Blog PostTom Zimberoff: Pricing Photographic Services - Part Four of Six
By Tom Zimberoff, © 2011 Tom Zimberoff - All Rights Reserved
The Components of a Price
Considering all of the different kinds of fees, expenses, mark-ups, and taxes, the criteria for pricing break down like this:
What You Bill Component Factor Usage Fee = Duration + Frequency + Prevalence + Size + Exclusivity Assignment Fee = Reputation Mark-up = Costs x Mark-up % Creative Fees = Assignment Fee + Usage Fee + [(Overhead ÷ Number of Jobs) ÷ 2] Production Fees = Complexity + [(Overhead ÷ Number of Jobs) ÷ 2] Expenses = Total Cost + Mark-up Tax = (Creative Fees + Production Fees + Expenses + Mark-up) x Government % Total Price = Creative Fees + Production Fees + Expenses + Mark-up + Tax
Note: The administrative costs of doing business (overhead) influence both creative fees and production fees, as illustrated in the table above. Overhead is never billed as a separate line item. It is integrated into your profit margin.
A Smorgasbord of Fees
- Creative Fees
Based on Experience & Reputation
- Assignment Fee
- Camera Fee
- Commercial Fee
- Creative Fee
- Day Rate
- Editorial Fee
- Photography Fee
- Shooting Fee
Usually, only one of the 8 examples above is billed on a single invoice. They are all synonyms.
- Experimental Fee
Shooting on spec with a guaranteed minimum payment; usage is not yet determined.
- Reshoot Fee
The client goofed and wants another try.
Based on Licensing Copyrights (Usage)
- Copyright Fee
- Licensing Fee
- Main Illustration Fee
- Publication Fee
- Reproduction Fee
- Stock Photo Licensing Fee
- Usage Fee
Usually, only one of the 7 examples above is billed on a single invoice.
- Additional Usage Fee
- Secondary Illustration Fee
- Production Fees
Based on Time Devoted to Rendering Non-camera Services
- Bidding Fee
- Casting Fee
- Client Cancellation Fee
- Client Postponement Fee
- Consultation Fee
- Holding Fee
- Late Fee
- Lighting and Prop Setup Fee
- Lighting and Prop Strike Fee
- Location Scout Fee
- Post-production Fee
- Pre-production Fee
- Research Fee
- Travel Fee
- Weather Postponement Fee
- Mark-up Fees
Based on Costs Paid by Photographer and Re-billed to Client as Expenses
- Mark-up Fee Billed Overall as a Separate Line Item
- Mark-up as Integrated Into Each Billed Expense
Usually, only one or the other is billed on a single invoice.
Note: Expenses and taxes are not fees, although they are included in the price of every invoice (some states impose no sales tax).
Although price is seldom the only factor considered in hiring a photographer, it always plays a role in determining where and when you pop up on a buyer's radar screen. If publishers are looking for the highest quality, they're not likely to start out by looking for the lowest prices. Therefore, up to a point, the higher the prices you charge, the greater will be the perception of the quality of your work.
Still, some buyers are influenced by low prices more than others. (Please note, however, that this kind of consideration is based on overall price, not just your assignment fee - or so-called "day rate.") Some buyers might not be sophisticated enough to realize the difference between a great shot and merely a good one; so quality is less of a factor. However, even with top-echelon buyers, when all other things are equal (i.e., photographic talent, studio facilities, personality - your caterer! - whatever), price can indeed become the deciding factor.
In spite of making your initial sales pitch on the combined proposition of professionalism, talent, or even high-priced exclusivity, you still have to come up with a figure that doesn't knock you out of the running. For example, are you priced lower than what the market is used to paying (as if you're just trying to break in to the business), or is your price right on the money? Or are you pushing the envelope to see how much the market will bear, raising your prices to attract a more exclusive but smaller clientele who expect to pay more for top tier talent?
Before you can develop a pricing strategy in step with your marketing plan, you must find a comfortable niche for yourself amongst your competitors, a place where you want your customers to look for you and expect to find you. Your goal should be to stake out a "position." Do you want to set up shop between Target and Wal-Mart, or would you rather be Bloomingdales? Are you a Wolfgang Puck or a Burger King franchise?
The Five Factors of Competitive Pricing
Careful consideration of the following five factors will help you find your spot in the marketplace. You must learn to maximize your:
- Competitive Advantage
- Market Penetration
- Market Share
- Volume of Business
- Maximize Your Competitive Advantage
There are two kinds of competitive advantage to achieve in the marketplace:
- Temporary Competitive Advantage
- Sustainable Competitive Advantage
Only a temporary advantage can be achieved through pricing. In other words, lowering your price to unprofitable levels just to beat out the competition can only give you a short-term edge against your competitors. It will be unsustainable. You still have to be profitable in the long run, or face the possibility of going out of business.
