Starting a business is a Catch-22. I’ve touched on the topic before in previous UGLY TRUTH post titled Red is Normal for the First Few Years in Business.

Unlike some other photographers who teach it’s okay to take out a $60k loan to spend on advertising and equipment, you’ll find me teaching quite the opposite.

SURE you will need to buckle down and spend some money in order to get your business up and running, but how do you do this without going deep into debt!??

Here’s what I would do if I was starting out from scratch opening a photography business:

1. Read Dave Ramsey’s Total Money Makeover from cover to cover, twice. Listen to his show. Become a debt dominatrix like me. Get passionate first and foremost about getting your personal finances in order. Make sure you’ve dumped the debt AND have an Emergency Fund (EF) before diving into business full time.

2. Get a day job. Or two or three. Make sure you AND your spouse (if applicable) are maximizing income any way possible. If this means you have to wait tables and work at the job you hate for a while longer, do it. If you have to scrub dishes at night and teach at the YMCA on weekends, do it. I did it (yes, all of those – even the scrubbing dishes part!) If you don’t have the plush EF plus a few tens of thousands of dollars to start your business with yet, keep on working to pay the bills and save up to invest in your EF and business.

3. Learn, Learn, Learn. Shoot Shoot Shoot. Go work for free for anyone who will take you. Bend over backwards for them, helping them with all the mundane office tasks and be grateful when they let you shoot with them. Develop your style and brand identity EARLY so you don’t waste lots of time and money refining and defining it over and over again later. Build your portfolio. Don’t copy your mentors or the photographers on all the blogs you stalk. Pave your own road to success by discovering what style, experience, and processing is unique to you. Remember that Photoshop is like the brain – you only really ever use 10% of it. Learn the 10% and move on. Photoshop will suck up your time otherwise, especially if you’re just learning.

4. Know your NUMBERS before you start. If you’re not priced right, you’re bound for failure. I’ve met quite a few photographers who, upon running their cost analysis, find out they’re loosing money off of every shoot! One actually said to me “well, I’ll just have to shoot more then.” (YIKES!!!) I quickly reminded them that shooting more, when loosing money off of the shoot, means that you’re digging yourself into a bigger proverbial hole. Go learn from PPA, join us for a Boot Camp, or if you’re already business savvy check out the Number Cruncher to make sure your numbers are in check. I developed Boot Camp and the Number Cruncher and the DVDs for the sole purpose of sharing this knowledge that is so crucial to success.

5. Rent equipment and just “say no.” Just because your favorite photographer has 17 of the best Canon or Nikon pro digital lenses, doesn’t mean you have to have what they do in order to be successful when starting your business! Some of my top-rated, most-awarded images are from weddings I shot with just a Canon 20D and 24-70mm. I photographed my 7th wedding for over $7,000 with that same setup (plus backup of course and my 2nd shooters had other lenses to zoom in closer and go wider). You don’t need a $200 camera bag or the most expensive letterpress business cards to be successful. In fact, I still love my $10 black Old Navy tote to carry my lenses in for weddings! Sure, I use the lens-specific tote on occasion, but it’s not a necessity. Make sure you have a few solid camera bodies and lenses (even older models work GREAT still!) and rent the rest. Slowly build your bag of equipment. You’re not going to have time to build your business and portfolio if you bankrupt yourself first by investing in things you can rent for a while first. Plus, if you rent a variety of lenses and cameras you’ll have an opportunity to see which ones you REALLY use and love, and focus on getting those first.

6. Build a great website and distinguishable brand. You can build a great website these days for as little as $300-400 total or $40-50 per month with sites such as BluDomain and Showit. Make sure you show your best, consistent work. Write a bio, include a picture of YOU, and don’t talk about where and when you got your first camera. I don’t care. Your clients don’t care. They want to know who you are and what makes you different from the other half a million photographers out there. Build a brand board and start a competition on LogoSauce if your current logo/identity sucks. If you’re not sure if it sucks, go ask the Digital Wedding Forum or someone who works with brands for a living. They’re more likely to tell you the truth. Your friends and family probably won’t. If you’re not sure how to go about this process, you can watch what I did on the Brand Camp DVD.

