Just because you enjoy your work doesnt mean that you should have to do it for free

So, if the COS accounts for only a small percentage of the actual price of the product, where does the rest of the money go? Well, after the COS is subtracted from the selling price, that leaves you with what we call margin contribution or gross profit. That is the amount that is used to pay the overhead (the investment costs and general expenses discussed on page 117-18). Whatever is left over is, of course, your profit. Let's say you have a COS of 30 percent. That will leave you 70 percent of every dollar coming in to cover your overhead and your profit. When it comes to profit, a good goal for at the end of the year is at least 10 percent. This is how you grow your business, afford new equipment, and give yourself a nice raise. And wouldn't that be nice?

Some of you will get to the end of this exercise and realize, for example, that your COS on an 8x10 is $40 but you have them priced at $35. That mean that if someone comes in and orders only one 8x10 you will lose money. If you have a rock-solid sales system in place at your studio, the one 8x10 order will probably never happen, but your a la carte pricing should take this into consideration.

So how do you determine the right selling price for your products? Let's say you have a COS of 30 percent, and you sell your a la carte 8x10s for $100. If you divide 100 by 30, you come up with a factor of 3.3, which is what we call your markup factor.

If you have a 20 percent COS, then your mark-up factor would be 5 (20 into 100).

If you have a 40 percent COS, your mark-up factor would be 2.5 (40 into 100)

If you have a 50 percent COS, your mark-up factor would be 2.0 (50 into 100)

Get it, got it? Good. This is not graduate-level trigonometry, but it's important you understand this concept. So, if your markup factor is 3.0, you multiply your COS by 3.0 to come up with your selling price. For example, if your 8x10s have a COS of $40, multiplying that by 3.0 gives you a selling price of $120. For some of you, that may be way out of whack with what your market will bear, so let's see if there is any other way for us to come up with a different selling price.

Factor in Your TIme

With digital now part of our everyday lives, we now have a new item that we must figure into our calculations: time. This is the biggest mistake I see photographers make all over the world: they don't put any value on their time and don't incorporate their time into any pricing calculations. How much is your time worth? Remember, customers need to pay for your expertise, knowledge, and experience, not just your products.

Let me take it a step further. If you were to hire someone fulltime to be your "digital" guy or gal, how much would you pay them to handle all of your editing, workflow, retouching, artwork, and uploading? $1 0 per hour? $1 5? $20? $25? Are you willing to work for that? Actually, most photographers must be, because that's exactly what they are doing.

I do understand that if you are the only staff in your studio, it may be difficult to justify hiring someone. It probably seems much easier to just handle the work yourself. But what is the real cost of that time you are giving up? Has anything suffered because you now find yourself glued to the computer twenty-five hours a week? Are you noticing that your list of hobbies has been reduced to watching the FTP status bar as your order is being uploaded?

There may not be a short-term answer for this, but I want you to at least spend some time really thinking about this question. In fact, there is someone out there right now that can do just about all of this for you. They don't need any training and they can start today. This person is called your lab! Give them a call and talk with them about how they can help you. You may be pleasantly surprised.

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If you want people to make a real investment in your artwork, your price list cannot be a cheap photocopied sheet of paper. These pages from the senior portrait price list at Chatsworth Portrait Studio show how simply and attractively prices can be presented.

What if we used a session fee in our calculations? The print costs us $40 and we have a 3.0 markup factor, giving us a selling price of $120. But we have also collected, say, a $50 session fee. If we subtract that $50 from the $120, that leaves us with a new selling price of $70. Is that more in line with what your market would be able to bear? Remember, these are only example prices I am using here, so you have to use real numbers from your studio in order to come up with the right data.

Packages (volume sales) can also come into play in these calculations. That first unit sold bears the biggest burden of cost (we have to capture all of our expenses in that first unit). But how much does the second identical 8x10 cost? You have the actual cost of the print, a little bit of labor to get it ready for delivery, and you have some packaging materials—let's say $5. That's it! The rest of the costs associated with that print have already been captured in the sale of the first 8x10.

Now, for the two 8x10s you have a COS of $45, the original $40 from the first 8x10 and the $5 for the second

8x10. Are you starting to see the picture a little clearer now? There is much more profit on that second 8x10 (or the third or the twentieth). This is why packaging or bundling can be so successful if done correctly, and we will talk about that a little later.

So, the cost-based pricing model basically says that once you figure out what it costs you to produce a print, you multiply that number by a predetermined factor to come up with a suggested selling price for an item.

The biggest problem with this type of pricing is that it does not effectively maximize your profits or take anything else into account other than what it costs you to do business. However, it's where you have to start. The value you determine using this method is basically the lowest price that you will sell an item for.

Competitive-Based Pricing. Unlike cost-based pricing, competition-based pricing takes into account what your competitors are doing with their pricing strategies.

As you are very well aware, some products are more price sensitive than others, so you must be aware of what is going on in your marketplace. I'm going to ask you the price of some everyday items and I want you to come up with the price. Ready?