The idea of gaining an advantage by lowering prices, even temporarily, can also lure you into the dangerous trap of "low-balling." That practice may help you land a few jobs in the short run, but with the undesirable long-term effect of holding fees at the level to which you lowered them. There is little chance of raising them back up again. (Low-balling is discussed later in detail.)
A sustainable competitive advantage can be achieved only by carefully exercising a combination of talent, professionalism, and marketing skills. To think that you can launch yourself successfully into the market by charging less money than everyone else is naïve; you'll simply make less money than everyone else! Few people will hire you - surely not those whom you want to hire you - solely on the basis of being the cheapest photographer in town.
- Maximize Your Penetration of the Market
Penetration is determined by how fast you can accumulate a set of prospective clients and convert them into paying customers. One-time customers don't count. Eventually that well runs dry. A real customer is one who will help sustain your business with subsequent jobs on a continual basis. Penetration is achieved by winning over customers with great marketing skills, another topic that warrants deep discussion.
Market penetration is best pictured as a graph, where the slope of a line representing the number of buyers is measured against time. The steeper the slope of the line, the better your penetration. The critical question is, If you can achieve maximum penetration quickly enough by pricing yourself lower than the competition and still remain profitable for the time being, can you raise your prices later on and retain whatever market share you might have gained? You may not be able to answer that question until you try it. But knowing your rate of market penetration will give you an idea of how much time you have to break into the market before you start running out of cash. If you can't sustain profitability when there is no barrier for other photographers to enter the marketplace (there isn't in fact), then it is impossible to retain market share. Your customers will go away looking for yet another cheap photographer.
Since most start-up businesses are not likely to generate revenue and profits right out of the gate, the amount of capital funds you have on hand at the outset is also a factor in maximizing market penetration. It will take you a while to generate cash-flow momentum. This is the time during which many vulnerable new businesses tend to go south, when there isn't enough money to reach critical mass, to keep going until there are enough customers to sustain a cash flow. That's why simply lowering prices won't help anyone to penetrate a market; it's impossible to sustain operations for very long without sufficient cash-flow from revenue. Lowering prices temporarily may help achieve penetration more quickly; but only if you have a war chest to start out with and you can trust your clients not to feel uncomfortable when you raise prices to a more realistic level.
Ask a CPA or a financial planner for help in creating your own market-penetration graph. A session or two with a professional photo-marketing consultant might be useful too.
- Maximize Your Share of the Market
Market share is represented as a percentage of the total number of available assignments awarded to you instead of your competitors. It represents your share of the pie. This percentage fluctuates continually, and, therefore, is expressed as a snapshot in time; e.g., "a thirty-five percent market share for the first quarter of fiscal year 2011."
Normally, this percentage of market share refers to what is called the "served market" or "eligible market." The served market is focused exclusively on buyers who are predisposed to want what you have to offer. That immediately puts the odds in your favor. That is to say, in principle, if you are a landscape photographer, you will not compete for market share with those who specialize in shooting portraits.
Obviously, there are markets within markets. These are called specialties and subspecialties. The narrower the focus of your market, the fewer your competitors and the better your chances will be to maximize market share and increase your profitability. If there are lots of portrait photographers and fewer landscape photographers, you can charge more if you are specialize in landscapes.
Be as focused as you can in defining what segment of the market you hope to conquer. Don't try to tackle portraiture, sports, underwater, and tabletop all at the same time; you'll have a harder time making yourself stand out in a crowd. That advice overlaps with marketing issues, of course. But, insofar as pricing is concerned, you'll want to stake your ground within territory that's not too crowded because, by specializing in a subject matter and style for which there is little competition and great demand, you can name your own price. It is not impossible, however, to make a reputation as a "generalist."
As an alternative to the served market, you can look at what is called "total market" share. It's less interesting, though, because it doesn't help you to decide how to target your precious marketing dollars toward a specific kind of clientele. Total market share doesn't point to buyers who are predisposed to want the kinds of pictures you want to shoot. Instead of zeroing in on the fashion media, for instance, you would calculate a share based on the market for all kinds of pictures. That's not very realistic for a fashion photographer. There would be too much competition.
It must be understood that any one of a number of specific markets might become saturated with pictures, when there are too many photographers shooting the same subject matter. This is especially true if you plan to maintain a stock photo archive. If there is a glut of pictures of the Golden Gate Bridge, to use perhaps too obvious an example, their value will decrease as market demand goes down. If the price that the market is willing to pay falls below a level that will sustain your profitability, your only choice is to exit the market for pictures of the Golden Gate Bridge and concentrate on shooting, say, the Eiffel Tower.