7. Get involved. You won’t get clients by being holed up behind a computer. Go join a club, association, or take up a new hobby. Attend as many industry events as possible. Make friends with these people, don’t just send them your materials trying to solicit business. They’ll refer you naturally if they genuinely like you and your work. Plus, it makes being a photographer so much more fun when you’re getting to know others in your line of work!

That’s what I’d start with if I was building a business from the ground up. There are no perfect answers and everyone’s situation is unique but one thing is universal – if you have a strong financial foundation, everything else is much easier. Build your business on a strong foundation, so when the storms of life come, you and your business are prepared to ride out any disasters.

Pictage recently asked me to write a guest blog post article for them, which you can READ HERE.

It’s an extremely long article but only a portion of what I covered in the Marathon Press Webinar I did on the same topic. You can still order a copy of the recorded webinar HERE. (recorded March 1, 2010)

(an excerpt)

Sales is nothing but helping. Helping to educate. Helping to make sure every specification has been taken into consideration. Helping to keep us within our budget. Helping us choose the best choice for our particular situation.

Back in 2006 I made some big changes in the way I thought about sales and providing my clients with finished art pieces for their home. While I have hours upon hours of content on the topic, Iʼd like to highlight a few key points below.

***CLICK HERE TO READ THE WHOLE ARTICLE***

Some interesting stats came out recently that in a NORMAL year 40,000-60,000 photographers enter the marketplace. This past year over 150,000 photographers entered the marketplace!!

Fellow been-in-business-for-more-than-10-years wedding photographers here in Atlanta agree we’ve never seen anything like it before. EVERYONE we know wants to be a photographer or knows someone who is just starting out.

A lot of new photographers write to ask me about Pricing Photography and What to Do Before they Quit their Day Job. I learned the hard way and if you’ve read my Debt Story I think you’ll understand why I’m so passionate about teaching the pricing and “numbers” to other creative small business owners.

There’s a stigma that what we do is all FUN and GLAMOROUS. I think that’s part of why people decide to be professional photographers. What they do NOT realize is how time-consuming (all-consuming) it is running your own small business, and how difficult it is to make a living as a photographer. The cold hard facts tell us a full-time studio needs to bring in over 10k per MONTH to be able to issue a meger salary of 30-40k to the owner.

Today I read an excellent post by Jim Collins, CEO of Pictage, that I’d like to share with his permission. Here is an excerpt:

….There are those of you who’ve jumped in because the day job just wasn’t working out. Congratulations! You have a day job again. Working professional photographers spend most of their time doing actual work. Between editing events, having sales meetings with prospective clients, bookkeeping, rewriting marketing materials, working with vendors, etc., there is a lot of “slog” that has to happen between the “fun times” taking pictures. You’re your own boss now and there’s definitely an upside to that, but in that capacity you have to discipline yourself to actually doing these things. Otherwise when the tax bill comes at the end of the year you’re going to get an awful shock. (and the health insurance and the … you get my point).

The biggest mistake most of you will make is undercharging….

***CLICK HERE TO READ THE ENTIRE ARTICLE on JIM’s BLOG***

Thanks Jim for the insights – it’s good to know I’m not the only one who believes in unveiling the ugly truth about what it takes to succeed in this biz!

Last night we caught up on TiVo-ed episodes of Jamie Oliver’s Food Revolution. I love what is happening with this – mainly it’s a movement to educate children and the general population on how food effects us, and how to eat to be healthy. I feel that the school systems in general fail us in so many ways, as evidenced on Jamie’s show.

Another area where I believe there is a lack of education is in the area of personal finance. We have math classes, history classes, and English classes – but no one teaches you how to balance a checkbook, why to avoid credit cards and debt, and how much you need to save for a rainy day. The school system focuses on teaching you to memorize facts and tests you on said facts. If you can win at passing tests, you win at school. Then you are pushed into society where all the WRONG messages are coming at you all the time, and we wonder why we are overweight, in debt, and living paycheck to paycheck?