1. A gallon of milk

3. A gallon of gas

4. A new digital camera

5. A can of pumpkin pie filling

7. A movie ticket

9. A Japanese dwarf maple tree

10. An all-you-can-eat buffet

11. A gallon of bleach

12. A drive-through combo meal

13. A pound of morel mushrooms

14. A nice bottle of wine on Friday night

15. A hanging plant basket

16. A desktop computer

17. A Lamborghini sports car

18. A box of Kleenex

19. A ream of printing paper

20. An electric dog fence

Most of these items probably assigned a value instantly in your brain. Other items—like a can of pumpkin pie fill -ing, or the Japanese maple, or the Lamborghini, or the electric dog fence—may have stumped you just a bit.

If you were to go into five different grocery stores to compare the price of a gallon of milk, they would all be within a fairly tight range. You probably wouldn't find one store that charged $1 and another that charged $100, would you? Same with a gallon of gas, or a car wash, or anything that is considered a commodity. The prices must be perceived as at least being in the ballpark or, as consumers, we close our minds. If the local gas station was charging $45 for a gallon of gas, would we even think about stopping in? I don't think so.

What items in the photography industry are considered "commodities" and need to be at least perceived as being in the ballpark for competitive reasons? How about sessions? Or 8x10s? Or wallets? Or the price of your entry-level package? In looking at your pricing from a com petitive standpoint, you need to be aware of what your potential clients will gauge your worthiness on—how they will determine whether or not you are in the ballpark. So wouldn't it make sense to make sure that your pricing, or at least the perception of your pricing, was viewed as being competitive?

You may actually be the most expensive studio in town because of all the little things you do to add perceived value and to provide your client with a luxury experience, but the way your pricing is presented must still show your client that you are in the ballpark.

Should I Put My Prices on My Web Site? Should I Hand Them Out?

That's a great question and causes many photographers quite a bit of grief. My view of web sites is that they should exist to create excitement for your photography and to entice a prospect to either send you an e-mail—or better yet, pick up the phone and give you a call. The job of your web site is not to sell, which is what you are doing when you post your prices on the Internet. A web site can't build a relationship, create a rapport, or even ask questions. That all must be done by the human element. However, the sales process can be made easier by a professionally designed web site that has good content and helps educate the client. As a professional photographer, though, you cannot sell anything from your web site.

Now, if you would like to post ranges, that is perfectly fine— but remember that you don't want your web site to be your "screener." It should not decide who gets in and who doesn't. That should be up to you or someone on your staff. If you are a few dollars more than the other studios in town, posting those prices on the web will definitely not be a good idea; you won't be able to show people why you are a few dollars more, or why you would be the perfect photographer for them.

The exceptions to this are for things such as photographing school dances, or sports teams, or when you want to advertise certain special promotions. Other than that, your regular bread-and-butter pricing should always be given out by a warm-blooded human being.

Once you have established a connection with a good prospective client on the phone—and once you have established your value to them—you can make an educated decision about whether or not you want to send them something in the mail. The best solution, of course, is to have them come into your studio, but we all know that sometimes that just isn't possible. Just use your best judgment.

Lifestyle (or Demand-Based) Pricing. Lifestyle or demand-based pricing is perhaps the most important element to consider when determining prices. It's a combination of everything you have ever done to create a high perceived value for your products and services with the lifestyle you want for yourself and your family—the car you want to drive, the home do you want to live in, where you want to go on your vacations, the toys you want to own, the type of clothes you want to wear, the hobbies you want to enjoy. All of these things must be determined before you can decide on what price to charge, since the money that you bring in to your studio is directly related to what dreams you have in your life.

So, how much will your market bear? Unfortunately, I don't know that answer. That's something only you can determine.

What's Best?

Have you been able to figure out which method would be best for your business? Actually, the best method to use is a combination of all three.

First, figure out what it costs you to open your doors in the morning, what it costs you to produce your products, and then assign a markup factor to come up with a price for each product. This is the absolute lowest that your pricing can be, unless you plan on losing money and not being around in a year to answer your phones. Then, do a competitive analysis to see where you are compared to the other players in your market. Finally, determine what kind of demand there is for your products and services and what lifestyle choices you have made for yourself and your family. Put all three sets of data together and you will be able to come up with a pricing structure that is both profitable and well thought out.

In previous chapters, we looked extensively at how to create value for your products and services, how to position those products in the mind of your perfect client, how to build a positive image in your community, and how to create a sales atmosphere that compels clients to invest more money with you. All of these things must go into your calculations, as well. The goal is to create a high level of desire long before you talk about price. It's like building a house—the foundation must be poured before you can put up the walls, or the windows, or the big-screen television.

Digital Camera and Digital Photography

Digital Camera and Digital Photography

Compared to film cameras, digital cameras are easy to use, fun and extremely versatile. Every day there’s more features being designed. Whether you have the cheapest model or a high end model, digital cameras can do an endless number of things. Let’s look at how to get the most out of your digital camera.

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