Pricing: Need info

[HeatherLou]

Okay biz folks, I find myself at a crossroads here. I have realized that my pricing is not effective as it is. I have learned a lot over the last year that has removed the *make it up as you go along* mentality. So my question is, what is the process for effective pricing. HOW do you come up with that amount that lets you cover your cost of doing biz, and still make a profit? Is there a book, website or handy dandy hand out that has this info??? I guess I'm looking for a formula to help me do this?

[BabyHopes]

Subbing

[brad]

Good question.. and for folks responding.. this isn't about what to price.. its HOW.. how do you go about figuring expenses, hourly rates, etc... I'll add my two cents in later (for everyone else, she and I have discussed it already)... but would like to see what others say first. :)

[Aric C. Hoek]

This is a cut and paste from an earlier post that I made that can be found here...

Other photographers can become irate if you disrupt the way of things by low balling.

This is what will happen if you do not charge enough for your product. You will be booking multiple weddings and feel that life is good because you are so booked up. But soon you will find that you do not have enough money to produce the products that you have promissed your clients, and you have already shot their weddings! Yikes! So you try to book more weddings, which only compounds the problem. You will be stuck with one of two decisions. You will either have to offer less product for the same price, or you will need to offer the same product for more price. Your instinct will to be to offer more product for more price, at which point you will be in the same spot. I have tried all three.

The solution is to price correctly from the get go.

Add up all of your expenses. Everything that you can think of, and I mean everything. After all, you are running a business and not a charity, right?

Here is the part that I would do a tad different. Once you figure out your total cost to produce a product and instead of asking your self what would it take to make it worth while, I would say that you need a bench mark. According to PPA, if you are a digital wedding photographer your bench mark is 25% cost of sales. Meaning, take your total cost to produce your product, and for simplicities sake lets say that cost is $100, and calculating what that figure is 25% of. $100 is 25% of what number? $400. Or you can just multiply your cost by four.

Use this rule. You will be glad you did.

30 Minutes for initial phone consultation
1.5 hours for in studio consultation
.5 hours of travel to wedding
6 hours of coverage
.5 hours of travel back from the wedding
2 hours to edit wedding
1 hour to backup and put images online
4 hours to design album
1 hour for album revisions
1 hour to upload the album to the lab and send order to your book binder
5 minutes of quality control once the product arrives back at the stuido
5 minutes to call your client and tell them that it is ready.
20 minutes to present the final product to your client.

Material costs:
Fuel to travel to event and back
Prints for album
Coat and spray of prints
Bind and mount of prints
book cover of prints
shipping prints to the book binder
shipping prints back from book binder

Add all this up. That number is 25% of what number? That is what you charge for your product.

So what do you do with the other 75% you collected from your client?

Pay your salary
Pay your studio rent
Pay your insurance
Pay employees
New equipment savings
Save some money for working capital (rainy day fund.. after all photography is a luxury and not a necessity)
Advertising (magazine, web, bridal shows, etc)
Phone Bill
Internet connection
Cell Bill
Electric if it is not covered in your rent.
Print costs (sample prints and albums)
Advertising materials (business cards, brochures, etc.)

Just as the PPA sets the bench mark of 25% Cost of Sales, it also tell you what percentage the above expenses should be. How much of the 75% should you be putting toward advertising? How much should go towards employee costs? etc. It has a percentage for everything... including YOUR SALARY!

I can't and won't disclose that information because this is information that the PPA provides, and you need to be a member to get that info. Intellectual property kind of thing.

At any rate, I hope that this wasn't more than you asked for, but it is the way the world works. Its a bit more than "how much should I charge for an 8x10". People who have been in this business for some time are passionate about making their business work, and they are proud of the scars that they have received in their journeys to get where they are. I can tell you though, once you have all your numbers in place, you have a feeling of enpowerment that allows you to move forward with confidence. Find your numbers. They are different for everyone, because we all deliver a different quality of product. Let me know if you want me to go into that at all and I will.

[HeatherLou]

Aric, your heading in the direction I wanna go. And its not that I wanna know how to price an 8x10. I'm more wanting to hear the process photogs use to come up with how they price things. How they come up with there price structure. How do you make it effective. How do they come up with a salary. Does that make sense???

How much is PPA?? LOL

[CaptainTom]

Becoming a member of PPA is well worth the relatively small cost.

[MicWayWal]

Heather,

Services:
First you must have the ability to track your income and expenses precisely to the job or assignment. If you can do that, then you can figure out what you are making per hour after your expenses. Using your history as a guide you can determine what are the most profitable products or services that you offer.
Years ago I thought I was making a lot of money with weddings. When I put a pencil to it I discovered I was making about $25 per hour, less than a plumber. I decided to raise my prices so that I was making $75 per hour for the average wedding that I produced. It drastically changed how much fun wedding were for me and how much I made.

Print Products:
Through financial analysis I discovered that most of the profit from my business came from 5x7s. I thought it was from wall portraits because they were more expensive and I always sold them. But I also sold 10 to 12 5x7s to every wall portrait. So I had to build my business and profits on producing 5x7s.
A lot has changed in the past 10 years regarding print and album products. I used to charge $XX.xx for each and every print that left my studio. My cost was exactly the same for each and every print that I made. It was almost impossible for my clients to copy my work.
Now people can copy my work with ease. So I had to change my strategy. I realized all of my labor is completed when I make the first print. So I raised my price for the first print to a large amount to cover my labor costs. So now my first print is $XXX.xx and each successive print is $X.xx. The small amount for my additional prints is to cover my print cost only and to take away the incentive for people to make inferior copies. My profit is made on the first print.