I was in-debt and living paycheck to paycheck in 2004 when I moved to Atlanta from Tallahassee. I graduated college in 2003 and had a full time job starting in late 2002 where I made $22,000 salary running a photography business for a gentleman based in Indiana. I have two business degrees and also graduated from a separate photography school, so you think that someone along the line would have taught me something about managing personal finances, right!? Wrong!

$22,000 may seem peachy for a salary for someone still in college, but I was over $40,000 in debt and the salary didn’t cover my bills. While walking across campus, the young co-eds enticing you to open a credit card had sucked me in and proved to be the answer to how I would fund expensive photography equipment for school, a summer in Spain and another summer in NYC. Your parents agree “yes, a credit card is good for you to have so you can establish credit” but no one teaches you that you need to pay it off every month or you’ll end up in deep financial do-do (yes, I believe that’s the technical term!)

I was a slave to my debt, and my hatred for it grew steadily. I tended bar a few days a week and continued to take on independent photography assignments through my own photography business, to help make ends meet. I thought that things would be better when I got a job working for a big four accounting firm in Atlanta, that nearly doubled my salary. I hadn’t accounted for the higher cost of living and state income tax though, so I found myself still living paycheck to paycheck. I remember going to the pawn shop one day to try to sell a gold necklace my mom gave me in high school, I was that desperate (I didn’t end up selling it.) It was a wake-up call of sorts – I knew I had to start making some changes.

I met with a financial counselor and they told me it would take me over 8 years to pay off my debt. That was in mid-2004. At about the same time I had started attending a church down the street and served in their 9AM kindergarten class. I would stay for the 11AM service, so there was always that hour in-between when a group of us would sit in the auditorium waiting for services to begin. I always sat in the same spot with the other volunteers and my new friend Andy. Andy one day was sitting in front of me with engaged couple Mark and Leslie (who later would become one of my first destination wedding clients!) Leslie was talking about how she and Mark were working through the Crown Financial Ministries program to get their finances on track – how they were each working on an emergency fund and what they had to do to get there. I was intrigued. The next day I did some research and found the program online, and ordered it. My small group at the time had no interest in anything of the sorts, so I embarked on this journey somewhat alone, save the encouragement of my friend Andy’s small group who WERE studying the same materials at the same time. I did my best to increase my income – applied for a job within the same company that again increased my salary – and got it!! I was taking photography jobs every other weekend and on weeknights to bring money in that way too.

I got dramatic about making wise changes to my spending. Cut the cable. Cut my mani/pedi trips out. Cut out the going out, eating out, shopping. I partook in free spaghetti dinners with my buddies every Friday night and we played cards and had recorded movie nights. We spent time volunteering, going to parties at friends houses, and Screen on the Green nights (all free!)

In August 2006, I was debt-free and had just quit my high-paying job at the accounting firm. I’d been running my photography business simultaneously for two years, and it was time to do it full time again. It’s amazing what can happen with your finances when you do things the right way. How that 8 years gets shortened to less than two quick years to becoming debt-free. It’s amazing what happens when you become passionate, focused, and intentional about dumping the debt. When you give first, save second, and spend last.

And this takes us to the second part of my story: debt round two. By 2007 I’d saved up enough to fund my emergency fund most of the way. I also met my future husband. In the summer of 2008 he proposed and we started planning our 2009 wedding. My parents would give me the same amount they gave my sister for her wedding, so I still had to contribute much of my own money. In September 2008 my mother and I flew out to LA to plan the wedding and put contracts on most of the vendors. In October 2008 the economy crashed, and my dad lost his job. I now had contracts signed, deposits paid and guess where much of the wedding funds would have to come from now? Yes, my income and emergency fund. Needless to say, the fund dwindled to less than I’d like it to be by the time we got married.

While my husband “adopted” my kittens, I adopted his debt when we got married. Between the credit cards, a few remaining ring payments, and his new (used) car the debt totaled just over $24,000. My husband was an angel in that he’s endured my rants and repeated lessons about why we absolutely cannot live with a debt lifestyle, and how he must pay off his debt immediately. Hence the nickname “Debt Dominatrix” he so fondly coined for me.

