Tom Zimberoff: Pricing Photographic Services - Part One of Six
By Tom Zimberoff, © 2011 Tom Zimberoff - All Rights Reserved
You are not in business to be a photographer; you are in business to make money!
How much should I charge? That seems like a simple enough question. It demands a simple answer. But the answer is neither simple nor obvious. A host of variables must be considered to resolve what turns out to be a rather complex question. And the issue merits more than just one-time consideration. You are obliged to reconsider pricing each and every time you begin a new photo assignment or respond to a stock photo request, no matter how long your experience in business. While the criteria for pricing never change, prices always do.
What Is a Picture Worth?
Everyone knows a picture is worth a thousand words. But isn't it also worth more than just the time it takes to make one?
It only takes 1/125th of a second or so to snap a photo. Anyone can do it. Nevertheless, some photographers make big bucks while others, perhaps just as talented, merely scrape by. So why are some photos priced higher than others? Why does the work of some photographers seem to be inherently more valuable than others? What factors allow such disparities to exist? The following anecdote may give you some insight.
A wealthy couple was honeymooning in the south of France in the early 60s. The groom was a connoisseur and collector of fine art. In fact, he owned several paintings by Pablo Picasso. By coincidence they met an art dealer at their hotel who knew Picasso personally and offered an introduction.
The party arrived at Picasso's studio a day later and was treated to a tour by the master himself. During small talk, the groom gathered his nerves to ask Picasso if he might consider a commission to paint a portrait of his bride. Picasso agreed, and the couple began chattering excitedly about extending their hotel stay and buying a special gown for the sitting, until Picasso interrupted to ask if a photograph of the young woman was available. Her husband handed over a snapshot from his wallet. The master told them to go into town for lunch and leave him with the photo. If they would come back in one hour, he would have a painting ready.
Astonished, the couple left with the art dealer and returned an hour later, just as Picasso put the finishing touches on a splendid, if rather abstract likeness, of the bride. Everyone was pleased and they agreed on a fee. Money was no obstacle to the groom, but with his jest that $25,000 was a pretty steep hourly wage for painting pictures Picasso's retorted, "You don't pay me by the hour! You pay for years of experience that make it possible for me to paint such a picture in only one hour."
Uncertainty About Pricing
The story suggests that the price you charge is hardly determined by how much time you spend behind a camera. Obviously, your time merits some degree of consideration. But it cannot be the most important criterion in pricing, let alone the only one. So what else determines the price of published photographs?
- Is price entirely dependent upon how my clients publish my photos, or.
- Do my talent and the quality of my work count most of all?
- Should my personal experience dictate how much to charge? (If so, how long will it take before I start earning enough to support the lifestyle I want?)
- Does the difficulty of an assignment become a pricing factor?
- What if I run over budget or over schedule?
- Am I supposed to break even on production costs and bill for a "day rate" on top of that amount or...
- Should I charge more than what it costs me to shoot the assignment plus a day rate?
- If the answer to the last question is yes, how much more do I charge?
- How do I figure out ahead of time what all of my costs will be, so I don't get burned by estimating too low?
- Should I rely on what other photographers charge for the same type of work?
- Should I charge anything at all for the time it takes to shoot an assignment?
The Difference Between a Price and a Fee
Price refers to the bottom line, literally the last and final figure on a Job Estimate, Job Confirmation, or Invoice/License of Rights. The price of an assignment must not be confused with any one or more of the separate fees that are comprised within its total. It is, in fact, the grand total of all your fees plus production costs, mark-ups, and sales tax. When it comes to billing, a price means not just the whole enchilada but the combination plate.
For instance, a so-called "day rate" is merely one particular kind of fee. It is not a price, per se, because it represents only a fraction of what the buyer has to pay. If you billed clients for day rates alone, you would by definition neglect to bill for any itemized expenses. You might also leave yourself exposed to severe government-imposed penalties for not collecting and remitting sales or use taxes. Moreover, you would not make a profit.
A price includes everything buyers have to pay for:
- All of the production services you provide (at various fees) plus...
- The costs you've incurred to execute an assignment plus...
