Most photographers love the creative side of what they do but don’t have the same passion for the business and the “numbers” side of being a professional photographer. I believe that equipping photographers with a solid business foundation and “how-to” mechanics is essential to a successful and sustainable career as a photographer.
Photography Spark is all about these kinds of ideas, and so when I connected with Zach recently for an interview on my Sprouting Photographer Podcast, he asked if I would write a guest “how-to” post that’s all about pricing. I’m thrilled to have the opportunity to dive deeper with you on this important topic, so let’s get right to it!
Why are projections important for your photography business?
Much like a home, your photography business needs a sturdy foundation. Expenses, income, and pricing are a big part of that foundation. By projecting into the future and budgeting intelligently, you’ll gain a solid understanding of your business’s health, and it will give you something to work toward.
Here are five reasons why projections must be part of your photography business:
Projections give you something to go off of. When you have a full-time job working for someone else, you normally know with relative certainty how much money you’ll be making year to year. The very nature of being an entrepreneur doesn’t give you this luxury; however, you can accurately project your potential so that you can make life and business decisions accordingly.
When you set projections for your business, you will have something realistic to work toward. The old saying goes: “You’ll never find your destination if you don’t have a map” — and projections are the map that will guide you in your business.
Projections give you goals to work toward achieving, and even if they’re a moving target, you’ll have something to look toward and point you in the right direction.
Having detailed projections for your business will allow you to design the business that you want, enabling you to dedicate more time and energy to those areas of photography you are eager to focus on.
Business Heart Rate
When you write down your projections, and you know where you stand, you will keep a pulse on your business and ensure that you are operating within your means.
Measuring and Comparison
When you set realistic projections, you will look back at the end of the year to measure and compare. You will be able to assess what worked, what didn’t, and define a new set of projections for the following year.
What are the projections for your photography business?
What do I mean when I say projections? Specifically, I am advising you to accurately predict and define your expenses, your income, and your business volume. Let’s spend a few moments to define some of these terms that we’ll use throughout this article.
There are two types of expenses in your business: fixed expenses and variable expenses.
Fixed expenses are costs that you incur regardless of your business volume; variable expenses are costs incurred that are specifically tied to a product or service (also known as cost-of-sales). It’s important to mention that your personal salary should be included in your fixed expenses.
Income must be further broken down to be even more specific – where will that income come from and how much? Business volume is the breakdown of each specialty in your business and how much it contributes to your overall income.
The 4 Steps to Business Breakdown and Projections
I have created a proven four-step projection system that will give you a solid understanding of your business and give you a goal to work toward. The four steps are:
- Add up all your business’s fixed expenses, including your salary
- Determine cost-of-sales and business profit percentage
- Assign monetary values to the above variables
- Determine business breakdown
I’ll walk through this process for you, using a fictitious, generic photographer and reasonable, typical numbers. The numbers these examples are very realistic, but you’ll want to plug in your own details to make it specific to you and your situation.
I’ll disclose now that there will be some math and calculations involved, so if that isn’t your “thing,” then please follow along and at the end, I’ll share a free online calculator that I’ve created for you to use instead of doing the math manually.
This entire calculation and process is based on the understanding that gross revenue (the total money that you must make) can be broken down and divided into fixed expenses, cost-of-sales, and business profit:
Gross Revenue = Fixed Expenses + Cost-of-Sales + Business Profit
Step #1 – Add up all business fixed expenses
The first step is to come up with a comprehensive list of all of your business’s fixed expenses. These are overhead costs incurred regardless of how many sessions you shoot or the products you sell.
These fixed expenses include Internet, phone, insurance, utilities, and rent/mortgage. You also should budget for equipment allowances, professional memberships, advertising expenses, and so on.
If you don’t budget and account for these expenses, how will you pay for them otherwise – out of your own pocket? You need to break them down to a manageable monthly allowance and budget for them. For this example, I’m going to use a monthly fixed expense amount of $3,000 per month. This number isn’t farfetched at all, by the way, so be sure you’re being realistic about your numbers, too.
Next, your salary is whatever you’d like to be making as a photographer. Be realistic! For our example, I’ll use $60,000 as an annual salary, which is very achievable in our industry.
Calculate your annual fixed expenses by multiplying your monthly fixed expenses by 12. In our example, annual fixed expenses are therefore $36,000. Add your salary to this number to get your total annual fixed expenses. In our example, this gives us $96,000 for our total annual fixed expenses.
Total annual fixed expenses = $96,000
Step #2 – Determine COS and Business Profit Percentage
The second step is to determine what percent of your gross revenue you’ll dedicate to your cost-of-sales and your business profit. The Professional Photographers of America benchmark survey recommends 35% for a home-based studio, and in all the years I’ve been teaching this process, I have found that to be a reasonable allotment.
I also recommend that you dedicate a modest 10% of your gross revenue to business profit.