We were married in April 2009 and returned from our honeymoon and working abroad in May 2009. We got passionate and focused then about paying off the debt and set a strict budget. By September 2009, a mere four months later, we’d managed to pay off ALL $24,000 of debt! $24k in 4 months! It’s amazing how God blesses you in such unexpected and wonderful ways. During this time money seemed to come in unexpected forms and extra sales and jobs sure did accelerate things. We had to be pretty drastic with things as well – strict on spending, finding ways to be frugal, lots of eating meals at home and having friends over for dinner and game night versus us going out to eat or trips to the mall.

Another thing that really helped this time around was having a game plan. In more recent years I’d become a fan of Dave Ramsey’s book “Total Money Makeover.” It’s principals are very similar to Crown Ministries’ but Dave actually gives a solid plan for what steps to take to become debt-free and what to do next. The “baby steps” is what he calls them.

Since September 2009 we have been working towards our next “baby step” goal of saving up 6 months of living expenses for our emergency fund. As soon as our tax return hits our bank account (any day now!!) our emergency fund will be complete! I drive a paid-off 2003 Honda Accord and he drives a paid-off 2006 Mazda Miata. We’re able to give to our church, a church overseas, and a support a handful of friends who are in missions. We are investing for retirement and working to pay our house off early. We are saving up for things like finishing the basement so we can pay for big purchases like this with cash.

I sleep better at night knowing that we can ride out this horrible economy with the padding of a 6 months living expenses in our emergency fund. We’d like to eventually grow this fund to 12 months living expenses for extra cushioning.

We’re still frugal in ways, but can splurge a little too at times. I’m a big fan of Groupon for getting great deals on restaurants we love and some we haven’t tried before. I make our own laundry detergent which saves a LOT of money each year. Mike has dropped his one-or-two Starbucks a day habit to an occasional few-times a month run.

We are no longer slaves to debt. We live within our means and don’t try to keep up with the Jonses’ too much. We dream of a simpler life with less STUFF and less house sometimes, but with the economy and housing market as it is currently we will ride out the storm and sell off what clutters our life. I make a modest salary with my photography business that is by all standards right on track with what the “average” home-based photography studio should make. I’m okay with this because I have time to LIVE now too and not just work all the time. There has to be a balance.

This is why I teach. I’ve been in that really bad place where you’re not making money from your business and have a heap of debt. I see businesses ALL the time (even more than ever now) that are not charging enough to make a living, and are falling deep into debt because of it. Much of my story in paying off my own debt back in 2004-2006 has to do with getting my personal and business finances on track. I teach the same principals taught at PPA and in business schools like Harvard and the Entrepreneurship Small Business Management program I graduated from. I teach what Crown and Dave Ramsey say about finances, because it works. I’ve been through it twice. It’s the difference between living a life of stress on the edge and sleeping peacefully at night. It’s difficult to run a business when your personal finances are not on-track. Likewise, it’s difficult to have personal financial success if your business is making you loose money, not providing enough income, or taking up too much of your time.

Indeed, my sweet husband was right when he picked the nickname “Debt Dominatrix” for me. There are few things in this world that get me so worked up, so passionate, so determined to help others with.

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Update:
I wrote this entry a few days ago and am just getting around to posting it. Today I received a message that one of my Boot Camp hosts had paid off 6 of their 7 credit cards in the past few months, since we talked about becoming a “Debt Dominatrix” in class one day. She got Dave Ramsey’s book and with the encouragement of some of us in class, dove into it and go passionate about paying off her debt. This gives me such joy to hear how excited, happy, and passionate she is about changing her world. She’s no longer stressed and worried, just focused and happy to be dropping the debt!

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Stay tuned in the next few days for a chance to get a free copy of Total Money Makeover and our own Number Cruncher tool!

Today (Monday March 1, 2010) at 1-2PM EASTERN TIME

Find out how to DOUBLE your income in less than 6-months by learning to LOVE sales! Are you the type that would prefer to eat worms than ask your clients for a sale? Liana will share how embracing a new attitude about the s-word has made her bottom line AND her clients happier. Know how expectations, immediacy, samples, and simplicity not only play key rolls in your sales but will also have your clients raving about you.