Determine what you want to do and then charge enough to make what you want to make. If not change what you do or produce.

[HeatherLou]

Thanks Michael! I want to have my new structure in place by the first of the year, cuz 2009 is my *marketing* (other than WOM) year! While I don't think I'm under priced, (I'm mid range in my area) I want to make my pricing more effective, and to make sure that I'm pricing the right way.

[CaptainTom]

While listening to Obamas acceptance speech, I'll propose that you think about putting together a business plan. If you ever want to borrow money to build the business it is necessary. It will also put you closer to that pricing question.

here's one of many resources.

http://entrepreneurs.about.com/od/bu...ness_Plans.htm

[HeatherLou]

Thanks for that link Tom, and I do agree that I need that. However I will make my biz work with NO loans and NO credit cards. When I started this, Jeff and I had a long conversation about how to fund my little business. We worked very hard to get our selves completely out of debt. We have no desire to run my little biz by borrowing!

[w9ctm]

Originally Posted by Heatherlou

Thanks for that link Tom, and I do agree that I need that. However I will make my biz work with NO loans and NO credit cards. When I started this, Jeff and I had a long conversation about how to fund my little business. We worked very hard to get our selves completely out of debt. We have no desire to run my little biz by borrowing!

Heatherlou,
Congratulations on this decision. In the long run, you will be much happier with yourself, and your husband. You will never have to endure the, "I only need $400 this month to make ends meet for the business. I promise things will pick up honey..." The only indebtedness I enjoy (?) is a mortgage and a motorcycle payment(my other vice). Traci and I are very happy that we don't ever have to argue about how to pay our bills.
The other way to look at it is simply that you made it on your own. Perhaps you could have been a bigger, stronger presence in your market by borrowing. But this way, everything you have for your business, you earned it yourself.

Chuck

[ngoduyviet]

A lot of good advice. Just want to tag this thread to re-read when I go full time with photography.

[carrbowl]

I think I've decided that it is not so much the pricing that is the problem, that is "teaching" or "selling" people your product. After I spent hours taking photos, getting them "ready" for printing, making from scratch a collage, hand picking each of their daughters photos and putting them in the collage, putting them on the website, etc, etc, etc, you know all that is involved, I had a parent want to do a collage with FOUR photos in a 4 x 6???? Now granted if she really thought about it, I know she would realize that would be too small, but it makes you realize people don't think about photos as much more than snapshots unless someone makes them really THINK about what they are looking at, buying, thinking of purchasing, whatever...they just have the quick buy mentality...I think we as professionals have to get them to change that thought process first. Then the price issue will be easier to deal with...yes it still will be an issue and still will be difficult.

[toverman]

Just chiming in to ride the gravy train of good advice.

[HotHolly]

This is what I did...as Mike watched through his fingers in horror. lol.

I looked to see what the market was currently bearing. Which wasnt much. I looked at our Country Clubs - yes we have two. And wondered why we had no upscale photogs here. Statically, Abilene is broken into lower class and upper class with very little middle class. So the middle class market is usually the prime aim, b/c its the largest. I chose not to aim there being competition was too intense for the smallest market in my town.

After I chose my target demo (you can chose yours for your own reasons) I looked at the bottom line the average session had to gross to turn a profit. After that decide what profit you want from your average session and break it up b/t the session fee, prints, products, retouching, etc.

After that I added to it what my time was worth. If Im not with my kids, I better be getting paid through the eyes for it. Call it mommy guilt, but that is the main reason I can mentally justify my prices. I know how much my time is worth and that it could be spent elsewhere. I read that idea from something Bambi Cantrell said, and then latched into it later.

So I sit down and look at what clients want, are willing to pay for, and studied what they were justifiying as need vs want when they buy. Based on that, I priced products where they needed to be to gross the average cost of each sitting. Example - Baby sessions want that board book around here. I had been offering it for $300. My baby sessions post session sales were grossing around $400 - they bought the book and an 8x10. When I took the book off the table and made it available only with an $800 total order - they sold to their family for me and bought lots more stuff. My average baby session AFTER that change is grossing ~ $1700. Im trying to bump it over the $2K line.

Mind you, I dont mass produce. You can shoot cheaper and shoot a lot...and turn a profit. I didnt want to. What ever you choose to do, it has to make sense to you. Thats part of the reason copying other photogs doesnt work well. You have to be able to defend what you're doing and why it costs $XYZ.

Since you have been doing this for a while, go back through your papers and see what products your clients bought most. Look at your sales sheets and see if you can arrange the same products in a more profitable fashion. I always make more money on print sales than products so for me to offer the products at a discount undercuts my sales. You should be able to see stuff like that by looking at your sales sheets.

Does that help a little? Start big picture and then start to break it down.

And Im glad Aric reposted that list. Ive linked to it in the past and its gotten so buried, its hard to find. Great list!