Tom Zimberoff: Pricing Photographic Services - Part Five of Six
By Tom Zimberoff, © 2011 Tom Zimberoff - All Rights Reserved
Net Profit
At this point it is appropriate to include a more academic definition of profit. Conventional wisdom has always defined a simple formula for photographers and other sole practitioners to follow:
Income – Costs = Profit
It's rather simplistic. It implies what most photographers take for granted: profit must be what one takes out of a business to live on, that it's the same thing as a salary. It is a mistaken idea. Profit is not the same as salary. On the contrary, salary is actually a cost.
Because the only criterion used to measure success for any business is profit, it is imperative to understand it. Those who believe they are profitable just because they can find enough money in their checking accounts from month to month to pay their bills are delusional. Their self-confidence is buoyed by the occasional big assignment. But they are actually just scraping by. They were working hard to survive but not thrive. (Forget about getting older or disabled, unable to shoot any longer!)
The definition of profit is not different for photographers than for other professionals. But misconceptions and ignorance have endured for so long within the culture of photography that they have led to a decline in earnings overall.
Three factors contributed to this decline:
- There once was a belief within the academic community that commercial success had a corrupting influence on photography, that photography was only about art, and that making money had to take a back seat if a photographer's work was to be considered respectable. No one believes that anymore. No one can afford to believe it, literally. But there used to be a stigma attached to the idea of striving too hard to be profitable. It was unspoken, of course; but neither did anyone in academia speak out for a curriculum that included teaching how to run a money-making business.
- No one, neither the leadership of professional trade associations, educators, working pros, nor clients had until recently recognized and tried to institutionalize the administrative differences between the business of photography and other kinds of small businesses populated by freelancers. We now recognize that the business of photography has its own idiosyncratic administrative rules. These are called best practices.
- The technology did not previously exist to help administratively overburdened freelancers put their knowledge - whether it was learned in school or on the job - to practical use. So, there was no consistency in the use of best practices. Without consistency best practices do not effectively exist.
Profit is a percentage of gross revenue. Gross revenue is your total income from all categories of sales, including all the money your business collects from shooting assignments, stock photo licensing, royalties from publishers and agencies - even simply from renting your studio to another photographer or selling a used camera. So the first step in understanding profitability is to acknowledge that salary is a cost to your business.
The highest level formula looks like this:
Gross Revenue - Direct Costs = Gross Profit
Of course, the Direct Costs in that formula do not include your assignment fees (i.e., your salary). The next step in the calculation is to subtract Indirect Costs (See Footnote 1), or overhead. Now the formula looks like this:
Gross Profit - Indirect Costs = Profit
Finally, you must subtract the taxes and interest you have to pay:
Gross Profit – (Interest + Taxes) = Net Profit
et Profit (also called net earnings, or net income, the bottom line) is the figure you are truly looking for. It is also called the Holy Grail.
Giving Clients Their Money's Worth
The marketplace mirrors the competitiveness of human behavior. Sellers demand the highest prices they can get, while buyers try to keep their costs down. Everyone is looking for a good deal. The parties negotiate to agree on a price, which may sometimes be reached by compromise.
Each one of us has sat on one side of the bargaining table or the other, at one time or another. Generally speaking, each one of us hopes to be better off as the result of any given transaction, whether we are the buyer or the seller. In fact, the best deals are those in which all parties find themselves better off.
Even a trip to the grocery store results, typically, in a deal that's good for two parties: You are better off, having exchanged money for food that will sustain your health, and the store makes a profit. If you buy a new cellphone, you increase your capability to communicate. If you buy a new pair of eyeglasses you can see better. If you buy a new suit of clothes you look and feel better. If someone purchases the right to use your photo, either by direct assignment or as a stock photo, they hope it will 1) help to increase the sales of their services or merchandise through print advertisements and public relations literature, or 2) sell magazines by using your photo to add value to editorial content, thereby adding value to their readers' lives, and so on. Everybody is supposed to make a profit of one sort or another along the way. That's how an economy works. But some of us sometimes feel an overwhelming urge to win; and all too often winning implies that there must be a loser. That's not necessary.
