Nicole (00:00)
Welcome to part two of our pricing series. And today we are going to uncover what the heck cost of goods sold even means and get to the truth of your cost of goods sold in your photography business because it's not what you think. So if you're selling anything, stay tuned.

Nicole Begley (00:18)
I'm Nicole Begley, a zoological animal trainer turned pet and family photographer. Back in 2010, I embarked on my own adventure in photography, transforming a bootstrapping startup into a thriving six-figure business by 2012. Since then, my mission has been to empower photographers like you, sharing the knowledge and strategies that have helped me help thousands of photographers build their own profitable businesses. I believe that achieving $2,000 to $3,000 sales is your fastest route to six-figure businesses;

that any technically proficient photographer can consistently hit four figure sales. And no matter if you want photography to be your full-time passion or a part-time pursuit, profitability is possible. If you're a portrait photographer aspiring to craft a business that aligns perfectly with the life you envision, then you're in exactly the right place. With over 350,000 downloads, welcome to the Freedom Focus Photography Podcast.

Nicole (01:22)
Hey everybody, welcome back to the Freedom Focus Photography podcast. I'm your host, Nicole Begley, and today we are talking about cost of goods sold. It is a four-letter word in the photography industry and I want to shed some light on it and make it not so scary and help you understand what you need to do to price products that you are selling profitably so that you can make money in your business.

Now you might be wondering what regular financial goals are in a profitable photography business. Now the PPA, which is the Professional Photographers of America, does a financial benchmark survey every few years and they look for what numbers you need to have in your cost of goods sold, your general expenses, and your bottom line profit, and really kind of your sales volume target in order to reach the kind of sweet spot most profitability in your photography business.

Now, of course, this can be different if you are part-time, if you are full-time, if you are more high volume, if you want to have a bigger business. You can make your business, again, look like whatever you want. So whatever numbers you want to reach, you can build a business in that way. This is just kind their recommendation for the amount of revenue you need to kind of have a full-time business in this industry. But like I said,

have a lot of people that do this part-time. If you are doing a part-time, you still want to have these goal percentages for your cost of sales, your general expenses, and your bottom line profit, whether your total sales is $50,000 a year or $250,000 a year. What are those targets? Generally, for a home studio or for a retail studio, they recommend the same cost of goods sold, which is 25%.

What that means is if your business brings in $100,000 a year, that you are not spending more than $25,000 on cost of goods sold, which is your products, your packaging, really anything that goes into the creation of the products that you buy. Your cost of goods sold are expenses you have because you have a client. So something like your computer, software, things like that.

Those go under your general expenses because whether you have one client, five clients, 10 clients, no clients, you're still going to have those expenses. Whereas cost of goods sold are your lab costs, your packaging costs, or if you use any sort of outsourcing or hire an editor or something like that, you're only having those expenses when you have a sale. So those are your cost of goods sold. 25 % is the goal that they want you to stay at the max, so under 25%. Now,

This is an average. So that does mean that sometimes things can be outside of that a little bit. Maybe one session you have a 30 % cost of sold, but another session you have a 15 % cost of goods sold. I do recommend every single session that you figure out what your cost of goods sold for that session is so you can make sure you're kind of staying somewhere near this recommended target. truly, every single session I recommend doing that. And then you can keep an average of what your cost of goods sold is.

throughout the year. like I said, part-time, full-time, you're going to want to stay below 25 % cost of the sales. The general expenses line is a little bit different based on if you have a retail studio or if you have a home-based studio. When I say home-based studio, I don't mean that you're shooting studio stuff in your home. It could be, but it could also mean that you shoot on location and you just work out of your home. So home studio means you are not paying rent for a studio location.

where a retail studio means you're paying rent somewhere to have an office, a studio, something like that. So for a home-based studio, they recommend 30 % for your general expenses. Those are things like education, computer, software, insurance, all of those expenses that whether you have no clients, five clients, 10 clients, 100 clients, they're gonna be the same. If you have a retail studio, that figure is 40 % general expenses. Why is it higher?

Well, because you have rent, so your expenses are going to be a little bit higher. So that leaves our bottom line profit. For a home-based studio, we want you to have at least a 45 % profit margin in your total sales. So if you have $100,000 in sales, we want you to have $45,000 in profit at the end of the year. And if you have a retail studio, that drops down to 35%.

bottom line profit because again, remember those general expenses were a little bit higher than your home studio. So because of that, there are different sales volume targets. As a general rule, most people aim, if you want to do this full time for about $125,000 sales volume target in order to reach kind of the general rules. Does that mean you have to get to that point? No, it does not.

You can have a business that has $40,000 in sales that you're using to have just kind of part-time to fund a really amazing vacation or two a year. You could have that as a part-time business because you may be retired from your full-time job, but you still want to do something for yourself and bring in a little bit of extra income. Are you doing this full-time and you're like, no, 125,000 total sales is not enough to reach my revenue goals?

I want 200,000? All right, let's go. So just knowing these numbers is important so you can plan accordingly with what you want your higher number revenue to be or what you want your sales volume target to be. Does that make sense? So let me go over this one more time, just all together. Home studio, meaning you're not paying rent anywhere. Whether you're shooting on location or shooting in your home and studio, these are your goals. Generally,

$125,000 sales volume target, 25 % cost of goods sold, 30 % general expenses, 45 % bottom line profit. If you have a retail studio space, recommended sales volume target is $225,000, 25 % cost of goods sold, 40 % general expenses, and 35 % bottom line profit.