*** CLICK HERE TO REGISTER ONLINE ***

We have another great Q&A email in from Evelyn this evening:

Liana,

I have some questions for you. How do you come up with wedding packages and pricing? How much do you pay yourself? How do you know what to charge the bride/groom? Are there any good sources out there that talk about this, like books? Also, if this is not too much to ask, I was wondering if I could shadow you on one of your sessions. Please don’t feel obligated to do this. I know that you are a busy person and if I am not able to shadow you I completely understand.

Hi Evelyn,

Thanks for the email!  I actually get a LOT of questions like this so this is why I’m going to answer on the blog Q&A so others can benefit from the same information.  Let’s take it one question at a time.

#1 How do you come up with wedding packages and pricing? How do you know what to charge the bride/groom?

I actually JUST got done giving a webinar on this (literally, this was the first email I checked after I got done with the webinar tonight!).  Pricing is a very complex topic because its deeply personal and depends on every business owner’s unique financial position, lifestyle, needs, market, expenses (Overhead, Assets & Cost of Sales), brand, and demand.  The webinar is about 1 hr 40 minutes and gives a basic overview of how to start.  If you want the full in-depth look at this and the tools to do so, my Profit Center DVDs are 4 hours, 10 lessons, and includes the Number Cruncher that gets you to the place that will allow you to price right based on fact, not guesses.  Check out the webinar – it’s only $47 from Marathon Press and then go from there.  It’s the same info they teach at PPA, Harvard, and other accredited MBA colleges.

#2 How much do you pay yourself?

I average making about 25-38 cents out of every dollar in sales.  So if someone pays me $3000-4000 for photographing their wedding, I usually get a $1,000 paycheck (minus taxes) from this booking.  PPA recommends in their Studio Financial Benchmark Surveys that Professional Photographers make about 35 cents out of every dollar, but their research shows that the average photographer makes less (19-25 cents in their 2005 study!)  The average wedding and portrait photographer makes less than a school teacher!!

If you want to forecast what type of income you SHOULD try to make, you’ll need to work out a Personal Salary Budget – the backwards way!  You simply add up all of your personal expenses like rent/mortgage, utilities, food, gas, car payment, debt and savings, health care, taxes, tithing, etc.  Then you subtract out the salary of anyone else who contributes to your household.You will get an idea from this budget what salary you need to bring home in order to put food on the table and cover your necessities!   We created a spreadsheet that’s super easy to use to do this, it’s included in and the first step of the Number Cruncher.

# 3: Are there any good sources out there that talk about this, like books?

Of course!  But not a ton pertaining to specifics of the photography industry, which is why I created the Profit Center DVD, Number Cruncher, KISS Merchandising, and why I teach this on webinars, at conventions, and why it’s the focus of Photo Biz Boot Camp.

Colleges take semesters after semesters to teach managerial accounting and finance, market research, brand development, entrepreneurship (which are the foundations of pricing profitably) so learning in a single book is not a very comprehensive approach.  There ARE however quite a few books I’d recommend on my book list here.  Be constantly reading and learning on these topics and running a small business gets a LOT easier!

Also, check out PPA’s new 2008 Studio Financial Benchmark Survey!  It’s free if you register and log into PPA.com.  I go into a lot of this information on the webinar and it’s the basis of the industry standards!  You need to understand these industry standards in order to be able to measure your own progress and see if you’re on the right track with pricing and budgets for your business.

Right now I am the only working pro wedding photographer to teach managerial accounting and finance (based on the principals taught at PPA, Harvard, and other institutions) in a small group hands-on environment.  You can also check out PPA’s SMS classes which have multiple teachers (most are portrait photographers) and is a more traditional classroom environment.  But they teach the same great information and you get a one-on-one consult too.  In our Boot Camp class is like a continuous one-on-one consult and an average of 8 studio owners attend.  Also, Anne Monteith teaches her own marketing classes and I’d highly recommend learning from her!  Be wary however of others who are teaching pricing and don’t teach about overhead, cost of sales, break-even analysis, etc.

