Thursday, March 22, 2007

I Appreciate What I Earn

I've been doing a lot of readin' these past few days on forums and other blogs. (That's me, on the left, at my Remelli reading wheel. My laptop's on the floor to my right.) A lot of people are bitchin' about pricing, and RF, and so on. I've done that a few times here, hopefully somewhat constructively. However, in the end, I figure my revenue stream is fairly good. I can't see any lunatic justifying "earning" $0.50 off a license for a photo. You can't even buy a stamp with the $0.25 you have left after taxes.

My assignment fees range, of course, in the $500+expenses range easily to the nearing $2k mark for editorial, and start around $1k and frequently get above $3k for limited licensing of corporate work. I have also completed assignments that exceed $10k. In other words, my fees (and associated expenses) range according to complexity, extensive uses, and so on. For each assignment, I EARN what I am paid. (How the heck else do you think I could afford something so eccentric as a reading wheel??)


Try dialing 411 on your cell phone - $1.50
Try buying the local paper - $0.35
Try buying a hot dog and soda at Costco - $1.50
Try feeding a parking meter for an hour - $0.50

None of these things can you cover the cost of, with your after-tax profits of $0.25 from that $1 stock sale. You have spent more time working to produce that image than you'll earn on it, almost without exception, FOREVER.

I make no apologies for a fair, thoughtful, and earned revenue stream. I do what I can with portions of that, and my time, to give back to try to help others, and I am often saddened by others who don't have enough self-respect to charge similarly (self-determined) fair and thoughtful rates for their work.

And don't, for a minute, try to suggest that when you get paid $0.50 for the use of your image, you earned anything. You did not. Each use of that photograph represents a net loss. And, woe the businessman who sold everything he had below cost, loosing a few dollars on each, expecting to make it up on volume.

When I see people willing to work for photo credit, or for less than you could rent the equipment you are using and hand it to a monkey to make pictures, what I see people earning, is a reputation as a chump, or as a sucker.

If the local camera store rents a Nikon D2x ($125), single lens ($35), and strobe ($10) for $170, and you take an assignment for $150, you're the sucker. See, the camera store amortized that camera over it's useful (and functional) life, and determined what it cost them to have available for use, plus a moderate profit. When you use your same equipment (plus other lenses, and redundant cameras if you're professional), those same figures apply to you, and taking $150 is paying for the privledge of being that client's sucker. You didn't earn anything. You took a loss, and those losses will compound, over a year or two, and you'll be out of business. And, as PT Barnum once said, "there's a sucker born every minute", so, have no fear, someone will, in ignorant bliss, step in to take their chump change once you're out of the picture.

When you are paid a fair wage, plus profit, you appreciate what you earned. You earn respect from your clients as a professional that can contribute talent to a project. Two years ago, I was called on by a large corporate sponsor to cover a big Spring parade here in Washington. The fee plus expenses for a five hour day on a Saturday exceeded $3,500, with a limited rights package. Last year, someone got the bright idea that it could be done for (a lot) less, and I didn't get it (I asked and it was a lot less). I asked why (which I always do), and the client said price. "No problem, I hope to work with you in the future", I said, and I meant it. Low and behold, something didn't work out last year, because they came back to me again this year. "My fees have increased slightly since two years ago," I said. "No problem, please send along an estimate. This year we probably have two days we'll need you for", they said. "Great, I'll get those estimates right out to you. The rights packages will be the same, with a nominal increase in fees/expenses from two years ago" I said.

Two years ago, I earned that assignment's revenue. It was a profitable assignment for me. Last year, someone had the not-so-bright idea that a monkey with rental gear could do the job, so I did not do it. This year, I am appreciative that they have have returned and remember the level of service and quality images that were delivered when I did it last. I look forward to earning these upcoming assignment's revenue, and earning back this client's understanding of the value that I bring to bear on each assignment.

Respect, and especially self-respect, is not for sale to the lowest bidder, just ask the starlet hoping to make it big as an actress who starts out in adult flicks. For some reason, that just never works out for her. Ask the late night "if you've got a phone, you've got a lawyer" guy. Respect is earned, and not through nickel-and-dime "sales", but rather valuing your own work. Interestingly enough, it seems that the higher you price your time and licensing fees, the greater respect you get. Sure, you might have fewer assignments, but you'll have earned so much more respect for the work that you do do.

Please post your comments by clicking the link below. If you've got questions, please pose them in our Photo Business Forum Flickr Group Discussion Threads.


Anonymous said...

I agree with much of what you say about selling your services too cheaply. Microstock is a joke and working for credit lines is a nonstarter.

One thing to remember, when you argue that if you take an assignment for below the rental cost of your gear you are taking a loss. This may feel right but basic economics say that it is wrong. Once you purchase gear it is a sunk cost and sunk costs are sunk. If you are paid $150 you still made $150.

