Post details: Pricing - Response to a letter

02/22/06

Permalink 08:29:14 am, 989 words, 12111 views  
Categories: Business of photography

Pricing - Response to a letter

I got an email from Chris, one of the visitors of my website. Chris asked about pricing, how to calculate the hourly rate for your services. When I responded my letter was big enough to be considered a small article, so I decided to post it here, so others would benefit from it as well. So here it goes.

The pricing question is a tough one. I myself have not figured out completely. But anyway I will try to help you out as much as I can at this point. Pricing is not only your compensation, but it has a few other sides - marketing and growth. Compensation is simple - it is price of the materials, rent, utilities (and such) and time you've spent on providing the service (and/or salaries you pay). So after that you are square - no gain, no debts. As well you can add deprecation of your equipment and preivious education time/costinto this category.
Then the next simple to explain is the growth - you have to move forward and grow, education as well could be here (depends how you look at it). The growth is profit, which you use in order to expand your business, buy new and better equipment, learn new stuff, train new assistant, and such.

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Marketing is the most subtle and tricky part. For example, if you drop your prices, two things could occur. First, customers will run to you and buy whatever you can offer (more like a sale event). In this case you may have to work much harder to get the same profit as in your starting point. But you would get recognition and some regular customers (penetrate the market). The second thing that could happen is that customer won't come (or will come as not many as you
expected). Why? The answer is perceived value. The price is not the only attractive thing, the value is what attracts clients. And when you sell very cheap, customers think that there is no value and won't buy. Beware of this. I have to notice that lowering the prices is not such a good approach, you have to work harder and overall the industry will suffer, because you lower the pricing standards.
What happens when you raise prices? Less customers will buy your photographs. It's seems so simple. But actually this is much better approach then lowering. Why? You work less, but get the same profit, you able to deliver higher quality and treat customers as royalty. However you loose some of your previous customers. And such approach should be well considered and pricing choosen wisely and at certain level. Otherwise you can hurt your business. The thing here is the
value (again) and the market segment. You have to sell VALUE and benefits, which customers get from you. And target the right market (it could be very narrow), so you would be perceived as a specialist, an expert in this particular field.
Well, this was almost a marketing lesson :) Sorry for that, but it will help you to better chose the pricing strategy and how to set the prices.

OK. Prices.
My hour rate is $50. And I cannot justify it. There are several reasons: I am lazy and have not thought about pricing to the extend I should have; I have another (primary) income, which sustains my life style; and I don't wont to get a lot of work (less is better or less but better). Though when (I am still planning to) I get into real business (establish a company, have marketing materials and advertise, and all that stuff) I will consider all my expenses. Which would include (and probably it's not all):

  • Rent/Morgage
  • Utilities
  • Equipment cost/deprecation
  • Insurance (of all types: home, car, business, equipment, etc.)
  • Car & Gas (and maintenance)
  • Education and Subscriptions (classes, workshops, magazines, conferences, associations, etc.)
  • Sallary (myself and employees - if any)
  • Profit (based on the business plan - where I want to go, expenses on growth)
  • Marketing (advertising, direct mail, marketing materials, business cards, seminars if any)
  • CPA and taxes (depends on the situation)

So finally I would have a certain amount which I would have to spend during a year. What next?
You should know or estimate the quantity of hours you want to spend doing photography - how many portrait sessions, weddings, assignments, meetings with clients, post-processing and etc. Anything, which is related to your business. Now you just divide the first amount by the number of hours you are going to do business during a year. This would be a rough cut on your minimum hourly rate. Start from here and see whether you can raise and keep the clients you have or not.

That would be my approach, I am not sure that this is the best one (definetely the very time consuming one - to calculate all those things). And I am not sure about the photographs yet. I have not choosen an approach yet. Usually I simply add 30% to the cost of the photograph (don't forget to take into account the time to send the file to the lab and ship/handle it). Some people say that the photographs should not be priced differently based on the size, for
instance, 30x40 should not bring you 500% more than 5x7 - profit should be the same, because you have not done 5 times more work. But this is the debate about the percieved value and usual practice in you area.

At the end of my explanation I suggest that you look for more information on the Internet and in books. And here is the link to a topic in a forum, where guys talk about prices. And I reccomend that you would buy the following book - The Business of Studio Photography: How to Start and Run a Successful Photography Studio (Paperback)

I am just reading this book and it has a loot of very good stuff. Buy it and you won't regret it.

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