#4: Also, if this is not too much to ask, I was wondering if I could shadow you on one of your sessions. Please don’t feel obligated to do this. I know that you are a busy person and if I am not able to shadow you I completely understand.

Of course!  If time and schedules allow, and I know I can trust a photographer to benefit the session vs distract from it, I’m always welcoming others to shadow/shoot with us.  I trust you and would love you to come along.  I have two sessions on Friday so I’ll shoot you an email about them.  Then we’re off to Australia and SE Asia next week for teaching and shooting until March!

Last month I presented a Webinar on Business Housekeeping 101, this month we’ve got a new topic: Money, Lies, and Photography!

Marathon is bringing the best education the industry has to offer right to you! Webinars is an online education center where professional photographers can attend seminars from the comfort of their own home or studio through live webcasts. You’ll learn from some of the best and brightest educators in the photographic industry presenting a variety of topics. Best of all, you’ll have the opportunity to ask questions and gain insight from presenter just as you would in person.  A limited number of reservations are accepted for each webinar so register early to be sure you are admitted.

Tonight (Wednesday January 20, 2010) at 8-9PM EASTERN TIME

Money, Lies, & Photography

Find out what you need to know in order to keep more of your hard-earned cash! Liana will unveil the truth about money and photography and how to make money work for you. Find out how to get to the “Big Equation” that will determine the success or failure of your business financially. Also learn the mechanics and tricks to pricing profitably so that you’re sure to make money off of every transaction. We will cover:

• Common truths and lies about money and having a profitable photography business
• The different costs involved in running a photography business
• How to determine the Big Equation (aka Break Even Analysis)
• The three different ways to price photography
• Red flags to pricing

I’ve had a few questions regarding the Tracking, Planning, & Pricing three-part series of posts.

Here’s our first question, from Roger:

My question is “Why would you switch back?”  I understand that I may not know enough of what the software can actually do or how much manual data entry is involved in SuccessWare vs. QB.   Yes, brides are online a lot and savvy about the internet, but Mom’s with kids are really busy and it is easier for them to email me or give me their info over the phone.  Wouldn’t the benefits of tracking finances with managerial accounting, which you recommend by the way, in SuccessWare outweigh using ShootQ to automatically enter info?  Are you good enough at QB to be able to track your business without SuccessWare?

I am just being devil’s advocate, don’t know anything about you and how you conduct business, and am asking for more info to help me make a decision about how to proceed, either $1500 for Successware or $150 for QB and Excel and my current CRM, which I already have.

Thank you for the great question, Roger.

Here’s what we are looking at:

A) Use Successware for everything (tracking, planning, pricing) and figure out your salary on your own

B) Use your own CRM system (such as the one you mention, or ShootQ) for tracking clients, Quickbooks for tracking income/expenses, and Excel for Planning & Pricing.  (Can use Number Cruncher to help with these).
First of all, if you decide to go with Successware, do NOT buy it outright.  It doesn’t included upgrades.  It’s much more economical to lease for $49 a month and get the included upgrades and support.

Second, ask which is more important – doing the data entry yourself, or having the clients enter it directly.  Is it important to have a system online that automatically takes payments and updates clients without you having to lift a finger or remember?  If so, make sure your CRM system has these capabilities.  ShootQ has these features.  I’m not sure what other CRM systems (including yours) do this.

For us, this was an easy decision.  I do not like doing data entry.  I travel a lot.  I’m busy.  Sending contracts and invoices does not appeal to me.  I have ShootQ to do these things for me.

I have Quickbooks to track everything else – income and expenses.

Second of all, It’s very very easy to run a report and look at your managerial accounting numbers from BOTH Quickbooks and Successware.  You don’t need to be “that good at QB” to get this information.  Simply go to “Report” and pick which report you’d like to see, such as Income/Expense.  That is not a deciding factor.  It’s easy in both programs to track your progress.