- A profitable mark-up on the aforementioned costs plus...
- Applicable sales and use taxes plus...
- A license to publish the resulting photo(s)
The Complexity of Pricing
As you can see, pricing photography is no simple matter. But anyone can master the skill. Complexity becomes an issue only because photographers must often bill more than one kind of fee on a single invoice. However, complexity does not necessarily mean difficulty, especially when you have business automation software to help you, such as PhotoByte.
Since particulars vary from job to job, certain kinds of fees and charges will not apply to every price. For example, you wouldn't add a specific line-item charge for either film and processing or digital services to a stock photo invoice. Nonetheless, you should still charge for such things indirectly because it costs you money to shoot an archive of stock photos in the first place. Making such a valuable resource available to your clients demands a profitable return on your investment.
Overhead: How Cost Affects Price
The cost of doing business affects the prices you charge. If your own costs are too high, you may have to raise your prices to compensate, making it harder to compete against photographers whose costs are lower and who can, therefore, bill lower prices. If your business requires you to pay for a big studio with a staff of assistants and technicians, you may not be able to accept the kinds of jobs that photographers who work out of a home office can produce more cheaply. That's why some photographers merely rent studios and hire contractors on an as-needed basis. It cuts overhead.
Overhead is the money it takes to keep your doors open for business each day, whether you've got bookings or not, and whether you've actually got a studio with doors to keep open or not. You've still got overhead to pay for, with just a laptop and a camera sitting on your dining room table. But without the financial burden of a full-time studio, it's possible to make yourself more competitive (i.e., more attractive to clients) by charging less than a studio-based shooter because the mortgage or rental cost of the studio must be amortized into the price of all assignments. In other words, you've got to bill for it whether you use it or not. Even photojournalists, who work on location, can rent studio space by the day, if need be, and bill it back to their clients. (That would be a direct cost, as explained below.) However, eliminating any part of your overhead, including a studio, allows you to reduce prices without reducing the profit you earn.
Although having a studio is merely one example of overhead, it must pay its own way by earning a profit (i.e., you must bill more for it than what you pay for it). Even if you rent studio space on an ad hoc basis, it is merely a personal indulgence, not a business necessity, if you don't expense it with a line-item mark up each time you invoice a buyer. If you use a studio often enough, so that the cost of owning it or leasing it can be amortized (i.e., spread out over many assignments), even by renting it to other photographers, then you have attained a competitive advantage. It would be an indirect cost in that case.
Indirect costs cannot be attributed to any single assignment, yet they are a part of your overhead. For example, when you buy a page in a sourcebook to advertise your work or pay to maintain a Web site, the entire cost cannot be attributed to the first buyer who assigns you to shoot a job. So you will amortize the ad by attributing a fraction of its cost to every assignment you shoot over time. That could mean raising your prices by a corresponding fraction. For example, if it costs you $1,200 for an ad, and you shoot fifty assignments per year, you would divide 1,200 by 50 and add the $24 result to each invoice. Actually, in practice you will accomplish this by increasing your profit margin. That way you don't have to itemize the cost of the ad on your invoices. It won't stick out like a sore thumb, inviting objections from buyers.
What is Profit Margin?
The issue of profit margin will come up again several times later in this text. But it's a good idea to make sure you know what it is now, while it's referenced in a specific context. Here it is. Take all your income, subtract all the costs of doing business, and divide that number by, again, your total income.
Expressed as a percentage, it tells you how much of every dollar your business actually keeps after paying your salary, agent commissions, vendors, assistants and stylists, office rent, and everything else it takes to run a business. This percentage, or ratio of dollars you have earned to dollars you have to spend to earn anything in the first place, shows how well - or if - your business is growing.
The higher the profit margin, the better. (See Footnote 1)
You can use this figure to see how well you control your operating costs and spending. Since profit margins vary greatly from one industry to another, you should only use profit margin to determine how well your business is doing (i.e., how profitable it is) only when compared to other photographers. In other words, it's not useful to compare a lucrative profit margin in photography with that of a grocery store.
