To Make Money from Photography, You Should Know Your Value Chain
I am writing this article because I see a lot of photographers asking the same questions over and over and thought it would be nice to give you all the tools to answer your own questions. Or at least the 2% of you who search before asking questions.
The Value Chain
The point of this article is not to answer your questions but to give a wonderful tool that you can use to solve your own problems. In fact, this will solve nearly all of the business questions I have seen on the Web in the last few months.
The tool is taking a day to analyze what the “value chain” is in your business. A value chain is just a fancy term to describe the steps you take to create a product of value, including the value/cost at every step.
For example: If I am running a lemonade stand, I buy $100 of product, and sell $200 of product. If that takes 1 hour to set up the physical stand, 3 hours of sales, and 1 hour of begging my mom to come pick me up, then we know I am creating ($200-$100)/(1+3+1) = $20/hour.
We also know how much value each step creates. If I wanted to hire a buddy to set up the stand, then we know that unless they are priced at below $20, it’s not worth it. If I want to make my little brother run the stand, then unless they are priced at below $60, it’s not worth it.
Why does this apply to photography? Because like any business, making the “lemonade” is just one step in the process. You also need to do: business functions (e.g. billing), marketing functions (e.g. advertising), process functions (e.g. editing), and other small things (e.g. transportation). People forget these or underestimate them, and it will ruin your profit margin.
Examples
Let’s look at some examples of how you can apply this to your every day.
Example 1: A friend is asking you to shoot their product/event/person/dog, how much should your friends and family discount be?
Many people do not realize this, but there is actually a business case to give a friends and family discount. When you look at your value chain, look at all the steps you do not need to do because they are a friend. You don’t need to advertise, because they came to you. You don’t need to network because you were already friends. Your communication time is less because you can get some of the details worked out when you normally hang out with them.
Let’s say you normally charge $900 for a specific job, and you add up all of these savings and it is $300. If you are struggling to get clients, then you can offer them the job for $600, which saves them $300 and gets you profit you would not have gotten otherwise. If you are packed full time with clients, you can offer them the job for $750, saving them $150, and earning you $150 more than you would normally earn since you saved all these costs.
In either case, having your value chain and knowing what your needs are (more clients, more money, etc.) lets you make a financially sound decision when offering a discount. More importantly, it is a win-win situation as both of you are better off had you not made the deal.
Example 2: You hear about this new app that will help you get clients. Should you join?
This is similar to the lemonade stand example, except it is slightly reversed. Instead of hiring someone and setting the financial boundaries, you are being hired and the boundaries are set for you. Once again your value chain can come to your rescue and help you decide.
Now, I am going to assume anyone considering this type of gig is new to the business, as they always are in my experience. What you first need to do is quickly think about any red flags from your value chain perspective. In previous jobs, how much time was spent getting the client vs shooting/editing? If networking is 70% of your time, then when you outsource that task you are outsourcing 70% of the profits.
As a new shooter, you may think that 70% is an absurd number, but a quick Google search of how long pros spend actually shooting will validate it.
Photographers commonly spend ~15% of their time shooting and editing, with some spending as little as 6% of their time on it. So if the only thing you want to do is shoot/edit, then you will only see 15% of the profits. How does that app sound now?
For most photographers (let alone new ones) you can expect a small restaurant to pay <$400 for an average food shoot. This means if you work for an app on this gig, you can expect to get paid <$60 for your work. Dividing that by the time to travel to the site, get set up, shoot the food, tear down, travel home, and edit for your hourly wage and you are probably netting < $15/hour. Maybe that's worth it to you, maybe it's not, but you at least have the information to make the decision yourself.
Creating a Value Chain
So how do you create a value chain?
I know it might be tempting to steal the % off Internet articles, and while that is a good starting point, it won’t work. Your work is different and takes different efforts. Your clients are different and require more/less work. Your location is different and needs more/less time to get around. Most importantly, your business model makes a huge difference, are you trying to sell prints? Are you trying to sell to individuals? Are you trying to get repeat customers? Make your own value chain.
For a small new photography business, what you should probably do is:
1. List out every step you need to take for a profit. Include things like advertising, networking, doing your finances every month, harassing clients for payments.
2. Record the time it will take at every step. If you don’t know, ask some pros for advice, if everyone hates you, take your best estimate and adjust, but use this as a last resort.
3. Come up with a reasonable hourly rate for each step. Think of it this way: don’t ask what you want to be paid for each step, ask what you would be willing to pay per hour to have someone else do it. The reason is because this sets up your mind to think of these as the minimum costs, which is what you want.
4. Multiply your hours by your hourly rate and add it up.
Example of a value chain:
Task 1: Recruiting clients. 20 hours per week. $10/hour. $200 total.
Task 2: Shooting/editing. 3 jobs per week, 3 hours per job. $20/hour. $180 total.
Task 3: Transportation. 3 jobs per week, 1 hour per job. $10/hour. $30 total.
Task 4: Business operations (e.g. billing). 10 hours per week. $10/hour. $100 total.
What does this tell me?
1. I will be expecting to work 42 hours a week.
2. I will be expecting to have $510 in “costs” per week.
3. For 3 jobs I need them to pay at least $510/3 = $170 a job.
4. If I outsource client acquisition I lose $200/$510 = 40% of the potential profit.
5. If I find a client that does not require transportation (e.g. in my building) I can offer them a $30/$510 = 6% discount.
Note: These are made up numbers with no real relation to the real world.
Keep in mind that these are the breakeven points of everything. So I would not, for example, price a client at $170 because that would be “cost-plus pricing,” which is generally considered bad. Pricing is a whole different demon to tackle and would have to be its own article.
If you’d like to learn more from people much smarter than me, I would suggest starting with this Harvard Business School article. Do keep in mind, however, that Porter’s more refined and detailed value chain analysis is meant for companies with different departments. For 1-5 people working a super small business, it’s not really all that necessary to get that detailed, but it definitely won’t hurt!
About the author: Otto L. is a passionate photographer who has been shooting for years and is passionate about sharing information that helps other photographers grow in their craft and business.
Image credits: Photos licensed from Depositphotos
