Pricing Your Work to Stay in Business
By John Harrington
Excerpted from Chapter 5 of his book Best business Practices for Photographers
How do you establish your prices? This is seemingly an age-old question, and certainly one that perplexes many of the more experienced photographers, who, when asked, simply shrug their shoulders and respond with something like, “I sort of just guesstimated.”
If this is you, don’t be alarmed—you’re not alone. That doesn’t mean you’re free and clear; it means you need to reverse-engineer your rates to see whether what you’ve been doing meets your long-term goals. You also need to know which types of assignments are revenue positive and which may be, without your even knowing, revenue negative (yes, that means taking a loss on a job).
Although 10 years ago resources were few and far between to help you come to reasonable and logical conclusions about rates, they are abundantly available now in books, online, and in software specially designed for photographers.
First things first, though. Repeat the following phrase out loud three times. If you’re reading this in midair while flying over country, say it anyway. If you’re reading by bedside light and your significant other is asleep, say it anyway. But if you’re in a church, then[el]wait. Why are you reading this book in church? Anyway, say this:
“I am a profitable business and must remain so. If I am not, I’ll be waiting tables soon.”
“I am a profitable business and must remain so. If I am not, I’ll be waiting tables soon.”
“I am a profitable business and must remain so. If I am not, I’ll be waiting tables soon.”
Now, no disrespect to wait staffs all across the country, but I doubt very many of them aspire to be wait staff for the rest of their lives. For most, it’s a waypoint during college, while they wait to be discovered and become a famous actor, or perhaps someday own the restaurant. Regardless of their goals, yours is to remain a photographer.
Second, in keeping with the mentality of the mechanic who repaired your car in five minutes (as related in a previous chapter), the amount of time involved in the shoot is a relatively small factor in determining your rate. In fact, your fees could well be increased conversely to your ability to execute the shoot expeditiously, and thus you should earn a premium. Nowhere else that I know of does someone more skilled get paid less because they completed their tasks faster than another less-experienced person.
Taking the approach that being the lowest-priced photographer will earn you all the work you need is a failing goal. The commoditized photographer promotes himself first on price, then on service or style of photography, and then finally on himself.
The best photographer is one who promotes and markets first himself, second his services and style, and finally, his price.
Of course, before you charge a profitable rate, you’ll need to have a clear understanding of what is required to be in business. Even if you’ve been in business for years, you may have been allowing your personal expenses to subsidize your business, and as such, you might have been in the dark about what it truly costs to be in business. Now, you’ll need to change that to get a handle on your business and move it forward.
There are a few “cost of doing business” calculators online. One that I contributed to (no bias here!) is the National Press Photographer’s Association CODB calculator, which can be found under the Professional Development > Business Practices section of http://nppa.org. Look for the NPPA’s Cost of Doing Business Calculator link. An interactive calculator, it pre-populates the form with reasonable numbers for all the categories. In addition, when clicked, a circled “i” next to each category will give extensive information about that category (see Figure 5.1).
After you’ve determined your CODB, it’s time to compare that to what you’re charging for what are typically referred to as “photo fees” on many generic invoices. These are a separate line item from all the expense lines.
Suppose you have an editorial assignment for which you are charging $1,200 plus expenses, and, using the NPPA’s default figures for their CODB calculator, your business costs $898.50 per day of shooting. This means that the difference between what you are charging and what your CODB is—$301.50—is either a profit for the business, a usage fee for the use of the images, or some combination thereof. Typically, in this line item of $1,200, you’ve rolled in your CODB costs as well as usage. There is, however, a school of thought that suggests those two items should be separate, and both sides of the debate are passionate about the issue amongst photographers.
I’ll present the two schools of thought as fairly as I can regarding photo fees. Before moving to that, though, it is important to consider whether what you are paying yourself is going to be a fixed cost within the CODB calculation or a percentage of profits. I would submit that you should determine a fair wage and include that figure as a fixed cost, and one that increases annually—not only by approximately 5% for standard cost-of-living-adjustments (COLAs), but also commensurate with your growth and increased experience as a photographer. A 5% annual COLA and a 10% increase every two years would be more than reasonable.
