My stepson looked at his first paycheck and asked, “Who is FICA?” This was his first hard lesson about where the money goes – the cost of doing business.
Much of the money we pay for a service doesn’t stay with the service provider.
According to Dun & Bradstreet, “Businesses with fewer than 20 employees have only a 37% chance of surviving four years (of business) and only a 9% chance of surviving ten years.” Of these failed businesses, only 10% close involuntarily due to bankruptcy. The remaining 90% close because the company was unsuccessful, did not provide the level of income desired, or was too much work for their efforts.”
So many good photographers have to turn to other ways to make a living, not due to a lack of photographic skills but poor business practices.
Two things caused their businesses to fail: 1st – they didn’t know the actual cost of doing business, and 2nd – they could not promote themselves.
In 2001, I left a staff position and started full-time freelancing. My business has averaged a 20% growth rate each year for the past six years. Many of my colleagues ask me how I do it.
This coming week I am going to Hawaii to teach business practices for the third year at the University of Nations in Kona. First, I require the students to calculate how much it costs them to live for a year. I’ve found that even the older students who have been on their own for a time typically do not know what it costs them to live.
No matter the profession, if you do not know your cost, you cannot estimate what you are worth in the marketplace.
Once you know your cost and decide how much net income you want to earn, it is easy to determine what to charge for each project to reach that goal.
Take a moment and think of everything needed to do your job. Here are some categories from the National Press Photographer’s Association list I use. Just substitute your terms for similar types to figure out your annual cost of doing business.
- Office or Studio
- Phone
- Photo Equipment
- Repairs
- Computers (Hardware & Software)
- Internet (Broadband, Web site & email)
- Auto Expenses (Lease, Insurance & Maintenance)
- Office Supplies
- Photography Supplies
- Postage
- Professional Development
- Advertising and Promotion
- Subscriptions & dues
- Business Insurance
- Health Insurance
- Legal & Accounting Services
- Taxes & Licenses
- Office Assistant
- Utilities
- Retirement Fund
- Travel
- Entertainment (meals with clients)
Add your desired net income to your annual business expenses, and divide that total by the number of projects you reasonably expect to do in a year. The answer gives you the average per project you must charge clients to pay those bills, stay in business and live the way you want.
Now you must find out if the marketplace will sustain this charge.
On average, you need to charge $1,000 per project to reach your goal. If the services you provide are what people can get anywhere, they will shop for price. If the going rate in your community is $1,200, you are in good shape. If the going rate is $900, you need to cut your overhead—you’re hoping for income, business expenses, or both.
The key to earning what you want comes down to service. You must be able to demonstrate to potential clients that you offer something more if you want/need to charge more than other photographers do.
I have found that I need to know about the subjects I cover more than other photographers do. In addition, I deliver my images a lot faster than most others do. I also listen carefully to what clients say they want and try to meet their needs and go beyond their expectations.
It was a revelation when I first determined my cost and income goals, just as my stepson’s response to FICA and other deductions from his pay were for him.
I do my best to keep my overhead low, but even close to 50% of my gross goes to business expenses. It was shocking to see what I must charge to pay the bills. This knowledge was the fire I needed to get me to put the time and effort into finding ways to make me more valuable to clients and to find those clients by seriously marketing myself.
Do you know what you cost?