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The Business of Photography

103 Should You Lower Your Prices? (Part 3)

Recession Strategies: Part 3 of 4

There’s a recession. Share prices are plummeting, house prices are dropping, people are losing their jobs. Should we be lowering our prices so we stay in business?

Maybe.

This is a very complicated question because it affects different studios on different levels.

For instance, a portrait studio in a shopping mall may feel it needs to discount its prices to increase volume, whereas a home portrait studio that survives on relatively few sittings each week may be committing financial suicide if it drops its prices. There is no single answer to this question, so rather than giving you a direct answer, let’s look at the issues involved so that when you’re faced with such a decision, at least you can make an informed choice.

The Effect On Profit

What does reducing your prices do to your business? It reduces your profit. Will a reduction in profit affect you badly? That depends on how much profit you have to start with.

If you have no profit in your pricing, then you’re in trouble. And if you don’t reduce your price, will you miss out on the job, in which case what effect will that have on your profit? Will you be in trouble anyway?

 

Possibly!

There are no easy answers. Refer to our sample figures on the sample form (click here). You’ve just re-worked your figures to produce a breakeven budget as follows.

Sales                           $156,250

less Cost of Sales $ 31,250

Gross Profit             $125,000

less Overheads       $125,000

Net Profit                   $ nil

Jobs per week         4

Income per job        $781

You need to do four jobs a week with an average sale price of $781 just to stay in business with your current salary.

Let’s say your salary is $50,000, which is included in the $125,000 overheads.

A client walks in and asks you to do a shoot, but they can only afford to pay you $700, not $781. Should you take the job?

If you take the job, you have lost $81, not a great deal of money. If the rest of the year proceeds according to budget, you will end up with a salary of $49,919 because the $81 discount has to come from somewhere and the only person in the business willing to accept a lower price (wage) is you. So you take the job and the $700. You shoot three more jobs for $781 each, so at the end of the week, you’re only down $81. If at some stage in the rest of the year you can do an extra shoot for $781, all will be well. You will have regained your $81 (and some extra profit).

So, doing one job for a discount in itself is not the end of the world.

The following week, another person arrives. They also offer you $700 for a job and you accept. In fact, you find that over the year you’re doing at least one job in four for a discount of $81. What happens over a year?

Discount per job $ 81

Number of weeks in a year 50

Annual discount $ 4,050

Where does this discount come from? It comes from your wages, so instead of earning $50,000 a year, you’ve earned $45,950. In effect, you have given 50 of your clients a present totalling $4050. You’ve also lost around 10% of your wages.

However, you’re a good photographer and people get to hear about you. Their friends come along and they ask for a $700 job as well. Soon you find yourself doing all your jobs for an average of $700. What happens to your profit?

Discount per job $ 81

Number of jobs per week 4

Discount per week $ 324

Number of weeks in a year 50

Annual discount $ 16,200

This is how your annual budget looks:

Sales $140,000

less Cost of Sales $ 31,250

Gross Profit $108,750

less Overheads $125,000

Net Loss -$ 16,250

Of course, you don’t actually make a loss, you just pay yourself a lower wage: your $50,000 salary has just dropped to $33,800, but unfortunately that’s not enough to pay your mortgage and now the bank is chasing you!

Of course, I’m being negative, aren’t I! The fact that people love what you do and are talking about you means that instead of struggling to get 4 jobs a week, you’re getting 5 jobs and your annual budget now looks like this:

Sales $175,000

less Cost of Sales $ 39,062

Gross Profit $135,938

less Overheads $125,000

Net Profit $ 10,938

Jobs per week 5

Income per job $700

Surely this is a good result? Yes, it certainly is, but it’s not as good as 5 jobs for $781. Can you stay in business for a few years and then gradually increase your prices in better economic times? Quite possibly.

Value Not Quantity

It is said that in tough economic times, people choose between not buying and buying quality. Many businesses find that their sales are quite good, it’s just that there are fewer of them, which means that lowering your prices with an expectation of getting more customers is not necessarily going to work.

Accountants playing with figures can create theoretical scenarios that may not play out in the real world. Nevertheless, a sensible business person will know what will happen if they reduce their prices before they actually do it. In other words, don’t automatically drop your prices because everyone else is, you may not need to.

If a business or private client is hiring you, don’t assume they don’t have any money. Even with 10 percent unemployment, that’s still 90 percent of the population with a job. Even with lower profits, businesses can still afford to have photographs taken. It’s lower profits, not necessarily no profits.

This is where a photographer who is good at negotiating can do well. By talking to your clients, asking relevant questions, you can often determine whether or not a discount is needed to win a job. We return to the general rules of pricing and marketing: if what you are offering is the same as everyone else, then your prospective clients will simply choose based on price. It doesn’t matter whether there’s a recession or not.

Many clients will assume one professional photographer produces much the same quality as another, so if they are offering much the same product or service, then the decision is based on price. We do the same when we’re shopping for a new computer or a refrigerator.

Dropping your prices over the next 12 months could be seen as a goodwill gesture. You’re saying to your clients, yes, I know everyone is hurting and I will give you a discount because I value your work. The danger is that when good economic times return, your customers expect the same low prices. This probably affects commercial photographers more than domestic studios because the latter is talking to new clients all the time, whereas commercial photographers are more likely to be dealing with repeat clients.

Dropping your prices isn’t sustainable for the long term. Instead, you need to market yourself more vigorously. Many of your competitors will be pulling back on their marketing, so now’s the time for you to get out there and be the most visible photographer in your area. The answer is to increase your share of a smaller market.

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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