The very first step to having a profitable business is knowing when you have profit. To have profit, you have to cover your cost of goods (COG), your overheads such as rent and equipment, operating expenses such as web hosting and travel, and then at the end of it have more money left over.
When I say it like that, it sounds impossible and makes you wonder how anyone can do it. In this article, we're going to look at how you figure out your cost of doing business (CODB) to find your break-even point. Any money you make over that is profit! Yay for profit!
It's a Minimum, Not a Suggested Retail Price
When we finish going through the form, any seasoned photographers are going to cry in outrage: "You can't charge $X and undercut the market like that! You're devaluing our industry."
Fear not. The price we come up with at the end of this exercise is your absolute minimum that you need to charge to eat and continue living where you do. There are a lot of reasons to charge above your minimum besides doing a percentage markup. Your work has value, and you should charge the value of your offering, not simply what it costs you to provide the offering.
This is why cables in stores have 1000% markup but they continue to stock them because people buy them anyway. When you're in a bind and you need it, you don't care if it cost $1 or less for the manufacturer to make it. That cable saving your job last minute is valuable, so you are willing to pay it. Your clients will see value in what you do, and you can charge more. The exercise here is to figure out: "you absolutely cannot for any reason charge below $X".
Using an Operating-Cost Calculator
There are a lot of different ways to figure out your operating costs, but for the purposes of this tutorial, I'm going to use one that is easy, online, and free: The CODB Calculator by ASMP (American Society of Media Photographers).
Before I launch into the number frenzy, I want to point out that your numbers will of course be different than mine, but the principle still applies, and that is the important part. No matter where you are in the world, you still have mostly the same expenses, need a salary, and need to figure out your break-even point. I live in the Seattle, WA, area, so I will be filling out the form with averages in my market for a typical photographer.
Before you click "Show details", let me lay out the formula. The minimum amount of money you need to live divided by the maximum amount of clients you can shoot in a month equals the minimum you need to charge for each job. It gets a little more complicated once we get into it, but not terribly so.
If you don't know how much money you need each month as a salary, that's where you have to start. I use YNAB for budgeting both my business and my personal life. At minimum, I need $1,300 a month to cover rent and utilities, $400 for food, $500 for travel (includes fuel, insurance, repairs, public transit, parking, and vehicle maintenance), and $300 for everything else. Of course if I want to eat out more, save up for vacations, a new car, or retirement, that is additional. But figuring out my base needs puts the minimum salary at $2,500 a month just to continue living to the next month. I'm going to use $3,000 to account for some of those extras that make life a little nicer (like health insurance and so forth).
If you're just starting out, chances are you aren't going to have employees besides yourself. I often hire assistants on a case by case basis as contractors for jobs, but I count that as a COG later. If you do have employees, then click Show details there and fill out the information as needed.
One thing I love about this calculator is that there are some things you need monthly, and some things you pay for annually. You can put in whatever of those numbers you know and it automatically calculates the other one for you. Continue down the office costs, filling them out as needed. I personally choose to leave out COG like assistants or delivery from this calculation (explained at the end). When you're done, it might look something like this.
Wow. Did it really just say that you're going to spend $74,702 in operating expenses? Yes. Yes it did. Of course, that includes your salary and I'm sure you'll see a lot of areas where you can cut it down in your budget. You can use your home instead of a studio ($900/month here). You can get a cheaper phone plan or use a free checking account.
On the other hand, this only lets you buy $3,500 of new equipment this year. New camera? Spent. Set of strobes? Spent. If you get a bad case of GAS (Gear Acquisition Syndrome) then that number can inflate really quickly. I made rules that I hold myself to when looking for new gear. One of them is, "Will this immediately bring in enough extra income to pay for itself?" There are a few other rules based on my personal decisions, but that one rule is a pretty good indicator of whether you actually need new gear or not.
I highly encourage you to stop reading until you've put in the numbers yourself and caught up to me. This article is going to be useless to you if you don't put in the work to figure out what your CODB is. I run an extremely lean and efficient business, where I am the only photographer, so my numbers come in a lot closer to $50,000. If you have a studio with multiple photographers, your numbers could easily be triple that. There is no right or wrong. You have to figure out what is right for you.
