not that much you'd be surprised if you add it all up how much you're spending on equipment okay lights, gear reflectors all that kind of stuff depreciation you khun right off you could appreciate things over time eight thousand is kind of a good number I mean, it just depends on how much equipment you buy over the year but it's how much that equipment depreciates over time. Okay, so look at this my total fixed expenses before any client has through the door is over six figures. Holy cannoli yeah, sorry I see a lot of long faces they're all the press of depressed but seriously think about that before our client has even walked through the door it cost me one hundred thousand dollars to run my business tank it's a little depressing, isn't it it's a little depressing okay now, let's, talk about when a client comes walking through the door because we have expenses every time a client by something correct. Okay, so gross park profit margin has to do with your cost of goods sold. Okay. Does anybody know what a cost of goods sold is? A cost of sale is a cost of good is the price of the product itself? Okay, um, let's see, for example, this is an album in our studio. Okay? It's called our am assist album it's an upgrade from the eight by eight by ten okay. And it's, a linen album from pro dp I love pretty because albums I also love asuka book albums, which are high end stuff. This album costs me at the lab, I think one hundred seventeen dollars. I'm not mistaken. This little cover that we're about to start using on our team to give to the client the packaging these things air fifteen dollars apiece from craft and jute. Okay, so right now I'm over, I'm over one hundred thirty dollars on the hard cost this product well, then there's the little bag that we have to put it in the tissue paper and the ribbon those all things cost money, so let's add another five dollars, so we're up to one hundred and one hundred forty dollars hundred thirty five dollars for the product right that's the hard cost of everything that goes into creating packaging and providing this client to the consumer okay I just got fluff all over me sorry um however what else goes into this product a lot of time now the client also knows this product has a lot of time associated with it. Okay it's an album it requires design work the audio miata ok using pro select this process for me is a two minute process literally two minutes for me to create this album do the cover and send it to the left so my time costs on this are almost negligible it's really just proofing the images and packaging in doing that labor there okay I charged seven hundred dollars for this album for mike to my consumer okay that's about how could someone divide one forty by by seven hundred for me with that percentage is anybody jim thank you. I know you're off to doing that right now what is it? One six twenty percent twenty percent okay so it's a twenty percent cost of good so that gross profit margin I like to keep my average cost of goods right around fifteen to twenty percent okay? The pp a benchmark survey recommends twenty five percent you could go up to thirty for a home studio but why why would you why not keep it is lowest possible make more money right as a retail studio, I have more cost that hundred one thousand dollars. I have more costs in a home studio would because you know I factored this in for, you know, like a home studio. But if my cost of good is a fifteen percent margin than that number there would be point eight five that makes sense you minus ing it making a difference so let's just for the sake of argument let's put it out of the twenty percent cost of good. Okay, to break even in my studio I have to make one hundred twenty seven thousand dollars a year in revenue just to break even. Pay myself a forty thousand dollar a year salary. Okay, which is important you're an employee of your company. You have to pay yourself now if I want to profit in my business, every business in the world wants to profit that's why the stock market does so well. Okay. Shareholders expect these companies to make money so that the dividends khun b spread out the wealth can be spread out between the shareholders, right? You run a business, do you want to run a legitimate business? Then you need to take into account the fact that your business must profit. That profit can then be spent back into the studio to grow it and then over time when you end up years from now with a profit of business and you can show those numbers not only can you get loans and credit for your business but you also have something to retire on. Okay, so to profit ten percent you need to make one hundred forty thousand dollars a year. So how many sessions do you want to do if you do ten sessions a month? That number right there to break even. Each session has to provide twelve hundred seventy three dollars. If you want a profit, each session needs to provide fourteen hundred dollars. If you want to do five sessions a month, you got to make five grand procession. Yeah, poor stephanie is like this is eye opening, isn't it? Okay, so if you want to do ten sessions a month, which is a pretty reasonable number for someone on their own, okay, I would probably go much more than that. Otherwise you will kill yourself. You need to average just to break even almost thirteen hundred dollars a session average to make your numbers to give yourself a salary of forty thousand dollars. Do your work really isn't that much a little scary, so average sales of five, six hundred seven hundred dollars are not going to cut it, so they will have no choice but to raise your prices and become profitable you have no choice unless you want to make nothing unless you want to make ten thousand dollars a year and work under minimum wage, which a lot of photographers do sadly. And so, by depressing you a little bit and opening your eyes, I want you to see that this is possible. It's very possible and lots of drivers do it every day. But you need to price strategically so let's get into that. If you go back to my keynote, I would appreciate it when you guys get a chance. Any questions? At this point? I know I'm sorry. Everybody else add it is a little depressing. For the first time I saw this, I literally like my heart sunk like I was like there's no way I can do this. So a couple minutes ago, I asked the chat rooms. I said, are you guys to press? And so trish fix says, I'm looking for a grocery cart noon to become a bag lady scott crumb says just about to jump off a bridge. This is awesome and that I love what command ship said depressed is not so bad if it means we have to set realistic expectations and price is right so right and knowledge is power when you know you can fix it. If you didn't know this and I didn't just kind of make you want to jump off a bridge you would never know and you'd be sitting there in the dark and being in the dark is no way to be come to the light I bring you I mean it's more depressing to not have realistic expectations on then get hit hard by the reality of life that's depressing exactly being prepared is I know we talked about that but yeah exactly. So are we back to my keynote? Is that my good? So we go there we are so you know that break even analysis can be like we said hi opening is it more than you expected? Do you need to make more procession than you expected? Yeah, any adjustments you can make yeah there's all kinds of things that you spend money on now you know why I'm preaching cost low cost high dollar products that come in your solution cost you nothing and she's able to charge a boatload form okay so always think about that your mindset low cost high dollar how can I make a product inexpensively but still haven't evaluated to charge what it's worth to the consumer because when you combine the art with it and the vat and a and a beautiful nature of it all of a sudden you can and your client when they believe what you believe they think it's worth it okay, everything I'm telling you combined into what's called your business and it's such a big picture. And to be a true entrepreneur, you have got to be able to step outside and see the big picture. When a small business owner is a small business owner on their own, that they are an entrepreneur, they see the big picture. They are a manager overseeing the details, and they are the grunt janitor worker who make sure it all happens. You've got to be every role and the hardest part for most photographers to step outside and be the entrepreneur and go. This is my business, what needs to be fixed, okay, so I'm trying to teach you how to do that. I hope. Hope I'm successful, I really do.