Step #3 – Assign monetary values
Here is where the math comes in. I’ll be using our example for these calculations, but follow along and you can do the same calculations for yourself. Let’s review what we know so far:
Annual fixed expenses = $96,000
Cost-of-Sales = 35%
Business Profit = 10%
We know that gross revenue is simply the sum of fixed expenses, cost-of-sales (35%) and business profit (10%). So, we can calculate that fixed expenses must, therefore, be 55% of gross revenue.
Since fixed expenses are the only variable that we know a monetary value ($96,000) for and the percentage (55%), we can use it to calculate what one percentage point equals and use that number to assign a monetary value to cost-of-sales and business profit. We’ll find this number by dividing the monetary value of fixed expenses ($96,000) by 55.
This gives us a monetary value for 1% of $1745.45. We can multiply that monetary value for 1% by 35 and 10 to get the monetary values for cost-of-sales and business profit, respectively.
Cost-of-Sales = 35% = $61,090.75
Business Profit = 10% = $17,454.50
We’ve defined gross revenue as being the sum of fixed expenses, cost-of-sales, and business profit. Therefore, when we add up their monetary values, we calculate that we need to have a gross revenue of $174,545.25.
Step #4 – Business breakdown
You’ll need to determine how you want your business to be broken down by category, as well as the business volume you would like within each category. In our example, I’ll use the following breakdown:
60% Weddings, 25 Weddings/Year
40% Portraits, 2 Portraits/Week (or 100 Portraits/Year)
We can break down our gross revenue into 60% for weddings and 40% for portraits, and then break down that 60% further into 25 weddings, and the 40% further into 100 portraits to achieve the following targets:
$4,190 per Wedding
$698 per Portrait
That’s it! If you’re still with me, take a big breath! This is the exact process you must walk through to project your business volume and breakdown. It will give you a great insight into what you should be budgeting and targeting in terms of expenses and income.
Your numbers will vary depending on all of the variables used throughout, but you can see how this is an accurate and measurable approach to projecting your business numbers and breakdown. Now you have a target to work toward that will allow all of your business goals to work together. In our example, the final projections are:
$4,190 per wedding for 25 weddings/year
$698 per portrait for 2 portraits/week
In this example, achieving these projections makes it possible to have a personal salary of $60,000, pay all of the fixed expenses, operate under a 35% cost-of-sales business model and generate a modest business profit at the end of the year.
If the calculations and mathematics of this process are over your head, then as I promised, I’d like to share with you a FREE pricing calculator where you can simply plug in all of your numbers and the system will push out your projections. You can visit the Sprouting Photographer “What to Charge” Calculator to use the tool for free as many times as you want. I’d suggest revisiting it a few times each year.
How to Become a More Profitable Photography Business
Now that you know more about the finances involved with photography and how you can calculate studio profits, it’s time to see what you can do to make your professional photography business even more profitable.
Lower Your Expenses
If you want to bring more money in without having to do extra work, you can find ways to lower your expenses. Are there any items on your expense list that you can live without? Do you have any lighting presets you don’t need? Maybe you are offering extensive and involved packages with more bells and whistles that just aren’t necessary.
When finding ways to lower your expenses, focus on the smaller things that are not essential to your business being successful. Refrain from cutting areas of the business that matter most. Don’t skimp on your taxes, insurance, or contracts as a way to save a dollar.
Choose Your Niche
Selecting a niche to focus in can help you turn into a specialist. Different styles of photography require different skills. Wedding photography, for example, is not going to be the same as portrait photography or aerial photography. So, choose a niche to specialize in and become more profitable. You will be able to charge higher rates because of your level of expertise and experience.
Figure Out Pricing
When pricing your services and products, keep in mind your gear, the studio space, marketing budget, travel expenses, and any other expenses you may have including budgeting software, editing software, accounting software, etc.
You then need to calculate your labor and time costs for the entire project from beginning to end. You want to make a profit and be able to pay yourself after taking care of all your expenses.
The Future of Your Photography Business
The future success of your photography business depends on the development of a profit-driven business and marketing strategy, ensuring only a high-quality product and business image, networking to the right target market, and implementing creating technologies to evaluate potential monetary benefits for your business.
Your website, your brand, your studio, and the customer experience are all integral components of your photography business and need to be at the forefront of any strategy you come up with to ensure its future success in the industry.
Remember, a career in photography is a business and for it to be successful, you need to think long term, and that is where learning how to come up with projections and understanding your photography finances are important.
Pricing for Profit Book
Pricing for Profit: Solid Business Techniques for a Profitable Photography Studio (from Amazon) discusses the nuts and bolts of pricing your photography for a sustainable and long-lasting career as a professional photographer. It outlines a step-by-step process to pricing photography services and products. The book has been adapted by several colleges and educational institutions within course content and textbooks. Bryan is proud his message and ideas are being taught to younger photographers as they begin their career.