The following sections discuss two schools of thought regarding photo fees.
School of Thought #1: All Creative/Usage Fees Are Listed as a Single Line Item
Many photographers simply put both CODB costs and usage fees together. Typically, they do so because they don’t want to separate the two or they don't have a solid grasp of how to best separate the two. (Or perhaps they don’t know their CODB.) Thus, many photographers list both items as a single line item because they don’t want to get into unknown territory. They do what they’ve done before, which has seemed to work so far.
One argument for keeping them together is that this is the way software companies handle it, and that’s a fair comparison. When I purchase my license to use Photoshop, I am obtaining, at nominal expense, the materials (CD, manual, and so on), and at a larger expense, the license to use the software on one desktop (and one laptop, according to the last EULA I read). If, after buying the software, I learn it’s not Universal Binary, but rather must run under emulation, I opt not to even peel the wrapper off the box. (This is a Mac issue, so you PC users need not worry about this (yet), but it’s an understandable analogy, so go with it.) I continue to run the previous version under emulation, because all the online reviews say it’s better. I then call the creator (Adobe) and say I’ve opted not to exercise my licensed rights, and, therefore, would like to not be charged (or get a refund) for the license.
The argument is that the license is included in the fee because, whether or not you’ve exercised your right to use the photo, you contracted for that fee and are obligated to pay it. Were there to be line items of, say, $1,800 for creative fees and $12,000 for usage fees, if the client specified that they killed the project or the usage is being scaled back to a figure for which you would have quoted a $2,000 usage fee, there is a valid argument as to why they should be paying the lower fee if it’s broken down.
Another argument is that clients often come back to photographers for additional uses or to extend the existing rights package to include another six months (or longer), and if you’re figuring this based upon the larger creative+usage fee, then the end result is a higher additional fee for the added or extended uses.
School of Thought #2: There Should Be Separate Line Items for Creative and Usage Fees
Some photographers break these fees out, often at the request of clients trying, as they’ve said to me on more than one occasion, “to compare apples to apples.” This means that other photographers are regularly separating the two. In addition, the client can understand that you’re not earning $13,800 for the day, but $1,800 for the day, and then the $12,000 is for X period of time, during which the client can exploit the work to serve their company’s interests. This often makes for a better understanding of the fees outlined on an estimate—something that must be justified to the end client. Even when the bottom-line total is the same, details such as a separation can make a difference.
A downside that becomes obvious when you apply the math from #1 is that if you’re basing your quoted fees for additional or extended uses on the original figure, subtracting $1,800 will reduce your additional fees when you are coming up with a percentage-based rights extension. The upside, though, is that clients understand the percentage better when they see how you arrived at the original, and now expanded, fees.
After you’ve figured out whether usage is a part of creative, then figure out your fees. As a baseline, take your CODB add 7 to 15 percent as a profit for the business, and consider that as what you charge for an assignment for which you remain in "first gear" (if you’re a five-speed manual) and for which little of your extensive skills or creativity are called for. With a CODB of $900, that’s a $990 creative fee (which includes a 10% profit for the business).
For assignments that require a bit more effort and creativity, consider a percentage-based increase in your creative fee—say 30 percent to hit “second gear,” for $1,200. For assignments that require you to get moving (and creatively interesting), you bump to "third gear"—say a 50-percent increase, or $1,350. For assignments that are creatively exciting, you hit “fourth gear” at a 75-percent increase over your CODB, or $1,575. For assignments that are creatively challenging and taxing (and exciting), you could end up at 100 percent of your CODB, or $1,800.
On top of all this is usage. With all the resources available to you via software and online sites, you can determine usage guidelines (and modifying factors) fairly easily after you review the available historical surveys, more recent surveys, and, in some instances, factors of a media buy. Following the review, you'll have a good idea what to add for usage.
