Date:

Going Pro. How Much Should I Charge?

Tue
10 Mar 2015
A little while ago I wrote out a guide for how much to charge in the forums over at Digital Photography School. It is one of the most common questions photographers were coming to the forum to ask when they wanted to turn professional. Mostly they expected a short response, but the truth is the answer to the question has to come from you; a photographer on the other side of the world, working in a different market can't just give you a number and that's the answer. The answer to the question 'what to charge' is that you charge what you must charge. Your costs, your time and your lifestyle dictate that, and these are different for everyone. Once you come up with a price, how you justify that price is another matter entirely but the first thing you must do is understand what goes into the right price.
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It’s all a matter of mathematics.
Below is an amended (but only slightly) version of the post I made over at Digital Photography School.

This isn't just aimed at people wanting to run a full-time business. Everybody who wants to earn money, regardless of how much they want to earn and how much time they want to devote to it, needs to know whether or not they actually are making any money. So to that end, here is a crash course in business finance.

When you're working out what you should charge, there are a few important factors affecting the price of anything you may feel you should look at. What other people are charging in your area; what customers are prepared to pay; and working out what you should charge from scratch using your costs. In truth though, while you can get some useful information looking at the other two factors, your own costs should be the main factor affecting what you charge. You can see what a lot of other photographers working in your field in your area are charging by looking at their websites (though some people prefer not to put any pricing information online at all); but you'll probably find that there is a huge range in what they charge. The quality of photography is subjective and people are prepared to pay more for quality and assurances that come with a well recommended name, so some photographers are able to charge many times what their competitors do; at the other end of the scale some people will come up with prices based on no research or bad information and are more than likely undervaluing their work hugely. It can be good to know where you sit, who is around your price mark, who is at the top and how they got there; but sometimes having examples of the full range of photography prices in your area can give you a distorted view of the market, with those under-chargers pulling the average down. If you then decide that your prices need to be around the 'average' you will be including their prices as part of your own calculations. They will eventually go out of business and new under-chargers will replace them and the 'average' will remain permanently low.

Using customer opinion to set your prices is dangerous too. Firstly if you feel that you don't have enough information to decide what to charge, you aren't going to learn anything by asking for the opinions of people with even less information. Secondly if you're going to do proper market research, you need to be asking the right people. What you're likely to end up with is a lot of opinions given by people who are never likely to hire your services, and these Joe and Janet Bloggs type people, like many others are likely to undervalue your services simply because of that whole 'it's just pushing buttons' thing. Graphic Designers and other professions get this too, where people think that because it is now done on a computer instead of over a drawing board / in a darkroom, there's no work involved (and people tend not to take skills into account, thinking that they pay purely for the amount of backbone you put into it). The idea that what you charge is what you can 'get away' with charging is hugely unproductive. It makes you feel guilty about how you set your prices because you undervalued them in the first instance, and because you're trying too much to appeal to people who may not be in the market for a photographer. I'll say this now; photography is not a cheap service. The people who are likely to hire you have a much different view of what photography is worth. It's worth looking at a website such as imagebrief.com just to see what real photography customers will potentially pay for single images (the amounts on the site vary but most of them certainly raise the eyebrows of prospective professional photographers)

So if everyone based their prices on what others charged you'd have a chicken and egg scenario where nobody knows where the prices originally came from, and if you ask for people's opinions then you'd better be sure you're asking the right questions to the right people. Your competitor's prices (those that aren't undervaluing) are likely to be based on calculations from scratch using their own cost figures and if you want to make money then you need to be making a profit, not a loss. Often in this business people are either blissfully unaware that they are running at a loss until the day they can't pay their bills, or they find that they're working every hour God gives them and still only making a tiny bit of profit.

The trick is to work backwards from your costs to arrive at your price, don't fall into the trap of getting a price in your head and trying to make everything else fit that. After that you can see where you stand in relation to other photographers and check that you can justify your placing in the market, don't be tempted to do any more than minor tweaks at this stage though, and as for researching whether or not customers are willing to pay this price, well if they aren't then you won't get any business, but if you've done this next bit correctly and people think you're charging too much then either your costs are too high, you're not justifying your prices in your advertising or you're reaching all the wrong people.