When an indirect cost is not billed back to your buyer (in the form of a line-item expense), and it is included in your profit margin instead, it is commonly called a "buried" expense. That's not to imply sneakiness or underhandedness. It's the way legitimate businesses operate. It simply avoids the alternative of flagging a cost that is not intended to be itemized, so it has no chance of becoming a topic for negotiation. More about that later.
The same principle applies to camera and liability insurance policies, to cite another example. A portion of your annual premium should be applied to each photo shoot. However, insurance costs are not always buried. Many photographers bill their insurance premium as a pro-rated, line-item expense - a direct cost plus mark-up. In some markets this is an accepted trade practice. There are many similar examples.
Indirect costs also apply to the production of self-assigned stock photos and portfolio samples. Call it shooting "on spec" if you will, but production costs and mark- ups must still be built into your licensing fees. If you don't do it, you are not making a profit.
Each photo assignment you accept will co-opt a fraction of your overall budget for marketing and self-promotion. Besides sourcebook ads and Web sites, those costs include picture postcards, business cards, postage, portfolios, and agent commissions. Then you must consider the cost of ancillary services, such as legal, accounting, insurance, and graphic design. There are other indirect costs too, ranging from office supplies to client entertainment. The list goes on and on.
Incidentally, all of these indirect costs represent money well spent (on marketing) because they help you find new jobs and grow your business. Consider them investments. As such, almost all of these costs are tax deductible. So don't forget to discuss them with your accountant.
Consider the capital cost of your camera gear too. It's not going to be worth what you paid for it by the time you get it home and take it out of the box, but the difference between what you paid and what it's worth can be depreciated on your income tax return.
Camera equipment requires repair and replacement from time to time - and that requires cash. Therefore, indirect costs include keeping your equipment in tip-top working order. You can't afford to have a camera, a lens, or a strobe light fail in the middle of a shoot without back ups. And back-up equipment is expensive to acquire and maintain. If you don't own back-up gear, you may have to pay to rent it each time you shoot. But all of these items qualify for tax deductions, in spite of the fact that their costs may be factored into your pricing and paid for indirectly by your clients.
Finally, you must factor in all of the banking and credit services you use each month to pay for professional services and supplies. You probably pay hefty interest rates and fees to the banks that issue those plastic cards you rely on, and also to vendors who provide you with open accounts; especially if you are late paying them once in a while. Nonetheless, however much you pay for credit, that amount of cash is no longer available to you, to earn interest in your checking or savings account or to build equity in real estate or a mutual fund. Credit, as much as anything else, represents an indirect cost. It pays for a service that must be factored into your pricing. So, you see, just as you personally must earn a fee for shooting pictures, your business must earn a fee for providing these ancillary services. If it does not, you will end up subsidizing your customers and losing money.
Partial List of Indirect Costs:
- Advertising, Marketing, and Promotion
- Camera Equipment
- Digital Processing Equipment and Software
- Commissions (to artist's rep)
- Dues and Subscriptions
- Employee Salaries and Benefits
- Client Entertainment
- Interest Payments (cost of credit)
- Legal and Accounting
- Licenses and Permits
- Maintenance and Repairs (for both real estate and photo equipment)
- Office Supplies and Computer Equipment
- Postage, Shipping, and Messengers
- Security (burglar alarms, camera vaults, etc.)
- Telecommunications (ISP, cellular phone, telephone, and fax, etc.)
- Transportation (automobile, taxi, trains, buses, rental cars and vans, etc.)
- Utilities (gas, water, electric; trash removal, etc.)
- Vacation Time
Direct costs are more conspicuous than, say, the postage you spend to mail self- promotional postcards each year. Direct costs are usually associated with - and charged to - a particular shoot. They include such things as the hiring and supervising of assistants, stylists, location scouts, and models, as well as the rental of specialized photo equipment for each assignment. These costs are billed directly to your clients as discrete line items on every invoice. That is why they are called direct costs. They also include what you spend for digital services, film and processing, hotels, toll roads, gratuities, props... you name it. Direct costs include the commissions you might pay to model agents too.
