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Competing on price is tough when what you’re selling is your time.

Your business model is different

Visa,MasterCard and Paypal make huge amounts by clipping a tiny percentage off every purchase we make. Lucky them.

Microsoft and Adobe make a fortune by charging hundreds for something that costs them less than a dollar to produce.

You’re not that lucky. You have to charge hundreds (or thousands) for something that nobody needs, and only a handful of people want.

So … what do you do?

How much?

There are two questions you could ask about pricing:

— How much do you want to charge?

— How much do you need to charge?

The first is an aspiration, the second is a calculation.

Your minimum average sale target

There’s no substitute for knowing your financials. Or, if you’re just starting out, taking a stab at what they might look like.

With a decent set of accounts you can answer important questions like, “How much do I need to charge?”

Not how much you can charge, or would like to charge – how much you need to charge to pay the bills and make a living.

Start by calculating your cost of being in business.

That means your capital expenditure on things like cameras and computers and vehicles, any staff, any promotional costs, and of course your overheads (rent, taxes, power, phone, internet, running costs, repairs and maintenance, loan repayments, fees, subscriptions etc).

That will take you a while to assess (you can see why you need those accounts) and when you’re finished you still won’t have taken into account your biggest overhead by far.

Yourself!

How much do you want to earn, to cover your present and future needs? Add that in (don’t forget tax).

Then add everything up on an annualised basis (you don’t plan to replace your car, computer and camera every year, or do you?)

The total is your “cost of being in business” for one year.

Next, make a stab at how many paying jobs you plan to do over the year. Thirty weddings a year? A hundred family portraits? I’d be conservative.

Now divide one by the other: your total cost of being in business for the year by the total number of jobs per year.

That will tell you how much you need to clear, on average, per job, to cover your cost of being in business, including the biggest cost, yourself.

The interesting thing is you have to pay those bills whether you do the work or not. So if you end up shooting twenty weddings, say, instead of thirty, each wedding is going to have to pay for half as much again.

There’s a complication. If you’re doing different types of job, they may not be worth the same.

Work out how much you can realistically expect to make from each wedding or portrait, for example — in other words the market price, plus or minus an allowance for where you sit in the market.

Maybe you expect to make as much from each portrait session as you do from each wedding, maybe not. Maybe a wedding is worth two portraits (your guess — I don’t know!), but if that’s the case make a wedding worth 1.0 and a portrait session 0.5 and do the calculation based on that.

You still haven’t finished.

Now you need to calculate what it costs you on average to shoot the job (eg a wedding) — for outsourced services, assistants, printing, framing, albums etc.

Note, you only have to pay these if you make a sale.

All you have to do now is add together the two figures, the cost per job of being in business, plus the cost of doing the job itself.

Now you know the amount you need to charge, per job, to cover your costs and hit your income goals.

There are a lot of assumptions in there, and maybe guesses about your costs, but you’ve identified those assumptions, and the figures you don’t know.

It’s also an average. Some jobs will knock your targets for six, others won’t hit them.

But now you have something solid to think about.

Cash is King

To get nerdy for a moment, I wasn’t talking about profitability in the last section. It’s working out how much cash you’re likely to have left over after paying your bills. Your camera, for example, is a capital purchase. It won’t appear in your Profit and Loss Account (Income Statement) at all, but it will certainly suck money out of the bank.

It’s quite common to make a “loss” while enjoying positive cash flow.

It’s equally common to make a “profit” while leaking cash.

Cash is King.

Market price

I’ve certainly tried to discourage you from slashing your prices, or at least suggested not doing so without thinking seriously about it.

But I’m not saying you can ignore gravity.

There is such a thing as “market price”, and somehow you have to work with it when you’re working through how much you need to charge.

Fortunately market price isn’t a number, it’s a range.

If you project “cheap”, you’ll get a price down the range.

If you’re good and people know it, you can move up range, often for doing no more than the other guy.

If you’re truly exceptional, a few people will break the price mould for you, like buying a scarf from Hermès. That’s tough to pull off. 

Think of “market price” as a benchmark, something you can beat if you try hard, and be proud of if you do. Not because you’re a grasping business person, but because you’re damn good at what you do, and people know it.

But clearly you can’t just ignore market price.

What if?

Knowing how much you need to charge raises some interesting questions, and that’s the point of doing the minimum average sale exercise.

What if I can’t get my price?

What if my bookings drop?

What if I slash my prices?

What if I cut my costs?

What if my bookings still go down?

What if I offer shoot-and-burn?

What if I hire staff or a second shooter?

What if I rent a store-front studio?

What if I start advertising?

What if I outsource my post-production?

What if I keep my day job?

The point is not just to ask the questions, but to answer them.

Plug the new assumptions into your calculations and and see what difference they make.

Free lunch

If we could rely on being able to slash our costs and maintain our prices, we’d all be doing it.

Waste is stuff that people don’t want to pay for. If you’re spending money and effort on something customers don’t value and won’t miss, by all means get rid of it — the money’s better in your pocket.

But if you cut stuff that people value, or you come across as low-end or a penny-pincher, you’re in trouble.

Sure, go for maximum perceived value at minimum actual cost, but remember there’s probably no such thing as a free lunch.

Mark-ups

People have all sorts of strange rules for pricing stuff.

A friend of ours wants four times his direct costs. His rule of thumb is: a quarter of what he charges is for his costs, a quarter for the overheads, a quarter for his salary and the rest is profit.

Well OK, but what if people won’t pay that? Or what if he wants to earn more?

As I said earlier, my own measure is: how much will people pay, how much will stay in my back pocket, and how much time will it take me?

And of course — when I look at my numbers, do I have a sustainable business model? 

But feeling you need to apply a specific mark-up can make the difference between making less than you’d like and making nothing.

Years ago I remember Bob talking at an NZIPP meeting about “parent’s albums”.

His daughter had just got married, and he waved his “parent album” at us.

“I didn’t know how powerful this little book was,” he said, “until I wanted one myself. Now I’m selling at least one, normally two, with every wedding. You can do it too.”

How much are you charging for them, someone wanted to know.

So Bob told them.

That’s not enough, people said.

Well it’s good money for little effort, said Bob.

The guy sitting next to me shook his head. He’s practically giving them away, he said. I could sell them no problem at that price!

But he wasn’t selling any at his price.

That reminds me of another guy who says the easiest money he makes is selling Queensberry copy albums to parents.

He only makes a couple of hundred on each one, but then all he has to do to earn it is ask a question and check the box in Workspace.

As a photographer you’re tapping in to one of the fundamental human needs, to remember and be remembered.

People will pay for that.

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