The Business of Photography

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The Business of Photography

101 What Is Your New Breakeven Point? (Part 1)

How much work do you need to shoot this week to keep the door open and pay you and your staff their wages? In a recession, it’s time to look carefully at all your costs because you might not have enough income to cover them. It’s also important to know if you should lower your prices, or when it’s time to get out of the business and cut your losses. We’ll cover these questions over the following pages, but their answers are determined by what your breakeven point is.

Recession Strategies: Part 1 of 4

Let’s define the breakeven point as your sales per week that will cover your overheads.

What Are Overheads?

Every business has overhead expenses. The main overheads are rent and wages. Some larger studios have expensive rents and several staff to pay. Other studios are home based and so there may be no rent to pay. And many photographers have no staff to pay, but don’t forget your own wages. Whether you call your profits ‘wages’, ‘salaries’, ‘dividends’ or ‘loans’, your business also needs to generate cash to pay your personal living expenses.

It may be that you need to cut down your personal living expenses so your business in turn can reduce the wages it pays to you. When you fill in the form included with this article (you can download it here), start with your current wages but keep in mind that you might have to take a wage cut yourself, at least for a few months.

Other overheads include bookkeeping, advertising, leases, office expenses, telephone and so on. There’s a list on the form, but you’ll undoubtedly have more of your own.

The point to understand about overheads is that they exist whether you do one job or 1000 jobs. You have to pay them weekly or monthly, and that’s every week or every month.

How much do you need to earn every week or every month to cover these overheads?

This is a fundamental question and every business person who is planning to remain in business during the recession must know how much this is. Working out your breakeven point isn’t difficult, but there is one trick you need to remember.

If your overheads are $125,000 a year, this doesn’t mean you need $125,000 in sales to cover them. The reason is that your sales cost more money (in addition to your overheads) to produce. ‘Cost of sales’ or ‘variable costs’ include framing, albums, printing, equipment hire, assistants and so on. They are costs you only incur when you have a job.

You need to take into account your cost of sales to determine your breakeven point.

In the example on the accompanying form, the business has cost of sales of 0.2 (20%) which leaves a gross profit (GP) percentage of 0.8 (80%). By dividing the overheads of $125,000 by the gross profit percentage, we find we need sales of $156,250 each year.

This is the breakeven point for this example.

Talking in terms of annual amounts is interesting for accountants and the tax office, but pretty useless for people in business.

What we need to know is how much do we have to sell each month, each week, or each job?

By taking the annual sales figure and breaking it down into more meaningful units, we can gauge how successful we are on a weekly or monthly basis.

And if we’re unsuccessful in reaching these sales targets, we can look at reducing our overheads further so we can continue to breakeven. So what is your breakeven point?

Use the form provided to find out. Click here to download it.

As with all business articles on this website, the information is general in nature and doesn't replace advice from your own advisers.

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