Costs Versus Expenses
A cost means a charge against your business, the amount you have to pay for a product or service. An expense means something you bill to a client. In other words, they pay. An expense is, in that context, part of your revenue. An expense is calculated as:
Cost + Mark-up
Finding a Starting Point
One of the most common mistakes made by new photographers is to price themselves too low. It's bad enough that they trust rumors and hearsay from photo assistants, lab technicians, bloggers, and pundits to determine what other photographers are charging; those are not reliable sources of intelligence. But they do it anyway, deliberately pricing themselves below whatever figure they happen to hear on the street, presuming that they can break into the market by offering bargain basement prices. Wrong! If you don't think you're good enough to demand top dollar for your work, neither will potential buyers. Buyers do not pick photographers based on price alone. If you think you can establish a foothold in the marketplace by pricing yourself below market levels, even if you simply guess what seems like a modest or "fair" price, you are shooting yourself in the foothold.
There is no magic formula to come up with a price, nor is there such a thing as a "standard price" for any kind of photo assignment. Every shoot is different. Every shoot demands a different price, even if the subject matter is similar. That goes for stock photos too, because they are used in an infinite variety of ways. But there does exist a sense in the marketplace of what buyers are willing to pay, of how high they're willing to go. This theoretical limit is called a market price. Its meaning is often grossly misunderstood.
A market price is based upon what the preponderance of photographers has billed for similar assignments and stock photo sales in the past. Unfortunately, however, the market price can be too low when the majority of photographers don't know how to formulate a price. That's why a market price should not be held up as an industry-wide standard. It may nonetheless prevail because of how easily photographers have succumbed to the pressure of competition; some of it unfair. That pressure will be leveraged against you to its fullest extent because of the economic power buyers wield. They will pit you against other photographers. If those other photographers (i.e., the ones "shooting themselves in the ‘foothold'") are unsophisticated about pricing, the only result you can count on is lower revenue overall; i.e., lower prices and lower profits for everyone.
In the end, pricing boils down to bargaining skill. That's the difference between the price you ask for and the price you get. Remember this: all fees are negotiable. But, as you already know, fees represent only a part of every price. Other parts are not negotiable, such as the expenses you bill. With that in mind, don't settle for the first offer you get. Get as much as you can! Don't be embarrassed or afraid to ask for what you want. (A good rule of thumb: if you don't feel guilty, you're not charging enough.) Once you start quoting low prices, it's hard to bargain them back up. To put it succinctly, and in the inimitable words of former Heavyweight Champion George Foreman, "Dog don't bark, dog don't eat!"
Even though it's tempting to simply charge what everyone else does - or at least what you think they do - based on what competitors and buyers might tell you, you can get into trouble that way. They don't always tell the truth. There are better ways to ascertain a market price. And there is no rule that says you can't push the envelope, driving prices higher.
It's easy to find sources of photo-pricing information. They generally show a range of fees billed by photographers who have responded to a survey. Examples of dollar amounts are separated into columns (e.g., low, medium, and high) corresponding to various types of media use.
Beware that pricing surveys are rarely accurate or complete:
- Surveys do not always account for more than a basic usage fee, yet there are usually additional fees and costs to factor into the bottom-line price for a photo shoot.
- Surveys can be skewed by the number of respondents, which may include only a small percentage of those photographers who were actually polled.
- The respondents from one regional market may outnumber those in another. If you're not given that information, the survey will be tainted, because what might be a high fee in Denver might be considered low in New York City.
- Surveys become out of date quickly because prices are susceptible to change.
- Finally, surveys do not single out photographers who have used best practices to determine pricing and profit structures. Consequently, any carelessness on the part of the respondents (especially when they are few in number) will lead to unrealistic and artificial prices, whether biased on the low side or the high side. You have no way of knowing how many - if any - of the respondents regularly mark up their billed expenses and earn a profit, let alone whether they billed any expenses at all. And you have no idea what their actual costs are.
Please note that trade associations publishing surveys are sensitive to charges of collusion, or price fixing; something that is forbidden by federal law. They are not allowed to set prices or even to provide guidelines for setting prices. They are only allowed to make public the information they have polled from their members. So never tell a buyer, for instance, that the ASMP recommended such and such a figure as a fair price. There are no "ASMP minimums" and no "ASMP day rates." That applies to every other association too.