So when I look at the time and money ShootQ + Quickbooks + Number Cruncher + Excel saves me… it’s an easy decision for me.  It allows me do what I’m good at, and what I like to do… and does the mundane tasks for me.  I easily have access to my numbers to track my progress.  It allows my clients to book me easily online and I REALLY like that part – they do too!  ShootQ sends them info and syncs the shoots with my iCalendar.  I can access it from my iPhone and look up client info while I’m out and about.

Of course, as you mention, every business and business owner will have different likes and dislikes, different budgets and needs.  This is what works for me and many of my industry peers.  My accountant and clients like this system too.  What works for you and your clients may be different.  What’s MOST important is that these things (Tracking, Planning, Pricing properly) get done regularly so you’re still in business!

In any small business, there are THREE essential tasks necessary for keeping your “numbers” on track: Tracking Your Income, Planning Budgets and Future Income, and Pricing to be sure you’re Profitable.

CLICK HERE FOR PART I on TRACKING

CLICK HERE FOR PART II on PLANNING

Today brings us to one of the most complex parts of this series, PRICING.

There are three ways to price: Cost-Based Pricing, Competitive-Based Pricing, and Demand-Based Pricing.  Because we’re in a day and age where everyone and their brother, sister, cousin, mom’s-best-friend, and next door neighbor is or wants to be a photographer – it’s important to use a combination of all three pricing methods.   If you understand your true costs and what your markups should be, have taken in to account your specific market and the competition therein, and have a grasp on your perceived value – then you are on the path to pricing right.  Obviously, it’s not that simple.  I cannot fully teach you how to price in a single blog post.  I can clue you into what you need to learn and the research you should start with.

Cost-Based Pricing
Price with certainty by understanding the costs of running a business. There are industry standards and formulas that allow you to establish a structure to your pricing.  According to PPA’s Studio Financial Benchmark survey, home-based studios should be running at around 30-35% Cost of Sales.  Studios with a store-front should be closer to 25% Cost of Sales, since they have more overhead.  What this means is that the respective mark-up factor should be 3-4x the Cost of Sales at minimum.

The most common mistake I see with cost-based pricing is not understanding ALL of your numbers first and how it correlates to your pricing.  I teach this in depth during Boot Camp and in the Profit Center DVDs.  You need to understand how the other costs in your business correlate to your Cost of Sales percent.  Most home-based businesses owners should get to keep about 30 cents of every dollar a client gives them.  I see some businesses who’s pricing is so out-of-whack, and their overhead and/or cost of sales is so high that they don’t keep ANY money!  Even worse, I’ve seen a handful of studios who are actually loosing money on every session they photograph because they’ve not done their pricing right.

Another mistake I see is not taking into account the TRUE cost of sales.  Cost of Sales is EVERYTHING that goes into producing a service or product for a client.  For example, when pricing an 8×10″ print there is much more included than just the $2.00 it takes to print the 8×10″ print.  It includes Photoshop retouching labor which at average is a dollar per minute for a pro to do this.  It includes labor and materials for pulling the file, processing, ordering, packaging, shipping.    So when I add up the TRUE cost of 8×10″ print it may be $15 vs $2.  Say I operate on a 25% COS.  That means my markup is 4x the COS.    Therefore, $15 x 4 = $60.  $60 is the minimum I should charge for for an 8×10″ print if I want to make a profit.  If your market cannot bear this or your brand equity is not high enough, you may have to look at alternatives (such as reducing costs, outsourcing print fulfillment.)

Here is a way to determine your mark-up factor.

Competitive-Based Pricing
Takes into consideration the local, regional, national market you are in.  Recognizes that some products are more price-sensitive to consumers than others, therefore competition is a concern. For example, commodity items such as a 4×6” or 8×10” print are more price sensitive than items such as a large album or wall portrait.

I’d say one of the most common mistakes photographers make is base their pricing ONLY on this method.  They look at what others are doing in their city, and price the same way. The problem is, they have NO idea if their competitors are actually covering all their expenses!  Every business and person’s finances are unique to them, so their pricing is likely going to need to be different too.

Demand-Based Pricing
What we also like to call “Brand-Based” Pricing. The greater the perceived value, the more you can charge.  If there are few providers you can charge more. The greater the market demand for what you offer – the more you can charge.

