Tuesday, September 26, 2006

Business 101 – Why I look Up To My Dentist & You Should Become A Plumber

I’m constantly struck by how many people in our business don’t understand, well, business. Those of you who’ve been following along know well that this is a pet peeve of mine. If I have to write on this subject just one more time you're going to have to pay for a subscription to read here. Anyway, once more, someone wrote asking why he should mark-up his costs when charging them to his client as line items on his invoice. The names have been changed to protect the ignorant.

Jon wrote:

"...bloat travel expense estimates to cover the just-in-case? OK, but I feel it's less than forthright to expect to profit from it."

Why go into business if you don't think it's right to profit from your work?

The price of just about everything is going up, not down. If your travel expense (gasoline) increases, your charges for travel must increase to compensate.

Profit is the reason one goes into business. Money is the reason one goes into business. Loving what one does is a perk, a fringe benefit, a bonus, but it's not the reason to go into business.

If you became a photographer because you love doing it, you should have been a dentist... they all love photography and have Hasselblads with digital backs and take vacations on which they use them. Some dentists are actually quite talented, and they can all afford all of the photography gadgets and doodads their hearts desire. Why? Because they have no qualms about marking up their cost of doing business and making a healthy profit.

I'm as good at what I do as my dentist is at doing what he does. He earns $200,000 + per year, drives a Land Rover and lives in a big house up on Prospect Avenue. If I fail to profit I'll never earn as much as my dentist does (and why shouldn't I?) so I charge $1.00/mile to drive my car to a shoot. Any client that doesn't want to pay my mileage rate can have me rent a car/truck/van and pay my mark-up on the rental.

My dentist looks up to me because he envies the fact that I'm not chained to an office eleven months a year. I travel and make pictures for a living and give him my calendars and posters and other cool stuff to hang in his office.

I look up to my dentist because every time I see him I'm reclining in his chair and he's towering over me with a sharp instrument or a power tool and I'm paying him $300 a half hour for the privilege.

Jon wrote back:

"At my last job(s) I would travel for business. I was either given a corporate card or I paid my own expenses and recorded them on a reimbursement form for travel, food and incidentals. In the interest of keeping my job, I recorded exactly the amounts of those expenses, no less, no more. I didn't expect to make a profit on them. I made a profit on the work I was doing."

Here's the essential difference: At your "last job" you were an employee and not entitled to make a profit from your work. Profit is reserved for the owner(s) of the company, not you. You were an employee. You did not profit from your work, your employer profited from your work. You earned a salary and were reimbursed for your expenses.

As a business owner, you don't invoice for reimbursement of your expenses. You invoice for Creative Fee/License to Use (includes usage) plus PRODUCTION CHARGES. Expenses are what we have (and we deduct from our gross income on our tax returns), production charges are what we invoice to our clients.

This is Business 101. Pay attention y'all... if you don't mark-up your expenses and convert them to production charges then you are a) not doing business correctly and b) ruining the marketplace for those of us who do.

I revert to my favorite question for a client who balks at paying $30 for a roll of film and processing (now digital fees, etc). When challenged on an item like that I always ask: "Are you wearing shoes?"

client: Yes, of course.

JP: "Good, how much did you pay for them?"

client: I dunno, about $95.

JP: "Uh huh, and was that the price as marked in the store?"

client: Yes.

JP: "Did you hassle the store owner and ask to see his receipt for the wholesale price of the shoe and offer only that, or did you pay the marked price at the register?"

client: It's not the same Joe, I can get a roll of film at K-Mart for $6.99!

JP: "It is the same. Because you can get a piece of leather for $6.99 too, but it ain't a shoe; and you can buy a shell steak at ShopRite for $10.99 but you can't take it to The Palm and have them grill it for you for free. A Shell Steak at The Palm is going to be $55.00. Don't even suggest to the waiter that he give it to you for less because supermarket beef is only $10.99/pound, he'll throw you out on your ear. You can buy a roll of film for $6.99 but it won't have my pictures on it, it'll be blank."

JP: "The price of a shoe reflects a lot more than the cost of the materials. The manufacturer has to purchase materials, finance the purchase, design, cut, finish, sew, attach, ship, advertise, invoice, collect, pay salaries, repair machinery, print stationary and business cards, telephone, employee pensions, health plans, utilities, process returns, pay rent or purchase real estate for their facilities, have the place cleaned daily, entertain buyers, pay for a trade show booth, maintain a motorpool, use postage, have insurance and much, much, more."

Now, can you do all that with YOUR business without marking-up your costs?? No, Jon (and everyone reading here), you cannot. Pay attention to this, it's key: Your profit is derived from the mark-up on your costs of doing business.

The shoe manufacturer must profit so they can remain in business, produce new designs, etc. They can't charge you just what it costs to make the shoe, they'd go out of business. You need to profit too. You need to produce new portfolios, update your version of PhotoShop, buy a new Mac once every few years, replace your digital cameras every 18 months, fix stuff, save for your retirement, replace the car you're not charging a dollar a mile to drive. How are you going to do that? Sponge off your parents? No (unless you're a creep, how would I know?), you need to mark-up your costs and make a profit to fuel your growth.

In every other business... every other business... mark-ups are applied to the cost of goods sold or consumed in a manufacturing process. That's why your shoes are $95 rather than $25: the materials, labor, packaging, shipping, advertising, insurance, wages, energy consumed, etc, etc has been marked-up to insure the company's profit. Our businesses should be no different.

Those who labor under the belief that photography businesses are somehow "special" and immune from the established market practices and forces are wholly incorrect, regardless of how strongly one believes it or how many of one's peers feel the same way. Those who depart from established business practice threaten to destabilize our industry and therefore make it more difficult for those who adhere to established principles to continue to prosper from their businesses.

You've got to understand that if you fail to profit you'll be a poor yutz all your life and you'll make it more difficult for all the others, who actually understand how all of this works, to earn a proper living. Don't drag my business down with yours simply because you don't understand business fundamentals. Become a plumber and drag that industry down for lack of business skills, LEAVE PHOTOGRAPHY ALONE! Please!!!!

Class dismissed.


Anonymous Anonymous said...

Okay seriously,
Don't people understand that business has to make money to survive....I worked for an electician and he charged my work out at $50 an hour...he payed me $12 tha rest is used to run the business. The next time you see the plumber or the electrician ask him how much of what he charges you he takes how. Sorry about the spelling

7:27 PM  
Blogger Joe P. said...

Dear Anonymous,

Thanks for commenting. Unfortunately, it's true, most photographers haven't a clue about how to run a proper, and profitable, business. What's worse is that the clientele know this and attempt to take advantage of the fact at every turn.

Someday I'll share the letter I wrote to Steve Forbes (complaining that his editors weren't allowing me to charge $32/roll for film when they could go to K-Mart and buy it for $6/roll), explaining what he already knew well, that we have to mark-up our costs to be profitable. "Surely," I wrote, "somebody at "The Capitalist Tool' must understand this concept." Mr. Forbes was not amused by my discourse and I no longer work for his magazines.

It's Business 101.

Joe P.

8:15 PM  

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