Step 2: ADD UP THE ANNUAL MONEY YOU SPEND
Now total up ALL of the above costs, including your salary – THIS is your annual cost of doing business. Now divide that number by 12; this is your monthly cost of doing business. It’s a pretty big number, isn’t it? This is the absolute minimum amount of income you need to make in your business just to cover your minimum costs.
Step 3: DETERMINE YOUR BILLABLE UNITS
Once you know your total cost of doing business, you will want to break that total down into a cost per billable unit so you can make educated pricing decisions. So, what is a billable unit? A billable unit is a common unit of measurement for your photography services, such as hours, days, sessions, weddings, or real estate shoots. This is often the amount of time it takes for each type of session, including non-shooting time.
For our example, we are going to use hours as our billable units. The one equalizer we all have is time, so you will need to decide how much time you are going to spend each week on billable client activities. This should include the shoot itself, client meetings, culling, proofing, editing, and any other activities related to a session. This should NOT include time you will spend working ON your business, doing things like marketing, bookkeeping, education, and styled shoots. For our purposes, we will assume that your goal is to work a 40 hour week, with 10 hours each week spent working ON your business and the other 30 hours working IN your business, shooting and doing shoot related activities.
On an annual basis, you will have a total of 1,560 billable units (30 hours per week x 52 weeks per year). Do you like to take vacations and time away for retreats, conferences, and other events? Now, let’s say you want to take three weeks off for vacations and other events. This will reduce your number of annual billable units by 90 (30 hours per week x 3 weeks), down to 1,470. You might also want to factor in the likelihood that you won't be fully booked every week of the year, so you'll want to reduce your billable units again based on that estimate. For our purposes, let's assume that on average, you are booked at 80% of capacity, which means we should reduce your annual billable units another 294 units (annual billable units of 1470 x 20% average unbooked time), leaving us with 1,176 annual billable units.
Step 4: CALCULATE YOUR COST OF DOING BUSINESS PER BILLABLE UNIT
Divide your total cost of doing business from step 2 by the Total Number of Billable Units from step 3 to arrive at your Cost of Doing Business per Billable Unit. In our example above, the CODB per billable unit is $81 (Total CODB of $95,160 divided by 1,176 annual billable units).
Step 5: DETERMINE THE NUMBER OF BILLABLE UNITS ASSOCIATED WITH EACH OF YOUR PHOTOGRAPHY SERVICES
Before we can use this information to help you make pricing decisions, you will need to determine the amount of billing units associated with each type of service you provide. To illustrate, let’s assume that you are a portrait photographer doing senior and family photography, and you offer session types that range from one to three hours of shooting time, and you use hours as your billable unit. We all know a one hour session takes way more than one hour, so let’s do a quick calculation to determine the amount of billable units we will need to associate with each session type.
Step 6: DETERMINE YOUR COST OF DOING BUSINESS PER SERVICE YOU PROVIDE
In my illustration, your cost of doing business for a one hour session is $405, which means this is the absolute minimum amount you can charge for doing a one hour session in order to cover your costs of doing business. How does that $100 for a one hour session sound now? Similarly, your CODB for a two hour session is $527 and $648 for a three hour session.
Step 7: DEVELOP YOUR PRICING STRATEGY
So, now that you know what goes into calculating your cost of doing business, and have taken the steps necessary to calculate it for your own business, you can use this information to determine YOUR pricing strategy. It's so easy to get caught up in comparing your prices to others that you don't even stop to think about whether the prices you are charging are actually covering your costs and earning you enough to make a living. Comparison is the thief of joy, and if you’re busy comparing your prices to others, you'll likely never earn enough to get ahead.
Do your homework and figure out what you need to charge to be profitable. No matter the type of transaction, price is not the difference – the difference maker is YOU. People will pay more for YOU if you give them a reason to. YOU just need to be ok with it. Being a creative does not mean you have to live a life of poverty, and being a creative business owner does not mean you are taking from others. So many entrepreneurs, women in particular, feel bad about taking money for something they love to do, and TAKING is the word they use, like they're robbing a bank.
The reality is that you are receiving money in exchange for goods or services that your client desires. Do you find it difficult to receive compliments, but are constantly doing things for others? If so, then you may be the kind of person that loves to give to others, but has a hard time receiving. If this is you, and you’re in business, you need to get over it, and be grateful and humble when accepting payment for your goods and services. Providing goods and services that people desire, while taking care of your own family at the same time is the right thing to do, and I hope that by identifying all of the costs that go into running your business, you can feel confident in developing a pricing structure that meets your needs, and will keep you in business long into the future.
Now that you know what your cost of doing business is, please don't apologize for your prices or feel bad about charging what you’re worth. Providing goods and services that people desire, while taking care of your own family at the same time is the right thing to do, and I hope that by identifying all of the costs that go into running your business, you can feel confident in developing a pricing structure that meets your needs, and will keep you in business long into the future. I would love to hear your thoughts on this topic, as well as how calculating your cost of doing business has helped you run your business more successfully.