Obviously, wedding and portrait photographers are a dime a dozen these days.  So being the ONLY one in your market to offer something, or one of a few providers is no longer common.  You CAN however find something that sets you apart, have a clear and compelling brand and great business practices to back it up.  If people can see that you and your work is unlike any other, your demand goes up naturally.  You can charge more for your services and products.

Gauging your demand is the simple part.  If you’re shooting 60 weddings each year, and you really only want to be shooting 30 – it’s pretty obvious you can start charging more!

Now that you understand the different methods for pricing, what to do about it? First of all, I’d recommend going through the Tracking and Planning parts.  You cannot price properly until you have actual, factual numbers to deal with.  You will need to know your % ratios between Cost of Sales, Overhead, Asset Expense, and Owner’s Salary.  You will need to have an annual sales goal and run your sessions and sales analysis to have goal numbers for how many photoshoots you plan to do.  Then and only then pricing via the Cost-Based method become simple.  You can use bundling and packaging to benefit both you and your clients.  In addition to this, you should be conducting local market research and take gauge of what you can do to improve your demand.  THEN it will be a unique balance of using the numbers, your research, and the direction you are going in to come up with the perfect pricing for YOUR situation.   Last, make sure it’s easy and simple for clients to understand.  Present the information in a clear and well-designed manner consistent with your brand.

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This series has raised a good number of questions.  Over the next few days I will work on some FAQ posts in response, since many are asking the same things.  Again, there are many other resources out there for learning more about Tracking, Planning, and Pricing.  Business schools and PPA teach the same exact information.  If you want to know specifics for the photography industry check out PPA or join us for a Photo Biz Boot Camp (BBC).  Our Complete Business Makeover includes the Profit Center DVD, BBC, and additional DVD/resources.  The Profit Center DVD is four hours of information on these topics plus more.  Plus it includes the newly released Number Cruncher!

We appreciate your comments, suggestions, and questions below.  Happy New Year and here’s to making 2010 the best year yet!

Now is the PERFECT time to make a wise investment for your business.  See how managing your business based on the numbers will change your life and business in 2010!!

For the next 48 hours ALL DVDs are 25% off.  AND we’re debuting the NUMBER CRUNCHER a la carte! (also at 25% off)

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The Number Cruncher (aka Profit Center Financial Planner) is a geeky Excel worksheet that will help you make more money.

Many small business owners find it difficult to determine how much salary they need to take and how to price for profit.

The Number Cruncher takes out the guesswork and allows you to run your business based on facts. It is comprised of seven different sections to help you make a personal budget and determine your salary, create budgets for your different business expenses, determine your income, and take a look at your sales goals and overall financial outlook. The seven sections are:

1 – Personal Salary Budget Calculator

2 – Four Budgets: Advertising/Marketing, Education, Props/Accessories, Assets

3 – General Expenses

4 – Cost of Sales Checkup

5 – Break-Even Analysis

6 – Sessions and Sales

7 – Income and Expense

Who will benefit from this? Any small business owner who already has working knowledge of the three types of expenses and understands managerial accounting basics. If you’d like a more in-depth look at how to run your business based on the numbers, we recommend the Profit Center DVD (the Number Cruncher download and tutorials are included at no extra cost.)

The great thing is that this is applicable to ANY type of small business! Top business colleges in the US and abroad teach the same information so you know this isn’t just something that works for us – it’s the foundation for all successful small businesses!

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Once purchased, you will be registered for the Photo Biz Boot Camp Forum within 48 hours, which gives you access to the online tutorials and downloads. You download the tool that can be used in Microsoft Excel, Numbers for Mac, or Open Office Calc Spreadsheets. Then simply log into the forum (we send you and email on how to access) for the link and password to watch the tutorials. Liana shows you how to use the Number Cruncher using her own numbers as an example.

Not sure what to get? If you order the Number Cruncher then decide you want to get the Profit Center DVDs to learn more, we’ll hook you up and subtract what you’ve already paid for the Number Cruncher!

Already attended a Photo Biz Boot Camp or have the Profit Center DVD? Simply log into the forum to download the Number Cruncher and access the demos!

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