So are you all caught up with your numbers? Great!
This is going to have a huge fluctuation depending on the business you have. A billable unit can be defined as a day, hour, wedding, portrait session, etc. If you only shoot weddings, then "one wedding" is a good billable unit. If you are like me and shoot one-hour portrait sessions, eight-hour weddings, and multi-day commercial shoots, then perhaps either a day or an hour is a better billable unit for you. For this demo, I'm going to define my billable unit by days.
If you are coming from the 9-5 crowd, then please realize you do not get 40 billable hours per week. The only time I can generally bill for is actual shooting time.
For headshots, the session fee includes retouching of X amount of photos. For weddings, there is the initial consultation, email time, editing, preview session post wedding, and album design. For commercial work, the day rate might be higher, but a lot of planning, scouting, and research is done on non-billable time.
Then there's marketing, networking, paperwork, updating your portfolio... The list continues forever. None of those things are paid, but they are all necessary. Since I'm defining my units by days, let's assume that I can only do a maximum of three shooting days per week, or 12 per month. My table would then look like this.
This means that every day I work, I have to make a minimum of $519, and I have to do that 12 times a month. But if 12 is the maximum amount you can do, what about months when you aren't fully booked? What about getting time off with your family? If you take out 2 weeks worth of units (6) and account for months you might not fully book (we'll assume you do 9 on average, taking off 3 per month x 12 months = 36 fewer units) then you have an even higher, but more realistic number.
We did it! We finished using the calculator!
What Does It All Mean?
According to the numbers I put in, it means I 100% absolutely, no excuses, must make a minimum of $733 per day of shooting. "No one is going to pay that much for a portrait session," you say. Let's break that down. It's not as intimidating as you may think.
Getting $800 a day for a commercial photographer is a breeze. Many photographers charge double that if not more. But let's say you're just starting out shooting bands. If you can shoot two bands in a day, then your new minimum is $400 per shoot. That is perfectly reasonable and you could easily book up your schedule doing that. This means, though, that you need to shoot six bands a week, every week.
If you do real estate and charge $200 per house, then you only have to hit four houses per day. Many lower-end real estate photographers can hit eight to ten houses a day, making that a pretty decent income.
Trying to get $800 a day as a portrait photographer sounds intimidating. Your friend here is going to be print sales. On average in my studio, a normal session fee is $300 but then they buy $900 in prints.
Granted, these things happen over the course of three days: one for shooting, one for editing, one for the print sale. But what if you can get three one-hour sessions in a day? Then day two you're editing. Day three you do three print sales and make over $2,500. So in those three days you made over $3,000, or $1,000 per day.
You can also choose to do mini-sessions, where people are paying less, but then you can do eight to ten portrait sessions in a day and make the same amount (or more!).
If you charge $800 for a wedding, you're going to lose money, plain and simple. But let's figure out how this can work for you.
You have to have 8.5 billable units a month. Let's say a wedding is three days of work for you. You spend one day shooting, a day and a half editing, and another half day designing the album. That means that every time you book a wedding, you're not booking one billable unit—you're booking three.
So in this case, your new minimum becomes $2,400 per wedding (not including COG). So if you can book three weddings a month, that gives you nine billable days, and then you're meeting your minimum requirement.
Cost of Goods (COG) and Why It's Extra
I've said several times in this post that this is your minimum not including cost of goods. COG is really a beautiful expense category I gladly pay. Why? Because it means you made a sale and are earning money.
The rest of your expenses like rent, paying your attorney, or web hosting costs, are static. Whether you make a penny or a million dollars, these aren't fluctuating too much.
I've never hired an assistant and then agonized about how I'm going to pay them because the work isn't there. I hire assistants because the work is there and the client paid me enough to have an assistant. While you do need to keep your COG low (no higher than 20-30%), you only ever have to pay for the COG when there is work present. You have to pay food and rent whether you are getting work or not.
The Magic Break-Even Point
Your pricing should be set to the value you offer. But if you're not sure what that value is, make sure it's above your break-even point or you'll run into trouble. Your break-even point is:
Of course, putting your prices higher than break-even gives you profit, which gives you infinite possibilities. Research new products? Vacation? Invest in new gear? Sign up for that course or workshop you've had your eye on? Now you can!