A model that has been discussed and debated, and one that I feel is not only fair, but also comprehensible by clients—especially those who are art buyers—is a percentage-based model. I first came across this concept during a panel discussion at a conference where primarily advertising photographers were speaking, and the concept struck a chord with me. Usage, it was suggested, should be based upon a percentage of the media buy, and there are photographers who are having success with this usage pricing model. In many instances, however, usage is limited by the photographer to a specific state, region, ad type (bus backs, billboards, movie theater pre-show screens, and so on), and time frame, so without knowing the media buy, you are setting a price that will delineate the usage to such an extent that your usage fee set forth is akin to knowing the actual media buy. However, there might be uses within your description that you’d not thought of, and the client may be exploiting the right to employ images for those uses.
In addition, media buys can be a moving target. The initially stated buy could be midsized, so you estimate for that, and then it when/if it’s reduced (sometimes significantly), your percentage total must go down. Perhaps you’ll have a minimum buy, or perhaps you have a sliding scale.
Almost all advertising agencies are paid a commission based upon the media buy, and the commission ranges from 10 to 15 percent. However, for extensive multimillion-dollar buys, agencies have been known to accept commissions as low as three percent. This approach of a sliding scale makes a great deal of sense. Although some art buyers may state that they don’t know what the media buy is (and that may be the case), more than likely many just do not want to disclose to you the media buy.
Here are a few ranges and percentages that would be fair and appropriate to apply, and would take into consideration the value of the usage:
[lb] $2MM or greater: 3%
[lb] $1.5MM to $2MM: 4%
[lb] $1MM to $1.5MM: 4.5%
[lb] $600k to $1MM: 5%
[lb] $450k to $599k: 5.5%
[lb] Less than $450k: 6%
There are, however, a few caveats to this list. If it’s a full-page ad with a heroic photo that’s not yours, and yours is a quarter-page inset photo, then your percentage should then be adjusted downward. If it’s all your photos in the ad, even multiple photos taken at different shoots, you would have been paid for each of the shoots, but the usage fees would be a single sum combining them all. If nothing else, in the end, you can do the research and find that a full-page ad in a trade magazine with a circulation of 30,000 costs $8,000, and if they want unlimited rights to advertise in all trade magazines for two years, that’s 24 months times $8,000, times four or so magazines, or $768,000 in possible media buys. In this case, a five-percent usage fee is $38,400. Of course, this would be the likely maximum media buy they could make under those rights, but this certainly gives you a starting point to quote from for usage; moreover, you can negotiate downward for the total and the expanse of usage. A percentage such as this is often something that clients can not only get their heads around, but also can accurately and in simple terms convey to their own clients.
At the conclusion of your determination of how much you’ll have to put into delivering the best images to meet client needs and usage, you can combine them or not, consistent with your decision about the aforementioned factors involved in delivering a clear and understandable estimate for the client's consideration.
Raising Your Rates: Achieving the Seemingly Impossible
No matter what rate structure and fees you’ve decided are right for you, ultimately you’ll need to (and want to) raise your rates. The federal government gives its employees a cost-of-living adjustment (COLA) each year, as do most corporations across the country—or at least they used to! This is done for purely economic reasons. If a loaf of bread cost $1.29 last year, this year it costs $1.35, and the government wants to take this into consideration. Otherwise, over time, you wouldn’t be able to afford the same grocery needs that you had, say, five years ago. If for no other reason than “everyone else is doing it,” your rates should increase over time. If they don’t, everyone but you will have more buying power, and you’ll be at a disadvantage. The car that cost $20k ten years ago now costs $27k, and you can no longer afford it—among other things.
Understand, though, that the COLA does not take into consideration promotions and raises that everyone else is striving for in their jobs. You too should strive to earn more as an employee of your business than you did last year. How much is up to you. Ten percent? Fifteen percent? Did you do a bang-up job for the business, working extra hours and weekends, outperforming last year? If so, a promotion of 20 or 25 percent is what others are achieving. Yet how do you do this when you are both the raise seeker and the raise approver, as well as the justifier to the customer of the new rates? It’s a huge challenge.