- Maximize Your Volume of Business
If your price point is just low enough to attract new clients, you will increase bookings. But, if you lower it too much, you run the risk of critically lowering your revenue to a point where profitability is unsustainable. To get around that problem it is necessary to shoot more assignments. All things considered, the more you shoot the less you have to charge to make the same amount of money.
The more you shoot, the more costs there are to mark up and the more profit you can make. So, it follows that with increased bookings you can mark up billed expenses at a lower percentage rate and still make just as much - or even more - profit. That technique is called lowering your profit margin. For example, if you are billing ten percent more jobs, your business can earn just as much profit by marking up costs, say, thirty percent instead of at a previous rate of forty percent. That will lower your prices and increase your salary at the same time because assignment fees (salaries) are unaffected by lowering margin; i.e., if you shoot ten percent more assignments, you will collect ten percent more take-home pay. That's like giving yourself a raise. But with the lower margin, your prices remain at the same competitive level. You can't do that by simply cutting prices across the board. Incidentally, if you can shoot fewer jobs at a very high profit margin without worrying about encroachment by your competition, more power to you! There are always exceptions.
- Maximize Your Profit
Even without increasing the volume of your business and cutting margin, there is another way to increase profit. You can cut your prices by cutting your direct overhead costs instead. Shooting assignments that cost less to produce allows you to increase profits without raising prices or lowering margin on an increased volume of work. In fact, your margin will go up. In other words, just because you've found a cheaper source for services or supplies, or if you pay less for a new stylist or assistant, it doesn't mean you have to charge less than you did before. You may continue to bill your expenses at the same rate you have all along. That will increase your gross profit. Enjoy the savings!
There is yet another strategy that may work to your advantage. If you can trim your overhead, you can pass the savings on to your clients. That will lower your prices without decreasing either your profit margin or your creative fees. The difference might be just enough to stimulate new business. Put another way, if two shooters bid for the same job, there's no reason why their fees can't be close together, if not the same. But the one who has lower costs, the one who can shoot the job for less money, can also bill less and will probably be awarded the assignment on the basis of a lower-priced estimate. The best news is that, despite under-cutting his colleague, best practices will not have been compromised because he'll still be earning a legitimate profit. That's the smart way to compete.
One final alternative, or one to use in combination with lowering your profit margin, is to lower your assignment fee. If you're shooting more assignments, it won't reduce your overall take-home pay. But, if it turns out that the volume of your work has not increased, make sure your personal overhead requirements can sustain the reduction (i.e., do you have to drive a Porsche, or will a Chevy suffice; and will your vacation be limited to two weeks this year instead of a month?).
- Cutting Non-essential Services
The previous examples apply to cutting costs on services and supplies that you cannot do without. But you can minimize your costs and lower your prices by eliminating non- essential overhead entirely, especially if both your market research and your gut instincts tell you to target only budget-conscious buyers; e.g., small-town ad agencies and regional magazines instead of the big Madison Avenue media moguls. If you lease a studio but find that most of your assignments are on location, get rid of the studio. If you don't require a full-time assistant, use freelancers. There's no sense in paying for mega-watt seconds of strobe lights, grip equipment, and a $25,000, medium-format digital camera back if you only shoot news stories. Tailor the services you provide specifically to the clientele you serve.
A Balancing Act
Making sure the price is right requires continual experimentation and tinkering. As you gain experience, you'll become adept at fine-tuning a bottom line that looks like a bargain to the buyer but is, nonetheless, profitable for you. You must also search for equilibrium between your price and the quality of services you can offer. For instance, if you increase volume too much by shooting too many assignments, the quality of your work may suffer. So, learn to recognize your own capacity to perform well. If you spread yourself too thin, no one will hire you at any price.
Don't base your pricing policy on any one factor. Always consider the five competitive factors as a whole, and it will be easier to hold your ground against fierce pressure from other photographers and the leverage of a buyers' market. Finally, it cannot be overemphasized that keeping your prices as low as possible to remain competitive does not mean you have to lower your salary.
The Relationship of Trade Practices to Maximizing Prices
Publishers - buyers - do not conspire to impose practices, such as demanding receipts for expensed items and setting "day rates;" photographers keep punching holes in the bottoms of their own boats by either tacitly accepting them or simply by persevering in the false belief that they can survive without understanding the principles of profitability. The publishing industry cannot impose rules unless you acquiesce. On the other hand, photographers can impose guidelines on the publishing industry if enough of you simply use them. Your clients play by the rules of capitalism. Will you?
A note from the Shakodo Team: This is the fourth 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: