This article is written because I see many photographers asking the same question over and over again. I thought it would be helpful to provide all the information you need to answer your own questions. Or at the very least, for those 2% who search before asking questions.
Why should you listen? You should not blindly trust anyone, and you should fact-check everything. I am a business consultant. People pay me to help them run their businesses. Although I don’t claim to be the most intelligent person on the planet, I feel confident about what I have to say.
The Value Chain
This article does not answer all your questions, but it will give you a great tool to help solve your own problems. This will answer almost all the business questions that I’ve seen over the Internet in the past few months.
This tool allows you to take a day to examine the value chain in your business. The value chain is a fancy way to describe the steps involved in creating a product of value. It also includes the cost and value at each step.
Example: I might be selling lemonade at a lemonade stand and buying $100 worth of product. It takes me 1 hour to put up the stand, 3 hours to sell, and 1 hour to beg my mom to pick me up. This is what we call creating ($200-$100)/(1+3+1 = $20/hour).
We also know the value that each step adds. It would be a waste of money to hire someone to help me set up my stand. It’s not worth it if my little brother runs the stand unless they are priced below $60.
This applies to photography. Making the “lemonade”, like in any business, is only one step. There are also business functions that you need to perform (e.g. Billing, marketing functions (e.g. Advertising, process functions (e.g. Editing, and other small tasks (e.g. Transportation. These are often overlooked or undervalued, which can lead to a loss in profit margin.
Let’s take a look at some examples to show you how this can be applied every day.
Example 1: A friend is asking you to shoot their product/event/person/dog, how much should your friends and family discount be?
This is a common misconception. However, there are business reasons to offer discounts to friends and family. Look at the value chain and see all the steps that you don’t need to take because they are friends. They came to you, so there’s no need to promote. Because you are already friends, you don’t have to network. You can communicate with people more quickly because you can work out details when you are there.
Let’s suppose you charge $900 for a job. Add all these savings together and you get $300. If you’re having trouble finding clients, you could offer the job for $600. This will save them $300 and give you a profit that you wouldn’t have otherwise. You can offer the job to clients for $750 if you’re busy with clients. This will save them $150 and earn you $150 more because you have saved all costs.
In both cases, knowing your value chain and what your needs (more clients, more income, etc.) is key. You can make a sound financial decision about offering a discount. It is also a win-win situation, as you both stand to benefit from the discount.
Example 2: You hear of this app that can help you find clients. Do you want to join?
Similar to the lemonade stand example but slightly reversed. Instead of hiring someone to set the financial boundaries, you’re being hired. Your value chain can help you make decisions and save the day.
As I have always assumed, anyone considering this gig is new to business. First, think quickly about red flags in your value chain. How much time were you spending on client acquisition versus editing/shooting? If networking takes 70% of your time, you’re outsourcing 70% of the profit when you outsource this task.
You may be a novice shooter and think 70% is absurd, but a Google search will show you how long professionals actually spend shooting.
Most photographers spend around 15% of their time editing and shooting, while others may only spend 6%. If you only want to shoot/edit, you’ll only get 15% of the profits. What does this app sound like?
A typical food shoot at a small restaurant will cost you $400. This is the average price for most photographers, even newer ones. If you are working for an app, expect to be paid $60 per hour for your work. Divide that amount by the travel time to the site, set up the food and tear it down. Then, edit your hourly wage to get a 15/hour. You may decide that it is worth it, or you might not. However, you have the information you need to make an informed decision.
A Value Chain
How do you create value chains?
It might seem tempting to take % from Internet articles. However, this won’t work. Your work is unique and requires different effort. Clients are unique and may require different work. You may need more or less time depending on where you live. Your business model is crucial. Are you selling prints? Do you want to sell to individuals or businesses? Do you want to build repeat customers? Create your own value chain.
You should consider the following:
1. List every step that you must take to make a profit. You can include things such as advertising, networking and chasing clients for payment.
2. Keep track of the time it takes at each step. Ask professionals for help if you are unsure. If everyone is against you, adjust your estimate to make it more accurate, but this should be used as a last resort.
3. Set an hourly rate for each stage. You can think of it as this: Instead of asking what you want for each step, you should ask what you are willing to pay an hour to have it done by someone else. This is because it allows you to see these as the minimum cost, which is what your mind wants.
4 Add up your hours and multiply it by your hourly rate.
An example of a value-chain:
Task 1 Recruiting clients. 20 hours per week $10/hour $200 total.
Task 2 : Editing/shooting. 3 jobs per week, 3 hours per job. $20/hour $180 total.
Task 3 Transportation. Three jobs per week, one hour each. $10/hour $30 total.
Task 4 – Business operations (e.g. Billing 10 hours per week $10/hour $100 total.
What does it tell me?
1. I expect to work 42 hours per week.
2. I expect to have $510 per week in “costs”.
3 I require them to pay at minimum $510/3 = $170 per job.
4 I lose $200/$510 if I outsource client acquisition. This is 40% of the potential profit.
5 I can offer transportation to clients who do not need it (e.g. In my building, I can offer them $30/$510 = 6% off
Not These numbers have no relation to the real world.
These are the breakeven points for everything. For example, I wouldn’t price a client at $170 as that would be cost-plus pricing, which is usually considered to be bad. Pricing is another problem that must be addressed and it would need its own article.
This Harvard Business School article will help you learn from smarter people than I am. Porter’s detailed and more precise value chain analysis is only for companies with multiple departments. It’s not necessary to be as detailed for a small business with only 1-5 employees, but it will help!