While there is nothing wrong with trying to squeeze as much value or as much use as possible out of everything we pay for, remember that your customers feel the same way when they come to you for a photograph. They want their money's worth too. Sometimes we bump heads if it seems like someone is trying to take an unfair advantage in negotiations, or trying to get something for nothing.
Every buyer earnestly wants a fair deal. Unfortunately, "fair" sometimes means protecting the interests of corporate shareholders at your expense. Be vigilant. Don't let your guard down. They will push and prod and probe the boundaries of fairness, and sometimes cross the line. But that's the nature of business. It's an economic competition. Expect some participants to declare war. If you are prepared, not only can fend off defeat, you can declare victory simply by being profitable.
Lowballing
Charging lower prices and still making a profit, because it doesn't cost you as much as it costs someone else to do the same job, is called good old-fashioned competition. That's a good thing. Billing an assignment for less than it costs you to produce, however, is called low-balling. That's a bad thing.
Low-balling is an unfair pricing practice. It means hitting below the belt, taking jobs away from other photographers by radically and unrealistically undercutting the market. The photographer who low-balls a job has a corrupt idea of what it means to be competitive. He will try to win a job at all costs. But it costs the low-baller more in the end.
Whether the low-baller has his way or simply forces competitors to match his price, someone will win the job, indeed, "at all costs." What could have been profit for the "winning" photographer is, instead, forfeited to the client. It is a gift that will go unrecognized.
Why do photographers do this? Fear. They fear the loss of any immediate opportunity to ingratiate themselves with potential buyers. They believe that, by offering their clients favors, by shooting assignments below cost, more and better-paying jobs will be forthcoming. But there is no quid pro quo between buyers and sellers. It is delusional to believe that undercutting profitability for any reason whatsoever will bring home the bacon.
The consequences of low-balling have less to do with one photographer's self- inflicted misfortune and low esteem than with the cumulative impact of this practice on the entire industry. Because of its imposition on other photographers, low-balling becomes an ethical issue. When one foolish photographer forfeits his profit, the loss is felt long afterward by everyone else because the low-balled price sets a precedent. Such precedents can cause prices to tumble like dominos. Nevertheless, low-ballers try to defend themselves from criticism by pointing out that, in an open market, they are free to charge whatever they want. That's true. But it represents a perverted idea of freedom, one that is selfish and short-sighted. That's putting it politely. It's stupid.
Ultimately, market prices will fall below sustainable levels of profitability for even the shrewdest photographers, as they become obliged to compete with each other for increasingly lower-priced assignments. (This has a lot to do with microstock pricing too.) It's hard to reverse that kind of momentum because, once buyers see prices drop, they will fight to keep them down. That fact will come back to haunt the culprits who have kept the low ball rolling downhill. Sooner or later, they too will find it impossible to stay in business. They will fail, taking other more scrupulous shooters over the cliff with them.
The Issue of the "Free" Portfolio Piece
It is just as unethical - let alone unwise - to shoot an assignment solely to recover your "out–of–pocket" costs with the intention of creating a slick, new portfolio piece. That, too, is low-balling (See Footnote 2).
Don't kid yourself. That portfolio piece is not free. But as far as the client is concerned, you are! Any unprofitable job sets a bad precedent and jeopardizes your future financial success. There is no rationale for low-balling whatsoever. It is a deplorable practice.
Understanding Buyers' Prerogatives
Often, a buyer will come to you with a tight-fisted budget. But just as often, that budget will have been derived by no more scientific or fiscally prudent a method than to hold one finger up to the wind. You might be - as many photographers often are - offered a fee that has nothing to do with the reality of how the photos will be used, but only with how much money they care to spend. That's not indicative of a tight budget; that simply represents a buyer who doesn't understand how the photo business works.
