Becoming a professional photographer is an exciting career goal , but it’s more than just printing business cards or renting a studio space.
You have to tackle everything that comes with running a business, including the financial aspect. In fact, many of our members find the transition challenging once they realize that they have to become business owners.
Yet, if you don’t understand your numbers and think like a business owner, you can’t make informed decisions to grow your profession. To continue making a living by doing what you love, you need to make sure that your business is profitable and sustainable.
The good news is that the numbers aren’t too complicated. We deal with them all day, every day-- shutter speed, F-stop, ISo-- you can do numbers!
Here are some “numbers” you should know for your business.
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.
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 shoot, 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. To unlock even more access to our business and marketing tips which will help kickstart your career become a PPA member today.