If you are not covering your variable costs you will have to shut down. The fixed cost of your gear is different than the variable cost of operating. If you are financing than debt service is a variable cost.

We really need to look at opportunity cost. If the opportunity cost of the $150 dollar assignment is sitting on your butt then you lost $150 by not taking the assignment. If the opportunity cost is a $5000 assignment that you couldn't take since the times conflicted then the opportunity cost is $5000.

Please keep in mind that this is a very simple economic analysis. I am not saying that taking low ball assignments is a good long term business idea. It is possible when you calculate your variable costs low ball assignments may not cover them. Also your arguments about valuing your work and others valuing your work are important and true.

Anonymous said...

The difference between variable costs, fixed costs and sunk costs is important in understanding any business dynamic. The logic explained above (i.e., "hey I already paid for my gear, so I may as well make *some* money") has understandable appeal, but it will also render the initial investment (e.g. buying the gear) a bad decision. When it comes time to replace cameras, buy new computers and, perhaps most importantly, turn down alternative employment, none of this will be justifiable if photo revenue only covers gas money.

John's example of the camera store renting equipment works the same way. One could argue that the store should rent the gear for next to nothing, since they've already paid for it. But the entire reason they invested in rental inventory in the first place is because they believed people would pay $170/day and get a certain number of rental days to make it worthwhile. If the expected revenue doesn't materialize, the store will regret the investment and will think twice before doing it again.
That's how most business decisions are made. If it weren't, taxi rates would only cover the cost of gas ("hey, you're already stuck with the car payments!").

Clearly, not everyone views their investments in photography as something that needs to pay off financially. Many view these investments as hobby expenses, with publication sales being incidental. It remains to be seen how much of the market for images can be served by folks operating under this view, and for how long.

Kevin W.

Unknown said...

Great post! We go through this same issue often here at Architecture Central.

The only exception I take is to your use of "monkey" as a derogatory term. There are many fine quality monkeys out there, and although they most likely take awful photographs, they are getting closer to that copy of Hamlet I contracted for.

Anonymous said...

Kevin: If camera rental was a larger and slightly different market like air travel or hotels then they essentially would operate like you described ie renting the gear for cheap since they already paid for it. Airlines and hotels have massive fix costs and very low variable costs. The variable cost of another passenger on a plane is about $10, mostly the extra weight of the passenger. That is why you can get great last minute rates on the web. An airline will want a butt in the seat for any amount over variable costs.

If a camera store was operating efficiently (in the economic, not business sense) in a perfect market they would be willing to rent any unused gear at the end of the day for anything over variable costs. The reason this does not happen is obviously because the market is not perfect. Camera rental stores general operate as a monopoly or duopoly in a market and there is significant shipping and time costs from renting from outside a market. Also there is the risk that someone will come in the next day and want the just rented gear and be willing to pay much more for it. We can figure out if the store will rent the gear in light of this if we know some more things about the business like their risk aversion and assumptions about the chance of this happening. We can even figure out how low they would be willing to go on day A with the risk of another rental on day B.

Do not compare our industry to the US Taxi industry. Within a city taxis are a regulated industry and a monopoly which means that all logic of price are thrown out the window. Go to another country without regulation and you can haggle with the drivers and drive the cost way down. Theoretically they will take variable cost or actually below variable cost since most will only internalize the cost of gas as a variable cost and forget about maintenance, debt service, etc. Most will only evaluate this based on opportunity cost.

So which is closer to photographers in America: a highly regulated monopolistic industry that sets prices, has standards for equipment and operations, and has huge barriers to entries in licensing and taxi medallions? Or taxis in Africa etc. with no regulation and small barriers to entry?

Anonymous said...

Those are excellent points. You provide good examples of how firms, like airlines, try to get maximum sales out of a given investment (in this case, the "investment" is the decision to run a particular flight). Selling seats for cheap is certainly a better alternative than not selling them at all. But, if selling them for cheap is the best they can do, that route gets dropped. Good businesses avoid throwing good money after bad.

Other examples abound: clothing stores have discounts, after making as many full-price sales as they can. After that, they go to outlet stores, and after that, bargain stores. But if all sales were at the bargain price, it wouldn't make sense to bring out a new line each season.

Look also at books. Of course it doesn't cost $29.99 to print up one additional book, and you see bargain bins where books are only $1, because $1 is better than nothing. But how many books would get published with the intention that they only ever sell for $1?

Perhaps part of the issue is the shorthand manner of presenting sunk costs as if they were costs that must be covered with each and every assignment. As you point out, that's not correct. That new lens is on your credit card whether you shoot with it or not. The more subtle point, though, is that if you're not covering these sunk costs, you will be falling short of the revenues needed so that you don't regret your decisions. What's done is done, of course (that's why those costs are called "sunk") but it should make you think twice the next time you are called upon to buy new gear, renew your business insurance, pay for advertising, upgrade your software, pay your own health insurance or pass up a better paying job. For one assignment taken in isolation, these costs are irrelevant: you'll pay them regardless of whether you take that particular assignment. But if a year's worth of assignments doesn't cover your costs (including take-home pay), then the rational business decision is either to not incur them again (i.e. close up shop), or revisit the business plan to find better paying engagements, lower your costs, or both.