It may be argued that photographers put themselves at a disadvantage when they force potential clients to work harder, by making them wrestle with realistic budgets based on actual needs instead of how much money they have to work with. On the contrary, those are the kinds of photographers who turn prospects into paying customers. Buyer's who don't put some thought into purchasing photography make bad clients. They seldom turn into repeat customers.
You can certainly accommodate buyers with smaller budgets by scrutinizing the requirements of the shoot and eliminating non-essential production costs. You can limit a buyer's usage rights too, granting only those which are both necessary and sufficient, as described earlier in the section called Billing in Increments of Value. And additional rights may always be purchased later on, as they become needed. That way, at least, you can proceed with an assignment without completely losing the opportunity. Besides, why cave in to a buyer's first offer? There is always a way to deal fairly with a buyer's tight budget.
When the alternative to a bad booking is to turn it down and get paid nothing at all, it's pretty hard to realize the actually worse consequences of taking the job and not getting paid enough. But sometimes getting nothing is better than getting too little; that is to say, accepting a job that is unprofitable. When buyers demand too many usage rights but don't have a budget big enough to satisfy their appetites, either just say no, or point to your copyright-licensing yardstick and suggest a smaller but more adequate portion for a fee that they can afford. They will often see the logic in this approach and come back with either a bigger budget or more reasonable demands. At the very least, this will create a starting point for earnest negotiations. But if they really can't afford to hire you, it's not wise to lower your standards just to avoid losing the job. If you lower your standards, you will find it nearly impossible to raise them again. You've been marked.
Buyouts and Unlimited Rights Agreements
If you fly out of town for business, it doesn't make much sense to buy a new car when you reach your destination. You'll rent one.
The rental car company will have you sign a contract, whereby you agree to pay for using their car at a rate based on how long you intend to drive it, and where. And a Cadillac will cost more than a Chevrolet. The licensor (the company that owns the car and offers it for rent) will not relinquish its ownership to you, the licensee. You will simply pay for the right to use their property for a specified length of time.
That's the difference between a license and a buyout. Nevertheless, the term buyout can mean a dozen different things to a dozen different people. It has no recognized legal definition whatsoever. Frankly, if it can't be eliminated altogether from the vocabulary of the photo marketplace, it is preferable to keep its meaning vague. Keep licensing language specific instead. Still, the term is very much in use, so it merits some discussion.
Some people believe that a "buyout" applies to an entire shoot, to every exposed image including outtakes. Others think it applies to a single image, to just the one that was actually published. There are also people who believe that a buyout lasts in perpetuity, while others subscribe to the belief that it lasts for only a limited time. Still others think it means the absolute transfer off all publication rights, including copyright; and so they demand physical possession of the exposed film, or a RAW digital file. But generally speaking, most publishers think that a buyout means exclusive ownership of all the rights to your images - perhaps including physical possession - for the price they paid on your invoice. Effectively, they are demanding that you give up your copyright for a risibly low fee.
Buyouts and Bullies
The demand for a buyout can be a bullying tactic. If the buyer is too lazy to determine his specific needs, he may insist on the whole shebang for one low price, an all-or- nothing-at-all approach. But no matter what fee you might be offered for a buyout, even if you hold on to the copyright, you will lose control over the use of your photos and receive no further financial compensation for their continued use and publication. All you can do is claim authorship, maintaining the right to display them in your portfolio. You can derive no further income from those images.
Instead of capitulating to an absolute buyout, you might offer your client a buyout within, say, the State of Rhode Island exclusively, if the company does business in that state alone. Or how about an exclusive license for all rights, but lasting for only six months (after which everything reverts back to you? Alternatively, might they consider an all-rights buyout in the Portuguese language? And so on...
