Embarking on a career as a professional photographer is an exciting pursuit, but it entails more than just designing business cards or securing a studio space. It involves embracing the full spectrum of running a business, including the crucial financial aspect. Many of our members encounter challenges during this transition when they realize they must also become proficient business owners.
However, understanding your numbers and adopting a business owner's mindset are pivotal for making informed decisions that foster professional growth. To continue pursuing your passion while sustaining a livelihood, it is essential to ensure the profitability and long-term viability of your business.
The good news is that grasping the numbers isn't as complex as it may seem. As photographers, we already work with numbers daily, from shutter speed to F-stop to ISO. So, you've got what it takes to handle numbers! Here are some key "numbers" you should be acquainted with for your business's success.
One of the most important concepts to help you get a grip on your numbers is the profit and loss (P&L) statement, which is also referred to as the income statement. It records how much you earn and how much you spend to show how profitable you are. After all, if you aren’t profitable, you can’t stay in business for long!
A P&L statement summarizes the revenues, costs, and expenses incurred by a business over a specified period. By comparing P&L statements from different accounting periods, you can see changes in revenues, operating costs, spending, and net earnings. This will help you gain insights into your financial performance and gauge the health of your business.
The income statement typically begins with an entry for revenue, known as the top line. Then, you subtract the costs of doing business (i.e., operating expenses), such as the cost of equipment and maintenance, rent, utilities, payroll, payroll taxes, travel expenses, marketing expenses, software upgrades, insurance, etc. The difference between the revenue and the expenses, called the bottom line, is your net income (also referred to as profit or earnings).
Your P&L statement shows you the cost of doing business, which will, in turn, inform how to price your services.
While there are many factors that affect your pricing—such as your experience and reputation, the type of services you provide, and the market demand—it’s important to make sure that you’re covering the expenses and generating a net income.
Your pricing should account for the following: cost of running your photography business, cost of goods, cost of your time and labor, profit, and taxes. Check out this article from Pixia for more information about pricing your photography. In addition, you can check out this case study of one photography studio's business plan.
Your P&L statement will show you the cost of running your business, including equipment costs, office/studio rental, marketing expenses, professional fees (e.g., bookkeeping, assistants), and other general expenses.
With every line item listed out, you can review the expenses and trim the fat. If you keep the price constant, lower costs can translate into higher profits for you.
The cost-of-goods-sold (COGS) is the total cost required to produce a good or service, including labor and materials. Let’s say you’re providing clients with a set of prints. The COGS should represent the cost of the print, post-production charges, packaging, and shipping costs.
Be thorough when calculating your COGS—don’t overlook less-obvious costs associated with the final deliverables, such as the time needed to manage client proofing, as well as digital file storage and delivery.
Time is money, yet many photographers underestimate the value of their time and labor when pricing their services. Aside from the time at the actual photo session, the hours you spend meeting with the client, doing pre-production, traveling to the site of an assignment, setting up the equipment, and conducting post-production activities should all be factored into your pricing.
The last piece of the equation is the profit margin, which will determine your take-home income. While the industry average is around 50%, it often differs from project to project. For example, you may want to lower your profit margin to offer a lower price on services in an area you want to break into (e.g., corporate events). In exchange, the client will allow you to use the photos in your marketing materials.
Running your own business means you have to pay various taxes based on your business structure and revenue amount. Make sure you account for the taxes you need to pay (e.g., self-employment tax) in your pricing and set the amount aside so you don’t get unpleasant surprises come tax time.
Knowing your numbers is the first step to running a profitable photography business. Getting a handle on the various components that affect your expenses and profitability allows you to refine your business model and optimize your profits.
There are many challenges when it comes to running your photography business, but if you have help along the way it can make the process easier. That’s where PPA comes in, we provide resources for every step of the journey because we know how difficult it is to become a professional photographer on your own. PPA's education platform specially addresses the common issues photographers face, such as sales, marketing, and understanding the consumer market. To unlock even more access to our business and marketing tips, become a PPA member today.