Who knows, maybe there will be a sufficiently strong stream of folks buying cameras because they enjoy it and selling pictures as long as it covers the cost of pressing the shutter one more time (more or less $0). If images made this way are good enough to meet all buyers' needs for photos, we're toast.


Anonymous said...

Let me reiterate that even though I am presenting economic analysis that may make it seem like I am disagreeing with John, I do not. I was just pointing out a flaw in his economic reasoning. I agree totally about not selling yourself too cheaply because of the long term impact to your business. I am currently a professional photographer who will not work for a pittance, but i also have a BA in economics so I think in an economic framework.

It is a little tough to respond to your clothing and printing examples since the cost structure is spread over millions of items. The bargain bin clothes or books may actually being sold under that units part of fixed costs.

When you say that one rational decision is to shut down if "year's worth of assignments doesn't cover your costs" I think you are referring to fixed and variable costs. This is not rational, you only shut down if you are not covering variable costs. If your fixed costs are truly fixed then it costs more to shut down than to continue. Now in our business I am not certain what percentage of equipment is trully fixed since there is resale potential.

You could not be more right about your other ideas that if you are not covering costs (even fixed) then you should reevaluate your business and find ways to lower costs or increase revenue. You must know your true cost of doing business. Take every cost into account. I think most photographers are ignorant of their true costs.

One note please don't confuse sunk costs with fixed costs they are not exactly the same thing and that could impact understanding of our posts for less economically literate photographers.

Anonymous said...

For those who didn't already realize it, two economists really can make any subject boring!

I think we're both getting at the same thing: we see how a focus on the (low) marginal cost of an individual assignment can lead someone to think it's "profitable" even at a low rate, but recognize that this won't keep anyone in business very long. Staying in business -- any business -- is about making more from the business over time than you spend on running it.

The fixed cost question merits a little more discussion, since we seem to vary in our use of the terms. The way economists define it, costs are "fixed" if they don't change just because you decide to make one more of a product. If making one more of a product incurs an additional cost, then that cost is "variable." For present purposes, by "one more of a product" I mean one more assignment, since that's what we're pricing.

"Sunk" costs are a subset of fixed costs; they are the fixed costs that are already locked in and cannot be avoided no matter what you do. The cameras and lenses you already own are a sunk cost (except for the bit you'd get if you sold it, but ignore that for now). If you have a web site to market your photography, that's a fixed monthly cost since you pay it regardless of whether you take on any assignments. It's not entirely sunk, though, since you can cancel the service and avoid continuing to pay for it each month. Same goes for a second phone line, cell phone, car lease, your own salary...whatever. These fixed costs are avoidable: you close shop, you stop paying them.

As you point out, businesses don't close shop just because they can't cover their sunk costs. But they do close when they anticipate being unable to cover their fixed costs that they have not yet incurred. In other words, they close down when they're better off not operating than operating. The one-year evaluation period is somewhat arbitrary, but it's the minimum timeframe I think a business owner (or their spouse, or banker) will ask "hey, is it really worth commiting to another year of running this business?"

I'm signing off. Thanks for the good discussion on an important topic, and to John for keeping the ball moving and stressing the need to differentiate not only one's final images but one's entire approach to client relationships. If you or the experience of dealing with you can be replaced by someone charging $1, you will be, so give people a reason to pay your higher price.

"If you mix with the chickenfeed, you'll be eaten by the chickens." (Greek saying, at least according to an old Greek friend who was prone to crediting Greeks with the vast majority of human wisdom, such as it is.)



Andrew Smith said...

John, you do have a knack for timely articles!

On Wednesday of this week I decided to stop doing spec shots. I've been working this way for a couple of years, assuming it would lead to more commissioned work, but it hasn't.

It occurred to me that maybe editors just think of me as the desperate photographer who goes around picking up the scraps that other photogs missed. Not a great way to earn respect, and not a great way to get more work.

So I made the decision for my long-term career that I should stop doing spec shots.

I took it as a good omen that when I got home that day there was an e-mail asking me to do a job that was much more "my sort of thing" than the assignments I usually get.

I'll refer you to the latest update on my own blog for details of the shoot, which I just returned from a couple of hours ago. Thinking now about how I prepared for and completed this job, I sincerely believe it's time for me to rise above "spec shooter" level. As you say, I must respect myself if I expect other people to respect me.

Anonymous said...

No offense to the commenter about the $150 but you have not "made" $150. Businesses run on the bottom line. If you have purchased $2000 in gear and have "made" $150, you are still $1850 in the hole. That is how business works. Until you make $2000, you are not even with your equipment cost and you have not made one penny of wages yet.

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