All costs should be worked out over the course of a year, so don't forget to multiply any weekly costs by 52 and any monthly costs by 12 and also to divide any two-yearly costs by two.

What are your Fixed Costs?

Overheads or 'fixed costs' are the running costs of your business that are fixed; in that it doesn't matter if you do one job or a hundred jobs over the course of the year, these costs are the same. Fixed costs include:
  • banking fees,
  • insurance,
  • membership fees for professional bodies and trade groups,
  • website, email and domain name fees,
  • marketing materials,
  • attendance at events,
  • petrol/travel costs for things that aren't paid work such as events and meetings,
  • fees to pay legal and financial advisors,
  • software that has to be paid for by subscription (which these days might include Photoshop),
  • stationery,
  • rent/utility costs for your own studio space you if rent it permanently,
  • a proportion of your home mortgage/rent/utility costs if working from home (in the UK the government sets a flat rate you can use, or you can work it out yourself provided you have a thorough method for calculating what the proportion should be, other countries may have similar arrangements),
  • employment related costs if you are hiring people to work for you.
Hopefully you get the idea and can identify the fixed costs that are relevant to your business, basically everything except those costs that result from paid work and major purchases of photographic and IT equipment. However minor photographic purchases such as cleaning materials and props I would class as fixed costs. The most important thing here is to forecast what you expect your fixed costs to be, not what they are now. If you have set up a new bank account then they will probably give you a period of free banking, when forecasting your fixed costs you should forecast for what the banking fees will actually be when you start paying. Similarly, if in your first year you don't expect to be hiring an accountant or attending major trade-shows but plan to grow your business to the point where you are doing these, then include these in your forecast, or else you'll underestimate the amount of money you need to make and never reach your goals.

As your tax (as we'll find out later) is taken from your profits after you've met all your costs, then the more expenses you can add as fixed costs, the less tax you'll pay. A common mistake among new business owners is to not realise they can include certain things (such as working from home costs) as costs, this not only gives them a distorted view of how much money they need to make, but also results in them paying more tax than they need to. However on the flip-side, governments can be very prescriptive in setting out what you can and cannot in your costs (for tax reasons at least, in the UK costs in entertaining clients might still be business costs to you, but not to the government they aren't), to prevent abuse of the system.

Once you've done all this then you'll have a figure for ANNUAL FIXED COSTS

How much money do you need to spend on capital / business development?

Another category of cost is capital. This is what you spend on expensive items such as camera bodies, lenses, studio and I.T. equipment. On first sight it appears to be similar to fixed costs, there is however one important difference. When you spend money on a new camera body, that money hasn't gone out of your business like it does when you pay a banking fee; it is still there, just in the form of a camera rather than cash. The money does eventually leave your business as the camera depreciates in value, but only over a period of time. At any point you could convert it back to cash by selling your camera. This is certainly how the taxman sees it, you can't simply include the entire cost of your capital purchases as costs at the time you spend them, you have to spread it out.

Also, the things you actually need to spend money on will vary from year to year. One year you might need a new body and a couple of new lenses; the next year you need some new lights and a new tripod. However you will need to keep replacing these items as wear and tear takes a hold on them and as technology moves on and you need to remain current. Working out how much exactly per year you need to spend on capital purchases is much less an exact science than fixed costs but as a general rule, add up the cost of every item you need to buy, such as the following:
  • camera body,
  • spare camera body,
  • lenses,
  • spare lenses,
  • tripod,
  • lights,
  • more lights,
  • lights to fill every need you might have for lights,
  • a light meter.
  • wireless triggers,
  • tripods, battery grips, filters,
  • computer (things like this that may also be used for personal reasons you should only charge a portion of to your business),
  • digital storage,
  • software that you only have to pay once for,
  • a printer,
  • a monitor,
  • monitor calibration tools,
  • specialist equipment,
  • bags and cases,
  • finance on a company car or commercial vehicle or on property bought for your business (this is more complicated as a tax affair so you will have to consult someone else about that).
Then divide the answer by 5. Five years is a common estimate for the lifetime of electronic equipment, both in terms of what the taxman will accept, in terms of wear and tear on some equipment or in terms of time before equipment becomes obsolete. The figure you get is your ANNUAL CAPITAL COST

When it comes to tax in the UK, a lot of these capital costs can be written off in the year you purchased them as you are entitled to claim an Annual Investment Allowance, but for the purposes of business planning you should consider them as being spread over five years anyway. This isn't intended to be a guide on tax, just on helping you make a profit.

How much money do you need to take out of your business?

This is the most important question, what do you actually need to earn from your business? Again, you need to forecast this for where you want to be, not what you expect to get in your first year. If you are leaving a full-time job to become a full-time pro and you are prepared to take a pay-cut in your first year but expect to grow your business back to the same earnings that you left behind, then you need to put these higher earnings in your forecast, or else you'll never get there.

Many people will have an idea based on a salary they were previously earning, these people can simply us this figure. Other people will want to go back to basics and work out how much they need to support their lifestyle from scratch. This is a similar exercise to working out your fixed costs, include essential costs such as rent or mortgage, utilities, food, taxes linked to your lifestyle rather than your income such as council tax and road tax, motoring costs etc. but don't forget to include non-essential costs such as leisure activities, holidays etc, that is if you plan to have some disposable income; and don't forget for each cost, you're working it out for a whole year.

Also remember that if you're classifying some of your living expenses as work-from-home fees in your fixed costs then only to include the remainder in this calculation.

Of course some people have a part or full-time job, or other income of one form or another and the amount of money they need to take out of their business can be lower. They might only want the additional income to fund a family holiday, or to spend on new lenses. This is OK, we'll find out later that not requiring as much money is cancelled out by not having as much time to work, just be realistic about what you actually want from your business. Is it really worth working your ass off all year for just one new lens?

Once you have a figure for this, then this will be called your ANNUAL TAKE-HOME PAY

How much money do you really need to take out of your business?

Now you know how much money you need to take home in order to live you need to work out how much you actually need to take out of your business, because the taxman will want to take a share of anything you take out.

Actually the tax man takes a share of your profits, he doesn't care whether you leave these profits in your business or take them out. But if after you've covered all your costs and paid yourself you still have money left in your business you're doing it wrong, and paying tax on money for no good reason. You'll want to leave some profit in your business at first to build up a contingency fund to cover disasters, and you'll pay a tax on this profit when you make it, but you shouldn't be leaving profit in your business all the time. If you have too much money then either you give yourself a pay-rise or you reinvest it in improved equipment and marketing. For the purposes of this we'll forget about those initial contingencies and just assume that you're only paying tax on what you take out.

Taxes work differently in different countries, so you'll need to do your own research, but your question should be 'If I want my earnings after tax to be my ANNUAL TAKE-HOME PAY, how much will I need to pay myself? If you're in the UK you're in luck as there is a website The Salary Calculator which allows you to simply enter your ANNUAL TAKE-HOME PAY and it will give you a figure for the ANNUAL DRAWINGS you need to take out in order to be left with that ANNUAL TAKE-HOME PAY. The site actually does US and Irish tax calculations too, but I can't vouch for their accuracy, I know that if you're in the US you have both state and federal tax to pay, and the calculator doesn't ask which state you're in.

Also remember that if you already have an income, this will complicate things as you will pay tax based on all your income combined, not separately for your job of employment and your business. In practice in the UK this will likely mean that your tax free allowance has already been used up by your job and you will pay tax at 20% for your entire business income, however this might not be the case if you're working part time and seek to work as a photographer for the other half of your time. If you're earning so much in your regular job that you'll be taxed at 40% for your business income then you seriously need to ask yourself whether it's worth it; to be earning that much you're probably already working long hours, so do you really want an extra job?

Just to clarify, your ANNUAL DRAWINGS is the amount you will actually be transferring from your business account to your personal account (or however you pay yourself) each year.

ANNUAL DRAWINGS = ANNUAL TAKE-HOME PAY + INCOME TAX

How much profit do you need to make with your business?

Gross profit is the amount of profit you make from your business before your fixed costs are factored in. Now we've done those calculations, this bit is simple. The gross profit you need to make in a year is calculated as follows:

TARGET ANNUAL GROSS PROFIT = ANNUAL FIXED COSTS + ANNUAL CAPITAL COST + ANNUAL DRAWINGS


At this point we haven't considered your variable costs which vary by how much work you do, gross profit is your profit after these have been taken off. So the next bit is to look at how much work you can actually do.

How much work can you get?

Now you know how much you need to make in gross profit, and we want to know how much you should charge for your work, so the next step is to ask the question how much paid work will you be doing. This is probably where most people who struggle to get their business going made their biggest mistake. You need to be realistic, both in terms of how much time you can afford to spend working, and how much work it is possible for you to take on.

If we talk about this in terms of hours then we will work towards a calculation for what your hourly rate should be. This will be best for most people. Even if you plan to charge your customers based on fixed-price packages or per photo, valuing your work by how many hours it requires is a good place to start. It might be though that you find it better to work another way, for example if you do weddings, it might make more sense to you to base your calculations on the number of weddings you do rather than the number of hours you work as this may be a predictable one-per-week or something like that.

First off, you need to be realistic about how much time is available to you for work. There are 168 hours in each week and you can't work all of them. Often a photographer who is struggling to get their business going has overestimated the amount of work they can do. Self-employed people generally work between 40 and 50 hour weeks, higher than average but not so high that you start to wonder what the point of it all is. If you already have a part or full time job and are just looking to top up your disposable income, or buy some new camera gear, then it doesn't necessarily follow that you will charge less; your target annual gross profit will be lower, but then there will be far less time available for you to reach this target. Again, if you already have a job, be realistic about how much time you want to spend working as a photographer, this will be eating into valuable free time or family time, and is saving up for a new lens by the end of the year really worth missing all your kid's football matches for?

Taking all of this into account, you should now be able to come up with a realistic figure for the amount of WORKING HOURS PER WEEK you have available. This is quite a subjective figure but as I say, be reasonable with yourself.

Secondly you need to be realistic about how much paid work you can do in that time. You can't spend all of those hours doing paid work, you need to run your business as well. This includes keeping your financial records up to date, marketing your business, attending business events and trade shows, reading photography magazines and websites, practicing new techniques and learning to use new equipment and - let's be honest - procrastinating (nobody who has set their working hours, then goes and spends every second of every minute doing productive work, you need to stop and think and decompress, and make coffee and stare out of the window a bit). I would say this is an important factor in why the best photographers are charging more, it isn't just supply and demand, it is also that they're not trying to cram every available minute with tangible work. They're stopping and thinking, imagining up new approaches to familiar challenges and this makes their work better as a result. Some of their time is 'wasted' by staring out of a window while chewing on a pen and picturing their next shoot, running through in their head all the ways they can tackle it.
"Being good takes time, and someone has to pay for that time, if that person is you then you aren't running a business."
Take all this away from your WORKING HOURS PER WEEK and you're left with a figure for AVAILABLE WORKING HOURS PER WEEK.

Finally, you need to be realistic about how much work you can get, and when. If you want to convert hours to jobs at this point, then you need to decide how many hours' work one job will comprise, another commonly underestimated figure. For example, if your jobs tend to be small(ish) comprising only a couple hours of photography and you have 30 AVAILABLE WORKING HOURS PER WEEK, do not assume that you'll be doing 15 jobs per week. With preparations, discussions with your customer, producing paperwork, packing and unpacking, travel, editing, further discussion and providing a final product, that 2 hour job might actually take up 10 hours of your time. A wedding might take several days when everything else has been added on. Also, is it realistic that you'll be able to fill all those available hours with work? If you do weddings, then depending on the customs of where you live, it might be very unlikely that weddings will be on anything other than a Sunday, limiting you to, at most, one job per week. Commercial photographers are likely to find that they're only in demand during normal office hours while Sports photographers will find that most sports only play on certain days. You won't be able to neatly pack your available hours with work. If at the end of each day you have a an hour still to go, you aren't going to be combining all those spare hours into one 5 hour job. Generally you should assume that you will be running at less than 100% capacity, and depending on the work you do and how flexible you will be, assuming a maximum of 80% of available working hours will be filled by work seems reasonable, but base this on your own circumstances, it depends partly on how flexible the rest of your activity is, the more you can move other things around to fit work in, the more of your available working hours you'll be able to fill. Also, be realistic about whether the demand is there for what you do that you can fill every available hour with paid work. Only you can answer this question, but you might find that other photographers working in your field but far enough away from you not to consider you competition can help you get an idea of this.

Once you have taken all this into account then you'll either have a realistic figure for the number of jobs you can do per week or the number of hours you can do paid work per week. In this exercise hours and jobs are both price units so we'll call the figure you have in either case PRICE UNITS PER WEEK. Since we've worked out your finances as an annual figure we need to work out ANNUAL PRICE UNITS. Don't simply multiply PRICE UNITS PER WEEK by 52 though. Ask yourself whether your work is seasonal, would you expect that some weeks there won't be any work for you, are you likely to get work over holiday periods, or even if you can, do you want to take holidays off yourself, or go away on vacation at some point? You might decide that you won't get any work at Christmas and want to take three weeks off per year so for you, ANNUAL PRICE UNITS is only 48 times PRICE UNITS PER WEEK.

For the rest of this, where you read 'price units' you can replace it with 'hours' or 'jobs' or whatever you're using.

How much gross profit do you need from each price unit to reach your target annual gross profit?

Now we're at another simple bit you take you know how much gross profit you need to make in the year, and you know how many jobs/hours etc there are in the year so you divide the former by the latter to see how much gross profit each price unit needs to earn you

GROSS PROFIT PER PRICE UNIT = TARGET ANNUAL GROSS PROFIT / ANNUAL PRICE UNITS


This is the big number we've been working towards. If your price units are hours then each hour has to earn you this much profit for your business to work; and if your price units are jobs then likewise this is the profit you make for each job. One thing we haven't considered yet are the costs involved in actually doing the work. For a baker this is the cost of the flour and yeast and so-on; for a supermarket they have to buy something in order to sell it, and this the price they pay for those things. As a photographer things are probably a little different, you aren't actually selling on a product that you had to pay for, and you aren't making something using ingredients you must buy, although there may be an exception to the rule if you intend to earn money by selling prints.

There are still costs directly related to each job you do, this may include prints if you include these in your service, it will most likely include the cost of petrol to get to each location unless you work entirely from a studio with everyone coming to you, it may also include CDs if you send these out to clients, and can include any other thing which must be paid for directly as a result of carrying out a particular job. For some photographers these will be considered 'expenses' and will be worked out for each particular job and added to the invoice, itemised so that the customer can see what they were. If this is what you plan to do then your hourly, or daily or per-job rate or whatever your price unit was, is your GROSS PROFIT PER PRICE UNIT and you've worked that out know so you know how much to charge. However if you hope to cover these costs in an all-inclusive (or partially inclusive) price then you will need to turn your attention towards your GROSS PROFIT MARGIN.

How much will you have to charge for each job to get your target gross profit?

We're almost there now, but there are costs we haven't considered yet. These are the costs involved in actually doing the work, the 'variable costs' which rise and fall with the amount of work you do. Instead of having a fixed cost per year that you need to cover with your gross profit, these costs are a percentage of your revenue (revenue is the total amount paid to you by your customers), that percentage being your GROSS PROFIT MARGIN. Depending on how you're going to be charging, you might not need this step. The exact variable costs will vary from job to job, so if you'll be adding expenses to the price of each job individually, on a job by job basis (a common way of charging if you have an hourly rate) then your GROSS PROFIT PER PRICE UNIT is your price per job or hourly rate (just don't forget to be transparent with your customers about what expenses are being added).

If you plan to include expenses in your rates (such as you might when putting a package together) then you will have to use the GROSS PROFIT MARGIN to work out how much higher than your GROSS PROFIT PER PRICE UNIT your prices need to be. This is should be worked out for a typical job, and if you're working it out per hour then you might find it too tricky to do if jobs vary a lot in how many hours they are. Most variable costs only need to be paid once per job, regardless of how long the job takes to do, which is the reason why most photographers who charge by the hour add expenses on separately.

First, you need to look at what your variable costs will be for a typical job. These include:
  • your travel costs associated with paid work,
  • printing and framing costs,
  • postage and packaging,
  • CDs and DVDs, including labels and cases,
  • fees for models and stylists,
  • studio rental feels if you rent a space for a particular shoot,
  • fees for hiring specialist equipment,
  • in some cases there are costs in gaining access to events where your customer wants photographs taken,
  • materials such as props and staging accessories which you need to purchase for that particular job,
  • in some cases costs involved in obtaining specialist insurance and equipment,
  • anything other costs that are 'per job' rather than 'per year'.
If you're struggling to come up with a typical job because the variable costs are expected to vary too much then you might want to look at adding expenses to each job individually instead. If it is just one or two variable costs that are hard to predict (for example you may have the same printing costs for each job, but travel costs can vary as you cover a large area), then you might just want to take just these costs out of the following calculation and add them to each job individually.

Some photographers will put a value to things such as the cost of storing images on your hard drive, and the costs of using your equipment. This is useful in that it makes it clear to your customers what your costs are, but strictly speaking, and for your own finances, these should be considered as fixed costs, as your spending doesn't actually rise and fall in proportion to the amount of work you're doing.

Add together all these predicted variable costs to get a VARIABLE COSTS PER PRICE UNIT and then work out your GROSS PROFIT MARGIN as follows:

GROSS PROFIT MARGIN = GROSS PROFIT PER PRICE UNIT/(GROSS PROFIT PER PRICE UNIT + VARIABLE COSTS PER PRICE UNIT)*100


You can of course work out your PRICE PER PRICE UNIT by adding GROSS PROFIT PER PRICE UNIT and VARIABLE COSTS PER PRICE UNIT together, but business people always like to know their GROSS PROFIT MARGIN. For any period GROSS PROFIT = REVENUE x GROSS PROFIT MARGIN (remember GPM is a percentage so 17% equals 0.17).

Contingencies

I only brushed over contingencies in the above paragraphs. This is because contingencies apply to both your business and your personal finances and therefore there wasn't a suitable place to fit them in. However they are not merely an afterthought.

For a business, contingencies are required both to cover large unexpected costs, such as a major repair job (with photographic equipment you can expect general running repairs to be about a tenth of what your capital costs are but there's always the risk there will be a major cost somewhere along the way), or an extended period with reduced or no revenue, such as through injury to yourself, damage to essential equipment or just market forces.

Then for personal finances it depends on whether or not your business is to be your main source of income. You will need contingencies for everything. You get no holiday pay, no sick pay, no workplace pension and no benefits. You might have insurance but there will still be excesses to pay if something breaks.

In short you need a significant rainy day fund both in your personal account and your business account.

When you look at all I've written, it can seem a really onerous task to go through everything in such detail to work out what to charge, but in truth it shouldn't take too long and the time spent doing this will pay for itself pretty quickly. Even if you are only planning a small venture and felt that you could just play things by ear, knowing exactly how much it costs you in both time and money to do what you want to do can be enlightening to say the least, if anything people just looking to make a few quid from photography have the hardest time as a result of not understanding their costs because they perhaps assumed they would be minimal, and didn't factor in how little time they actually had to devote to it. All of these little things add up so it pays to be informed about your own business.

The real challenges ahead of you now are how you justify charging that price (which I'm sure seems high to you, and will certainly seem high to many potential customers too who may have had experience with people who haven't done all the sums you've done); whether you're being as efficient as you can (as a creative professional you probably are, there's no hugely complex production process, nor an administrative hierarchy but it's worth bearing in mind that this is a major challenge for most businesses) and sticking to your price.



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Articles about photography, tips and tricks, insights into the world of commercial photography and the marketing industry from a photographer's perspective, and the occasional humorous rant. Brought to you by Will McAllister, a commercial photographer based in God's own county of Cumbria.

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