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How to Calculate Your Cost of Doing Business – And Other Necessary Numbers

Cards on the table time. Math and I are not friends. Never have been. From those dreaded flash cards in elementary school to my scary geometry tutor in high school, math and I have always been at odds with each other. In college, when it was suddenly optional, I avoided the subject like the plague. Even in my professional life, I’ve managed to get a handle on what I need to know and not much else. Thankfully, this mutual disdain that the mathematical arts and I share, seems to have skipped a generation. My 12-year-old son is doing high school algebra this year, and has been instructed by my wife to never, EVER, ask me for help. Ever.

Into every life, however, some math must fall, even those of professional creative types like photographers. Most of us don’t have the resources to hire business managers or year-round accountants to crunch the numbers, tell us what they mean, and how they need to change (although hiring such an individual is top priority when I win the lottery this weekend). Since we are left to our own mathematical devices, it is crucial for us, as photographers, to have a solid grasp on the numbers and how to calculate them. A common mistake among photographers is that they don’t take a methodical approach to calculating things like their creative fees, licensing fees, or even just the photography itself. Many seem to just pluck a number out of thin air. The difference between knowing, and not knowing, how to do this properly can be the difference between staying in professional photography or going to work at Starbucks, and I don’t drink coffee.

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Cost of Doing Business – What it Is and How to Figure it Out

Before you can even think of  putting a number on any of your services, you need to have a solid grasp and understanding of your cost of doing business (may be referred to as CODB). By the name alone, you’d think this would be an easy calculation. It certainly can be, but only if you take a logical, comprehensive approach.  Your cost of doing business is the result of an equation. Non-reimbursable expenses, plus your desired salary, equals your total annual costs. Your total annual costs divided by your number of billable days equals your cost of doing business.

I can practically see your eyes glassing over right in front of me. Stick with me, all will be made clear.

What are “non-reimbursable” expenses? These are the costs associated with keeping the lights on and the doors open. Rent, computers, phones, internet, insurance, gear, office supplies, etc., fall into this category. The American Society of Media Photographers has a great online calculator to help you with this, as does the National Press Photographers Association.

Obviously, we all want our salaries to be as high as possible. But, as with all things, you need to be realistic. Would you rather have the occasional, higher-paying assignment and sit around worrying the rest of the time, or maybe price yourself a little lower and work more consistently? Be realistic.

Billable days is exactly what it sounds like. As photographers, we don’t really work a “normal” week. We work early in the morning, late at night, on weekends, and everything in between. That doesn’t mean, though, that we don’t need time off. I know that I keep throwing the word “realistic” around, but it’s crucial for coming up with accurate numbers. There’s no way you can profitably work seven days a week, 52 weeks a year. Sick kids, your wife’s birthday, your anniversary, vacations, emergencies, car repairs, stopping to smell the roses and not just photograph them – there are going to be plenty of days where you can’t work or simply don’t want to. Being able to set a number of billable days is important to setting your fees (and maintaining your sanity).

Instead of thinking in terms of “billable days,” you may find it easier to think in terms of your number of shoots per month. You can download a basic Monthly Cost of Doing Business Worksheet here. As you can see, it requires taking a long, detailed look at your monthly expenses, both professional and personal, and it is by no means an exhaustive list. Everybody’s list will be different. You may find it useful to spend one full month accounting for each and every expenditure and seeing where it falls on the worksheet. Once you have a handle on your expenses, dividing that number by the total number of photo shoots you can do each month determines your monthly cost of doing business.

Once you’ve properly calculated your CODB, you are in a must better position to do the same for your creative and photography fees.

Setting Creative Fees

Unfortunately, this is not a fee that you can charge just for sitting around and thinking creatively. If it was, I’d be a multi-billionaire living in a medieval castle on my own private island. Instead, the creative fee is charged by the photographer for his or her efforts in bringing a project to a successful completion. In addition to time spent, the creative fee may be calculated to include factors like the photographer’s experience, special expertise, or anything that contributes to the overall creative effort. While this is where some of the intangibles like reputation, etc., can come into play, this is no place for your ego. You still have to start with your CODB. It is the foundation of your house. If it’s weak, everything else is going to crumble around you. You may be left with some nice stuff, but without the walls and the roof, you won’t have it for long.

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Pricing Your Photography

KNOW YOUR MARKET

Just as with the salary variable in calculating CODB, we all want to be able to price our photography as high as possible, but if you are going to succeed over a sustained period of time, you also have to be realistic (there’s that cursed word again!). For starters, you need to know what the market will bear.

A photographer in Manhattan is likely to have much higher expenses and overhead than a photographer in Detroit. On the other hand, a photographer in a more remote area might be able to charge similar rates to the New York photographer because the client may have fewer local options. Photography is a service industry and is subject to the same prevailing economic factors as any other. This is where research, networking, and relationships come into play. If you aren’t sure what your market will bear or why, you absolutely need to find out. Talk with other photographers, not only within your market, but within your specialty as well. If you are a commercial portrait photographer, knowing the value of wedding photography isn’t going to do you a whole lot of good.

KNOW YOUR CLIENT

You should also remember that you can (and should) charge different amounts for the same photograph under different circumstances. I may photograph a cup of coffee for a local coffee house identically to how I would photograph it for Starbucks, but guess who’s paying more for it?

KNOW YOUR PRODUCTION COSTS

Another factor in pricing your photography has to be your production costs for the specific assignment. Recurring production costs will show up in your cost of doing business analysis, but individual shoots can, and often do, require job-specific expenses. Will you have to rent equipment or studio space? Will you have to cater meals for your models and crew? Will you need to secure permits in order to shoot at your preferred location? These are just a few of the questions you need to ask yourself in order to evaluate your own investment in the shoot. How much do you have to make on this particular shoot in order to cover not only your CODB, but any additional expenses that it requires?

Convincing the Client

You already know you’re good. Now it’s time to make sure the client knows. You can have your Monthly CODB Worksheet all filled out. You can know everything about your market and specialty. You can even know how much your time is worth down to the penny. To the uneducated client, though, the biggest question they want answered is, “Why does this cost so much?” You need to be ready with an answer and it had better be a good one.

Now is the time for confident, not cocky. You need to be ready to explain exactly why your quote is what it is. Remember that old line, “Never let them see you sweat”? The moment a prospective client senses a lack of confidence, you’ve lost them. You already know the question is coming, so be prepared with a good answer. As with all things client-related, you have to listen to them and be ready to lay their objections and concerns to rest. Yes, I am an artist, but I’m also a businessman (I’m sure much to the chagrin of my high school geometry tutor). I have a family to feed and I can’t always be drawing lines in the sand around my artistic principles. If that means looking for compromises, so be it. If I know my CODB, though, I’m in a much better position to negotiate those compromises and create added value for the client.

Knowing When to Walk Away

Your cost of doing business is not just a number. It’s a ruler, against which you can measure many things, including the potential success or failure of a project. Remember that this number is a minimum. The rock bottom number that you need to meet on every job just to make sure your business survives another month. If this client isn’t going to let you do that, you have to be prepared to walk away. Do it nicely. Do it respectfully. Agencies, art directors, publishers all talk to each other. What do you want them to say about you?

Despite our differences, math and I have reached a sort of detente. I’d describe our relationship as being more of cautious respect than admiration, but we work well enough together to get the job done.  Now if my 12-year-old could just graduate college already, and become my bookkeeper, I’d be all set.

 

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Jeff Guyer

Jeff Guyer is a commercial/portrait photographer based in Atlanta, GA. Still an avid street photographer and film shooter, Jeff also launched a kids photography class called: Digital Photo Challenges.