Always ask buyers what their exact needs are. After a little bit of friendly haggling it can usually be determined that their needs are not so broad and comprehensive after all. Give them some alternative suggestions for limited rights purchases. Explain that, if they want to buy an entire steer, it will cost more than the price of a couple of T-bone steaks. Do they need to feed an army or just put dinner for two on the table? Once you have the answers to some simple questions you can quote an appropriate and reasonable fee for just what the client needs, not necessarily what they ask for right off the bat.
Sometimes, however, it is reasonable for you to consider selling so-called "unlimited rights" for use in all media. But that does not mean you have to relinquish your ownership and copyright, not even to grant such broad leeway to a buyer. A buyout might be justified, for example, for the publication of photos of a specific brand of dog food in an ad campaign, so there could be no possibility of future sales to other dog food companies. Simply make sure the price is right, if you do grant unlimited usage rights!
Buyouts and Bullies
Dozens of reasons may be invoked to demand a buyout. A common one, but fallacious, is that the client should own the pictures because the assignment was his idea. Doesn't matter! Legal ownership rests by default - and for good reason - with the creator of any tangible work. Only the material expression of an idea (i.e., turning it into a photograph) is copyrightable, not the idea itself. The client claimant is simply not legally entitled to ownership of the photos.
Your clients want their businesses to prosper just as much as you do yours. They may operate on a bigger scale, but they just want to allow their employees to earn a decent living, and their shareholders to make a reasonable return on their investments. Their goals are basically the same as your own. So what else are they after? What are their real needs, photographically?
Protecting a Client's Corporate Prerogatives
Your clients have invested a tremendous amount of money in branding their corporate and product identities. In fact, the ways in which companies present themselves to the public can be construed as intellectual property, just like a photograph. They have legitimate needs to protect the value of their assets, including a corporate image. A professional photographer must be sensitive to this issue and cooperate as much as possible.
In seeking control through a buyout, clients may be trying to prevent images they commissioned from being used by their competitors, or in any other way that could be harmful to their proprietary interests. However, sometimes their attempts to control photos are unjustified.
For instance, you could be hired by a company to photograph its CEO for an annual report. Later, you might receive a request from a magazine to publish that same CEO portrait, which, you find out, will be used to illustrate a less-than-laudatory article about his leadership of the company. While this editorial use might cause some embarrassment and distress to the public relations director at the company who hired you in the first place, he should take up his issue with the magazine, not with you.
Sure, the PR department might try to control the "spin" on a given news story, and they might want to control the distribution of your photo in that regard. But, if there was nothing intrinsically awful or embarrassing about the photograph itself, i.e., the subject isn't looking cross-eyed, picking his nose, or wearing a goofy tie at your request, they have no moral right to control it. They can buy the right to control its distribution, however.
If clients are concerned about who else might have access to pictures for publication, they should pay for exclusivity.
Note: Many photographers edit their images to exclude and sometimes destroy potentially embarrassing photos before submitting them to their clients.
Another reason often cited for a buyout is an objection to paying for subsequent uses of photos on an á la carte basis. Buyers sometimes argue that it is an administrative annoyance to determine the whereabouts of a photographer, negotiate a new fee, and cut a check every time they decide to use a photo, one they commissioned some time ago for an unforeseen use in the future.
These are all legitimate concerns. But you can quite easily and equitably address them. The trick is to act professionally and not to get defensive.
Contingency Licensing Fees
Consider the á la carte complaint. The buyer is thinking about commissioning you to create a photograph for an ad campaign. His company is unsure about how or even if they expect to run more ads in the future, beyond the initial insert in one edition of one magazine.
The campaign in question is for a new product, untried in the marketplace; the buyer doesn't know if it will catch on. However, if the product launch is more successful than anticipated, he might want to run your photo for a longer period of time and in additional magazines. He might later decide to use it on billboards and in TV commercials that were not included in your initial price. He may, at some point in the future, go national instead of just local with the ad.