Now, if your head is spinning a little bit with all these numbers, don't worry. I got your back. Have no fear. I do have a special tool that I have a coupon code, so it'll always be free for you, my favorite podcast listeners. And you can go in there and kind of work these numbers out without having to do any math to figure out what you want your average session target sale to be. So what you need to make per session

based on the revenue you want to get out of your business, how much you want to work in your business, how many clients you want to serve. Just all of those different things come together because like I said, every single business is different and it's okay and we can make this profitable no matter how you want it to fit into your life. But we do need to make sure that we look at the numbers so we know what our goal is to make it hit those goals to help support the life that we want to live and have this

business help support that.

If you go to freedomfocusformula.com/target, then it will take you to that page. And as a podcast listener,

If you just put in the coupon code

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Okay, now that we know those general numbers, I want to help you figure out what the heck we should start pricing our work at. So we had that reminder of a 25 % general cost of goods sold. So when you're doing a piece of artwork, it generally is pretty easy to do a four times price of that artwork. So if you're selling artwork that costs you $250, you're likely going to want to sell that for around $1,000. Now, albums though,

I like to price those at about 10 times the cost. So if you are selling an album that costs you about $200 and your cost of goods sold, you're going to sell it for about $2,000. Now, Nicole, why such a difference? Well, the reason is because in the album, you have a lot more time, you're editing a lot more images, you're designing the album, and your client's getting a lot more images for that price. Whereas the artwork

You have one image to edit and they're getting one image. So the time involved in that final artwork piece is not nearly as involved as the time involved in an album. So one of the biggest mistakes that I see people making is that they are selling their albums at four times the cost of goods sold. The other thing that I see a huge mistake is they're selling their prints at four times the cost of sold thinking that an

$8 print they should sell for you know $32 because that's four times the cost of goods sold But you're neglecting to factor in your time The reason that we don't always need to include it in the art piece is because there's enough profit on that art piece because it is such a higher priced piece that Your time is generally going to be compensated more in there now We're going to dig into this a little bit more, but I just wanted to share

with you kind of those general rules. Four times artwork, 10 times album, prints and digital files are a whole nother animal that we're gonna be talking about in another episode of getting even deeper into that.

So let's start to dig into the cost of goods sold for prints and why an 8x10 does not actually cost $3 or $8 or $10 if you haven't mounted. Because the real price of an 8x10 needs to include all of the time that we are spending with our client. So you're shooting a session, that might take an hour. You're importing and backing up the files, that might take 10 minutes. You're preparing 40 images for review, maybe 60 to 90 minutes.

You're holding a sales session, that's an hour. You're retouching the image, 10 minutes. You're ordering it from the lab, 10 minutes. So you have all of this time. And let's just say we're going to do the hourly rate at $30 an hour, which is actually quite low. As a business owner, I think that should be more about $100 an hour. But for the sake of argument, let's just say that it is about $30 an hour. So all of that labor actually ends up

being $120 worth of labor costs for that time that you are spending, about four hours, $30 an hour. And then the actual cost of the print is maybe $3 for the print, $5 for mounting, and maybe $3 for your packaging. So the actual cost of the print is $12. So if you are just selling that print at $48, and that's the only thing you sell for the session,

that becomes a challenge. That is the first unit of sale challenge because as you sell more items, that time required gets spread out amongst all those items. So the cost of that item that they're buying kind of goes down as they spend more. Does that make sense? This is just a really important thing for you to understand. And you don't need to understand the math and the details. Just know that

I have finite amount of time that it takes me to do a session. Bare minimum, it's going to take me three to five hours to hold this session. Sometimes it's more like 10 in a boutique situation. I need to make sure I'm getting paid for my time. That is why I recommend for an album that we are doing more on a 10 times cost of goods sold so that we can account for that time.

And I also highly recommend that we do not sell single prints. That yes, if they buy an art piece, if your client gets an album, of course we can add on some single prints. But what I'm talking about is somebody comes, books a session and they're just like, I just want one eight by 10, or I just need one digital file for my Christmas card. That becomes really, really hard to be able to actually make your business profitable because you would have to be selling those things for about $500 each.

bare minimum, not to be losing money on your session because of the amount of time you put into that session. So what should you do? Well, here's a couple of strategies for you. We can bundle your prints. You can sell them out in prints only. You can price eight by tens and smaller the same. You can protect your sale and price Ala-carte prints higher. You can offer discounted prints only after other purchases. So that's just a couple of things that you can do to help keep that in check.

So your homework from listening to this session is to go and check out your last couple sales if you don't already track your cost of goods sold and see what your cost of goods sold was for those sessions. And if it's about 25 % or less, you are looking good. If it's more than that, well, we might want to take a look at our pricing and see how we can lower that a little bit. We're going to talk next session a little bit about the art of pricing, of how we can kind of finagle that, get our cost of goods lower.

We'll talk about the elephant in the room, which is how the heck do you price our digital files? So stay tuned for that. But in the meantime, I'll start right over to freedomfocusformula.com slash target and get access to our session profit planner. Don't forget to use the coupon code podcast if you want to get it free as a podcast listener.

would also love if you wanna shoot me a DM on Instagram at Nicole Bigley official and let me know, let me know what your cost of goods sold is. Let me know what your session profit planner, what your target sale per client is. I would love to know and I would love to know if this episode helps you. So go do your homework, talk to you soon.