Downward Pressure on Prices
The upshot of surveys is that they can drive prices down. Here's how.
When you try to bill a reasonably profitable fee it is the buyer, ironically, who may invoke the results of a survey to tell you that your price is too high. It doesn't matter how outdated that survey may be, the buyer may demand that you adjust your price down to match its results, no matter that costs have risen dramatically since it was first published. That makes it hard for photographers to raise their fees in conjunction with rising production costs.
Surveys tend to establish rates for photographic services, whether the information they contain is economically realistic or not. They can be used favorably, to some extent, to gauge what the market will bear, but only when examined intelligently and in conjunction with additional economic factors, such as the five criteria you should always use to determine a competitive price:
- Competitive Advantage
- Market Penetration
- Market Share
- Volume of Business
More about them later.
Surveys may be seem to be an okay starting place for rank novices, but experienced professionals know how their own pricing strategies can be compromised by the poor influence of such appraisals. One cannot rely on the results of a survey to indicate a price that will maximize profits because fees vary so widely from one respondent to another, and from one day to the next. So read surveys shrewdly and don't depend on them exclusively. If buyers can beat you over the head with the results of a survey, they will. Keep in mind that a market price is not necessarily a "fair market price" when it comes to surveys.
1) A company grossing $100,000 in annual sales with $10,000 left over after paying all costs (including salary and taxes) has a 10% profit margin. That means, for example, that the company has a net income of 10¢ for each dollar of sales. You could do better by either decreasing your costs (including your personal salary or finding cheaper vendors and supplies), increasing your fees, raising your mark-up on billed expenses, or shooting more jobs - or all of the above in any combination. You'll read more about these techniques as you go on.
A note from the Shakodo Team: This is the first installment of 6 guest posts by Tom Zimberoff, the fifth guest blogger in our series of industry experts sharing valuable advice with the photographers community.
Bio: BIO: Tom Zimberoff, is a classically-trained clarinetist (USC School of Performing Arts) who nevertheless began a career as a photojournalist covering the Rock music scene in the 70s. Subsequently, he turned his attention to other topics and, for twenty-six years, traveled throughout the world on assignment for many popular magazines as a member of the Sygma photo agency and, later, Gamma-Liaison. His images of celebrities, scholars, artists, scientists, business leaders, and politicians, including two sitting American Presidents, were published regularly worldwide, including covers for Time, Fortune, Money, People, and other periodicals. Later, as an accomplished commercial photographer, his work was featured in the annual reports and advertising campaigns of many Fortune 500 companies.
Zimberoff is known for his portraiture, with examples collected by the National Portrait Gallery in London, the Los Angeles County Museum of Art, the San Francisco Performing Arts Library & Museum, the Eretz Israel Museum in Tel-Aviv, and the Corcoran Gallery of Art in Washington, DC, among other institutions. His first two subjects were Marx and Lennon - Groucho and John, that is.
Zimberoff is an authority on the topic of applied business administration in commercial photography. He is the author of "Photography: Focus on Profit" (Allworth Press), the first college textbook about the business side of photography. He has also contributed articles to the leading photo-industry trade journals. Zimberoff also created PhotoByte®, the leading business-management software application for commercial photographers.
Zimberoff was born in Los Angeles in 1951. He was raised there and in Las Vegas, Nevada. "Portrait photography," he says, "is a predatory sport. I stalk my prey like a big-game hunter, look for a good clean shot, and try to avoid unnecessary wounds. I hang their heads on a wall to admire like trophies."
After a ten-year-long hiatus from shooting pictures to pursue other business interests, Zimberoff picked up his cameras once again to illustrate his best-selling two-volume work entitled "Art of the Chopper" (Bulfinch Press) as a tribute to his decades-long affinity for custom motorcycles. He has most recently curated several exhibitions of the motorcycles featured in his books along with his portraits and documentary photographs of the artists who created them. Installations include the William J. Clinton Presidential Library, the Appleton Museum of Art, and the Kansas City Museum at Union Station.
Zimberoff lives in San Francisco, California.
Tom Zimberoff's Web Site: