The Business Savvy Photographer: Starting the New Year with a Flash
What Comes Next?
For many of us looking at a New Year is a moment to reflect on what we did and what we could do better. For those of you who are on the ball, you’re scratching your head thinking “We’ve been at this for two weeks already… where have you been?” Like most portrait photographers whose client base revolves around “Must have holiday cards and gifts,” I have been operating in recovery mode. I’ve attended to all the things that were pushed by the wayside since September. I’ve allowed my body to catch up with my brain, which inevitably led to the flu. I sighed with relief at the snow days, finally able to spend some time with my children. And I’ve rejoiced as they returned to school. Then I slept. And slept. And slept. So here we are, fourteen days into the New Year, and I am finally welcoming it in, wondering “What Comes Next?”
I’ve been at this portrait thing, officially, for just over five years. Each January brings about reflection as well as the opportunity to do a little bit better. Now that I have some wisdom and experience under my belt, I have a pretty good idea of how to answer this question. Each year, as I ask “What Comes Next?” I answer with “What Just Happened?” (Usually that is said with exhaustion, exuberance, and occasionally an expletive.)
While every business is different, and each market vertical has its own ebb and flow, January, for all, is a chance to clean it up, tackle it, and own it in a better way. The only way you can productively move forward is to understand by looking back. So grab a cup of coffee (or tea if that was your resolution), sit back and have a read!
A New Year… or is it?
I think we would all love to think that when we said “goodbye” to the past year at midnight, we had it all neatly wrapped up with a bow. Realistically, most of us did not. If you are like me, there were a few last minute sessions and orders that came in after the cutoff, maybe a non-holiday order that got caught up in the FedEx/UPS delivery debacle. Chances are you received an email that said “I thought I ordered an 8X10, not a 5X7” or “I forgot to order a sheet of wallets for Grandma.” No matter what how large or small, there are 2013 items on your to-do list.
Get rid of them.
Before you make one more plan, or think one more idea about the new year, close out the previous year. It is impossible to move forward if you are still handling outstanding items. And trust me, you will sleep just THAT MUCH BETTER if they are done. If this is a year to thrive and prosper, start it fresh.
Now Look Backwards.
There is no better time to finalize your prior year than right now. Many of you file taxes on a quarterly basis, or perhaps pay an accountant to keep track for you. Some of you are excellent at checking in each month, and accurately tracking your revenue and expenses. And a few of you are just a little behind the 8-ball. (I get it, it’s a lot). No matter where you stand on this front, January is an excellent time to wrap up your finances and assess your success from a numbers perspective.
Wrapping up your finances now will allow you to quickly get a handle on year-end sales and income taxes. More importantly (depending on whether you are talking to yourself or the IRS), understanding your numbers now allows you to paint an accurate picture of your revenue, expenses and profit so that you can plan for the year.
This is the dollar amount that your clients pay you (subtracting out sales tax). This might come through in the form of a day rate, session fee, image rate, edit rate, or product sales. Your revenue is what you charge, and what your client pays. As you track your revenue, it’s extremely helpful to break it down to the “Revenue Type” level. This allows you to understand where you are generating the least and the most revenue.
For a portrait photographer, you might consider tracking session fees, mini-sessions, and product orders. You could also tag these three to the next level (newborn, family, seniors, etc.). This level of detail will allow you to net out your average sales by revenue type, and client type. With this information at your fingertips, you can quickly understand which type of revenue and client generates the most business and revenue.
There are two general types of expenses: Fixed Expenses & Cost of Sale/ Cost of Goods. As you go through your expenses, these should be easy to tag. Understanding where you spend your revenue is KEY to your profitability.
Fixed expenses are everything you need to run your business. These expenses happen whether you shoot one or one hundred sessions (though the volume and amount may increase with the more work you have). Think about fixed expenses as those that keep your studio running: Camera. Lenses. Rentals & repairs. Packaging (unless you pay your lab per order). Postage (which you can also assign per order). Marketing materials (including business cards). Studio samples. Studio costs (if you have a physical studio). Technology. Software. Hosting. Backup. With each expense you review think “Can I assign this to a specific client order, or is a general expense needed to run my business?”
Understanding your fixed expenses allows you to create a future budget using past history. From these numbers you can determine what was superfluous and unnecessary spend, and what really helped to move your business forward. You can also break down “Nice to Have” and “Have to Have,” which is instrumental in planning for 2014.
Cost of Sale/ Cost of Goods (COGS)
Cost of Sale/ Cost of Goods (COGS) are expenses that are incurred because of a direct client sale or order. For some commercial accounts, these may be billed on their own line item in addition to your commercial day rate. For portrait or wedding sales, these items could include prints, albums, USB drives, proof boxes, frames, or boutique packaging. With no sale, there is no expense. It’s a lofty, but not necessarily difficult goal, to tag your expenses back to a client, a specific type of order (newborn, mini-session, senior), or a specific line of products (digital files, albums, prints).
Profit, simply put, is Revenue minus Expenses. However, in order to effectively assess your year, it should go deeper than that. You should examine your profit in relation to your revenue to arrive at a basic percentage rate to understand how much of your revenue is allocated to the different aspects of your business and how profitable your overall studio might be (which helps you answer the often perplexing question “Where did it all go?”).
Revenue – Cost of Sales/Cost of Goods (COGS)
Revenue – Fixed Expenses
Revenue – Cost of Sales/COGS – Fixed Expenses = Studio Profit
Understanding profit is key as it allows you to examine which types of work were most profitable to you (and which types you can choose to eliminate this year), which areas of your business you might choose to grow, and which expenses are in line with your budget and which sucked the life out of you.
Time, Effort & Level of Success.
Finally, and this is more difficult as it is often intangible, you should generate a ballpark idea of where you spent your time in relation to where you generated your revenue and your profit. How many hours did it take you to just run your business? Newborn sessions may have taken the most time, but did they also generate the most revenue or profit? How many high-volume, low-revenue mini-sessions did you shoot and did they net out to be more or less profitable then more intensive full family sessions? And finally, which works are you most proud of and get you the greatest feeling of accomplishment?
Phew. It seems like a lot and we haven’t even touched on “What Comes Next?” We will. What we just did was build the foundation that will allow for sensible and realistic action planning for 2014. We have the data, we know what worked, we know what did not. We are READY!
– Adjust your billing to account for a field that allows you to easily sort your invoices by client, session type and revenue type.
– Adjust your expense tracking so that you can tag expenses to type (fixed or Cost of Goods). Use the Fixed Expense list provided above and add to it where necessary.
– Break down your revenue by type to arrive at an average sale (i.e. average mini-session revenue, average commercial sale, average newborn order).
– Determine your overall profitability percent as well as COGS and Fixed Expense percent of total.
– Create an objective list of what went well and what did not – from a business operations, client satisfaction, and photographic/artistic output perspective.
About the Author
A Boston native, Kristina received her Masters in Business Management at the F.W. Olin School of Management at Babson College. She went on to spend15 years in the technology field before picking up her camera in 2005. She participated in both formal and informal technical and artistic training and mastered a style of photography best described as authentic, timeless, lifestyle portraiture. Combining her artistic ability with her business acumen, she created a business plan that allowed her to gracefully exit the world of technology and embark on a journey of her own as a professional photographer.
Today, Kristina has built a large clientele of discerning clients who value quality of goods and services, performance, and long-lasting relationships. Fifty percent of her clients are referrals from other clients and the majority of her clients return to her year after year.
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