by Norman Phillips Published 01/06/2005
If you use a mark-up system that is five times the lab cost you ignore that you have overheads and expect to make a living, pay your taxes and take vacations and live a style deserving of your labour. The truth is that any pricing method has to take into account the true cost of doing business. That includes all of your overheads, such as accountancy services, advertising, staff salaries, light and heat, 'phone, your desired salary after taxes and a profit to support future costs, such as renewals, repairs, upgrading equipment, incidentals and non-recurring expenses. All of these are expenses you incur whether you take a single portrait a day or ten.
Any price you place on a service that includes an end product must include its share of three expenses as well as the cost of production. All of these expenses should be added and divided by the number of hours the operation runs in a year. This will give you an hourly rate for your services. The hourly rate should take into account that you will be taking a vacation/holiday, the statutory holidays and potential sick days when you will not be working. If you will be taking two weeks off and statutory holidays and sick days eat up another two weeks, your working weeks are 48. Another factor that almost everyone overlooks is that with the best of scenarios you cannot photograph clients every minute of the day. Some of that time is used for office and administration, dealing with prospective clients and solving inevitable problems. Realistically, you may be able to actually do revenue-generating application for between 50 - 60% of your working hours.
So, how does all this lead us to what is a profitable pricing structure? Let us assume that you will operate your business 48 weeks a year. Assume that each week will include 40 hours of operation over five days, eight hours a day. That is 1920 hours annually. Now let us add the total overheads that we have identified above. Let's say for argument sake this totals 80,000, dollars, pounds, euros, francs or whatever. This means that your hourly cost of doing business is 41.66. But remember, this cannot be maximized because none of us can do revenue-producing actions for more than 50 - 60% of our working time. So when we calculate the price we charge we need to add some 50 - 60% to the hourly rate that is revenue producing. This means we will need to build into our charges another 21 units of revenue, which makes it 62.5 pounds. Now, if we generate four portraits a day each will have a basic overhead cost of 125 pounds. This is because we are allocating two hours per session. So, before you have incurred one penny in production costs, eg, film, prints, retouching, mounting, etc., your charge for your work must include that 125 pounds.
Next, add in the cost of production, say 50 pounds. The service you are offering your client is now a total of 175 pounds. But, hold on. You still need to build in a profit or your business will be broke at years end. Is this scary? For some yes, but when we do not take into account the full cost of doing business we find that we are forever playing with our prices, making adjustments to compensate for costs that we failed to anticipate. The other issue that is very demoralizing is that we find ourselves working for little or no real reward. Nothing is worse than putting your heart and soul into what you do and then finding it a challenge to meet your bills or you have to give up your holiday or vacation, never eat out, have to be careful how you spend the small reward you do get, and drive an old banger instead of the car your talents deserve.
Another result of undercharging is that your studio or place of business is always in need of improvement because it does not demonstrate the image you need to attract the ideal client.
My mantra is to do less for more. Instead of seeking six to ten clients a day I seek one, possibly two. My marketing is less intensive and less expensive relative to what I am able to charge. The more work you need to generate in order to meet your basic cost of doing business the more you will need to spend drawing new clients. Additionally, drawing large numbers of clients means special promotions, which often result, in lower gross sales and little net profit.
I agree that my philosophy works for me because of reputation and that took a while to develop and everyone has to start at the bottom. But it is well worth the extra effort to build a reputation for a unique style, quality and service. We should always seek to upgrade our work and find ways to enhance the client's experience. Spending expensive time with a client is usually a great investment and helps to build relationships with people who will keep coming back and tell others how nice and considerate you are. The client who will spend good money with you will not want to be treated as a retail customer who is buying off the shelf. We are providing a unique service that is very personal. When we spend time with a client it is an investment by both parties. The client who spends time with you while you listen to their desires and you explain what you can do for them has also invested something that is irreplaceable and they will not walk away and throw away the investment.
There is a significant difference between the service that rushes through its client base and enjoy life too.
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