Another possibility is that you and the buyer might have agreed on the use of only one picture, but now he sees that you have created enough images in just one photo session to use throughout an entire ad campaign lasting many weeks or even years. He is dead set, however, against the prospect of having to find you and ask your permission to publish the photo(s) again and again. He doesn't like the idea of having to renegotiate a separate fee each time either. But he is unwilling to pay in advance for rights he is not sure he will need to use.
It is a universally accepted trade practice that the bigger and wider the scope of use, the more money the photographer will be paid. So why should any photographer be expected to give up all possibility of earning additional revenue just because the buyer can't decide what he wants to do? The answer is, You should give up nothing! There is a simple solution to avoid doing so, while still making your client happy.
It would not be wise to include prices for hypothetical uses in a Job Estimate because it would inflate the bottom line. And if, as a result, your price was misconstrued to be too high, you might lose the assignment. But consider the predicament of the buyer. He may not be able to afford to pay for extended and additional uses right away, at least not until his product has launched successfully. So one way to keep costs down and still keep the buyer apprised of possible future costs for hypothetical uses is to quote such costs in a separate document: a Contingency Fee Schedule.
This is a document that accompanies either a Job Estimate, Job Confirmation, or Invoice/License of Rights, and it will lock in prices for future uses to the buyer's satisfaction without necessitating a financial commitment in the present. It makes matters simpler for your client by precluding the need for further negotiations. He'll know what his costs are for additional usage up front. He'll only have to pay if and when such uses are executed. It isn't hard to anticipate what uses there might be. In fact, PhotoByte will give you a list on the Contingency Fee Schedule itself.
Dealing with Stubborn Clients
Finally, there are some companies that are absolutely adamant about owning copyright or obtaining a buyout. They don't even care to give you a reason; it's just "company policy." Although you may desperately want to shoot for such a company because, say, they might have a great art-direction staff, make sure you are fairly compensated for relinquishing your rights. If not, just say no! It's just not good for your own business otherwise. You will get burned eventually when they use your pictures again and you don't get paid. It could be at a time when you really need the money.
When Billing a Lower Fee Is Appropriate
In fairness, it must be said that there are circumstances when it is neither unethical nor self-defeating financially to accept a relatively low fee. One such circumstance might be when the pictures from an assignment will be published inconspicuously or for only a brief time. If, in the case of an advertising agency, only a tiny proportion of their overall budget is to be spent on media space, let's say a one-time, one-eighth-page insert in a regional magazine, charging a low fee is probably reasonable. But, surely, you must get the point by now that, if an ad agency spends many hundreds of thousands of dollars to buy full-page advertising space in national magazines and on Web sites for a twelve- month run, you should demand a commensurate usage fee. You should also expect to make a hefty profit on your production costs.
If you must, you certainly may negotiate a lower creative fee with a client. But, to avoid low-balling, just remember not to go below a level that will support you and your business, taking into account all the fees you are likely to earn throughout the year on a pro-rated basis. As a rule of thumb, base your fee on the total amount of money the client has budgeted for media space.
Can you get by without this mumbo-jumbo about usage-rights? Sure. But, again, you will only survive instead of thrive, because you will have no other way to stimulate the growth of your business. Chances are it could so south instead. So you must know how to price for profit! You may have one great year followed by lousy business for the next two years; terrific again for two years after that, and then it tanks for three more. It's a roller-coaster ride that brings sleeplessness and indigestion instead of increasing wealth. In the final analysis, your clients are just trying to keep their costs down. In principle, there's nothing wrong with that. Just don't lie down so they can walk all over you.
Footnotes:
1) Again, examples of indirect costs include: rent, electric, office supplies, telephone, ISP, salaries and benefits, interest, travel, entertainment, advertising, legal and accounting, licenses and permits, dues and subscriptions, maintenance and repairs, postage, insurance and credit card services, etc.
2) Assuming the resulting photo(s) are used commercially by the client.
A note from the Shakodo Team: This is the fifth installment of six 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:
http://www.zimberoff.com
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