Pricing is one of those areas where photographers struggle more than any other. Figuring out how to develop a pricing strategy is much different than learning how to use a camera. It requires us to sit down and think about things we may not have considered before, things like expenses, and value, and our market.
It requires us to do the hard work of setting up our systems of expense management so that we can be sure our pricing is rational. This is a big part of pricing strategy - rationalization. We’ll talk a lot more about that in a minute. First, let’s look at what seems to be the most common pricing method among photographers - and why it might be setting you up for failure.
Most often, I hear about photographers looking at what other photographers in their area are charging - and charge that. The rationale used is that if we find other photographers that are of a similar style - and of similar ability - that we should be priced in a similar manner. On the surface, that seems perfectly reasonable - two products of similar style and quality should be priced similarly. In fact it’s actually very reasonable. Airlines do it all the time. But, there’s a a problem
First, you have no idea if the photographer you are copying has any clue about their price. You don’t know if they are making - or losing money. Simply copying someone else’s pricing, or price range, ignores the fact that their costs may be different, they may value their time differently, or they may be clueless about both!
Instead, I want to provide you with a way to develop pricing that is rational, and supports the goals of your business. After all, if you’re losing money, your business isn’t profitable. If your business isn’t profitable, it no longer supports your lifestyle - rather you begin to have to support your business.
PART 1: COSTS
I recommend you begin your pricing plan with a solid understanding of the costs that go in to any given product or service. One of the resources that I recommend is a PRODUCT WORKSHEET, (click the link to download a free copy) that you can use to figure out the true COST OF SALE (COS) for every product you offer.
The COS is the total of all of the things that go into selling, producing and delivering a product. This includes the wholesale cost you pay your lab for a print, the cost associated with the time spent editing and retouching the file, the packaging and delivery costs, and time spent selling to your client.
For many of us, it’s easy to figure out what we pay the lab for a given product - that’s pretty straightforward. It gets more complicated when we sit down and try to figure out costs associated with the other things - especially time. My suggestion? Start keeping track. Start tracking your time spent when you sell a product. The only way you can really understand whether or not your pricing is sufficient to cover your costs is if you first understand those costs. The PRODUCT WORKSHEET allows you to add up all of the costs that go into your COS.
As a general benchmark*, Professional Photographers of America recommends that your COS expenses not exceed 35% of your total revenue. What does this mean? It means that when you look at your expenses as compared to your revenue at the end of the year, you should spend less than 35 cents of every dollar you bring in, on expenses related to COS.
How does this help with pricing? Well, 35% is very close to 1/3. This means that when you add up all of your COS expenses, you should mark it up by a minimum of 3X’s to get to a price that covers your expenses. The other 65% goes to cover two things: your fixed expenses, and your profit/compensation. As a rule, your fixed expenses should be no more than 30% of your total revenue, leaving 35 cents of every dollar as compensation/profit for you.
Of course, you can set up your pricing to be more profitable, but this is a place to start. Once you understand your costs, you can begin to rationalize your pricing.
*PPA Business Handbook 2009. Available at PPA.com/benchmark
Come back on Wednesday for PART 2, where we'll talk about effectively valuing and pricing your time.