Consider the scenario in which you have based your rates and fees on time—typically covering luncheons, dinners, galas, or even rites of passage. I adjusted my rates somewhat quietly. Early in my career, I had a four-hour minimum and was charging $100 an hour—in other words, a $400 minimum—but for that, the client could book me for up to four hours. After a few years, I raised my rates to $125 an hour, reduced my minimum to three hours, and added an administrative fee that was 10 percent of the estimate total—usually around $48 or so. This meant that the combined photo fees and administrative fee was $375 + $48, or about $423. In addition, for the clients who did need me for four hours (or booked me for three, then ran over), I was able to bill an additional $125, so my four-hour assignments were bringing in $500, and no one was
complaining. In addition, this eliminated situations in which clients figured out that it was the same to have me arrive at 8:00 am for a 10:00 am event concluding at noon as it was for me to arrive at 9:30. Not only did this save me the headache of fighting rush hour traffic and getting up early (one of my least desirable things to do), but I was able to take assignments that ended, say, at 5:00 pm and move on to assignments that were from 6:00 pm until 9:00 pm. Previous clients were having me arrive at 5:00—something that I couldn’t do, and thus had to lose one job or another.
A few years ago, I decided I was busier than I expected, and I thought I might be able to weed out a few clients if I raised my rates again, so I did. I increased them to $150 an hour, with the same three-hour minimum, and the administrative fee jumped to around $68, meaning that a three-hour event earned $450 + $68, or $518, and that four-hour event was earning $600 + $75 (approximately) in administrative fees, or $675. This was a decent increase over the original $400 of a decade earlier. Is almost a 60-percent increase over, say, 10 years. Good? Perhaps. Does it take into consideration a COLA? Yes. Did it award me raises and promotions because I am more competent than I was 10 years ago? Maybe.
Other downward pressures are more demands for “all rights,” “buyouts,” work-for-hire (more on these later in this chapter), hobbyist photographers who claim to be working photographers capable of filling client needs, and market forces in my community. In the coming year, I am looking to increase my rates again because that previous bump from $125 to $150 didn’t cause the reduction in assignment-load I had expected.
In the scenario with rates based mostly on creative and not so much on time—often editorial assignments or corporate/commercial/advertising work—how I adjusted my rates did not occur with any more fanfare than necessary. Many of my clients, although repeat clients, are accustomed to receiving estimates before each assignment, so increases were less perceptible, and I certainly maximized my ability to increase my rates during the transition to digital. This not only covered the costs of the transition, but an increase in overall profitability per assignment. Magazine assignments that used to be $750 including expenses are now in the $1300 to $1500 range.
Of course, it’s imperative that you (internally) have an hourly rate that you use and apply to your calculations to arrive at your rates as a baseline for services rendered, from photographic to post-production and such. This is not an external figure that you share with clients; rather, it's a figure that helps ensure that you are paid that fixed salary from the CODB calculator.
Surveying Your Competition: How to Gather Knowledge without Risking a Price-Fixing Charge
One of the ongoing issues among professional trade associations is that they cannot endorse, encourage discussion about, or advise a particular set of rates.
Law.com provides the following definition of price fixing:
n. a criminal violation of federal antitrust statutes in which several competing businesses reach a secret agreement (conspiracy) to set prices for their products to prevent real competition and keep the public from benefiting from price competition. Price fixing also includes secret setting of favorable prices between suppliers and favored manufacturers or distributors to beat the competition.
Discussing with your colleagues and competitors what prices they charge (or would charge) for a particular assignment or type of assignment is not price fixing. If you agree to charge a set price and are among “several” (as noted above) companies that “prevents real competition,” then you have a problem. However, many trade associations have worked diligently to avoid even the appearance of a price-fixing charge—an understandable measure of self-preservation, because no one wants to be the subject of a Federal Trade Commission probe. Back in the 1980s, ASMP produced a well thought-out survey of its membership as to the prices they charged (and presumably would charge in the future) for their services. Despite this well-intentioned work product, the Federal Government took a dim view of this and expressed as much to the ASMP in no uncertain terms. This has caused a chilling effect regarding pricing information and how (and by what means) it is shared. However, this should not discourage you from appropriately reaching out to others about pricing you may be less than familiar with.
Perhaps your reason for inquiry is that although you can produce the final product you’re being asked to, you might not be familiar with all that goes into it. Suppose its aerial photography, and you don’t know the risks to life, delays in weather, and pre-production and post-production demands that go into the final product. A call to an aerial photographer—quite possibly one far outside your market—could yield insights that would give you the knowledge necessary to prepare a proper estimate and equipment rental needs, so that you’re not selling yourself short and you don't end up taking a loss on an assignment because of all the non-behind-the-camera work involved.
Perhaps your reason for inquiry is you are new to a market, and your “big city” pricing is turning off many of your clients. You are capable of doing the work in this new-to-you midsized town because you were booked often in your old location, so perhaps a review of your competition’s pricing will cause you to reevaluate your pricing. It’s not much different than a gas station owner coming to his corner of an intersection and seeing that his competitors on the other three corners have dropped their prices by 33 cents a gallon. He’s going to be making some adjustments to his pricing signage post haste, or risk going out of business.
If, when you reach out to others, they are reticent about sharing their prices with you, don’t instead have a friend call up and try to book several assignment types from each photographer. That’s unethical and dishonest to be sure. Instead, share with the photographers in question that you are hoping to get a fair gauge of the marketplace, and you may not recognize all that is necessary to deliver to clients in that town. Discuss the fact that you may be setting yourself up to over-deliver, and thus over-price, say, raw files, and not charge any post-production fees, which would make you under-priced and under-delivering to the marketplace’s expectations.
I have found that my Web site, which contains hundreds of pages of pricing information and an assignment calculator to aid clients in pricing an assignment before they call, is often used by my potential competition both locally and across the country to price their own assignments. This doesn’t bother me—in fact, I am happy to know that it’s happening. If someone independent of me opts to calculate what I’d charge for an assignment and values their work as I do, then if we both are competing for the same job (and I have no way of knowing whether this is occurring), we will be competing on the level of service, creativity, and quality, not on price.
Never Be the Cheapest
It’s true. You never want to be the cheapest. I don’t want to be the “always low prices, always” Wal-Mart version of photography. Nor do I want to be the Target version. I want to be the Nordstrom, Saks, Tiffany, or other high-end-exclusive boutique version of photography. Further, I believe that’s the level of service, quality, and commitment I bring to each assignment.
When I am discussing an assignment with prospective clients, they give off cues that they are going to be getting estimates from other photographers, and usually there is a hint of “we’re looking at a few photographers' estimates right now” that gives me a clue that they’re shopping price, among other things. At this point in the conversation, I attempt to diffuse the price-shopping by stating, “If you’re shopping price, I can pretty much assure you that I am not going to be the cheapest, but I will deliver the quality that you (or your client) demand, at a fair price.” Sometimes they are taken aback, but if you see that cost comparison down the road, you’ll likely lose the assignment anyway, unless the client sees the value you bring. It's beneficial for you to point this out to the client sooner rather than later, and perhaps the other person on the phone—who often isn’t the decision maker—will go to bat for you, and you’ll get the assignment.
If You're the Cheapest, Find out What Is Wrong
If you’re the cheapest—and finding this out isn’t too difficult—you want to know why. Perhaps it was in the expenses area of your estimate because you didn’t include catering in a shoot that didn’t call for it, or a second assistant when the shoot only called for one. Or perhaps it was because you used ambiguous licensing terms that gave away more than you intended without your being paid the correct fees for the assignment.
When on assignment with clients, I often will discreetly survey them about how I came to be their photographer of choice. To date, I’ve not had a client state that it was due to price; I am aware that I am not the least expensive photographer in my community. Typically, I am a sole-source contractor who came to them by a recommendation, or a review of my Web site gave them the confidence to book me. If, however, it was because I was the cheapest, I’d ask a few more questions. Perhaps there was a misunderstanding about rights, rush turnarounds, or what was included in the assignment expectations. Either way, asking appropriate questions can give you insight into what you might not have (but should have) factored into the assignment
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