The Business Corner | Your Dream Studio: Choosing Your Business Model with Jeff & Lori Poole
Introducing the Business Corner
To celebrate the anniversary edition of Shutter Magazine, we want to help you start planning for your own studio anniversaries, and may you have many. Welcome to the Business Corner by us, Jeff and Lori Poole of The Shoot Space, a new monthly Shutter column dedicated to helping you grow your photography business.
Dream Job, Dream Life
If you’re reading this, it’s because photography is your dream job. It’s probably not because you dreamed of editing images until 1:00 in the morning while the rest of your family sleeps. If we’re going to build our dream job, it’s got to fit within our dream life. So what does your dream life look like? The goal is to work to live instead of live to work.
Ask yourself these questions. In your dream job…
- How many days a week do you work?
- How often are you shooting?
- What’s your financial status?
- What kind of clients do you work with?
- At what price point are you comfortable?
In my dream life, I work four days a week. I shoot two of those days, and get the other work done the other two. I don’t work weekends. My clients are the type who want the best quality and are willing to pay for it. They trust me to deliver the best possible experience for them, and they don’t micromanage me. They refer their friends. I make a comfortable living, enough to support my family, maybe own a boat, and travel a couple of times a year.
Jeff and I aren’t quite there yet. We work a little more than that, and the boat is still a ways off—but we’ve come a long way since opening our studio. That’s my dream. What’s yours?
Your Dream Job’s Business Model
Let’s figure out how to make those dreams a reality. It starts with having a clear idea of your business model, volume and margin.
Photographers usually talk about the number of shoots we do per day or week. Wedding photographers may refer to number of weddings per month or per year. It’s important to understand the factors that can influence volume. Volume can be affected by the size of your market, how much of that market you claim (“market share”) and how many of your clients are repeat (“client retention”).
Margin is kind of like your profit, but it’s generally referred to with percentage. Don’t zone out here. I promise this is easy math. Gross profit margin is defined as [sale price] minus [cost of good], divided by [sale price].
For example, if you sell a print for $100 and your cost is $25, your profit margin is 75%.
See? That wasn’t so bad, right?
The only numbers used in calculating margin are your cost of goods and your sale price, which means you have full control over your margins by setting your sale price appropriately. The standard margin for a successful photography studio is generally 75% or higher.
Combining Volume and Margin
Relatively speaking, volume can be high or low. Margin can also be high or low. Let’s abbreviate HV, LV, HM and LM to represent high volume, low volume, high margin and low margin, respectively.
Volume and margin usually combine and play off of each other. The most common two combinations are HV/LM and LV/HM. Let’s take a look in more detail.
[image: combining volume and margin]
High Volume/Low Margin
An HV/LM studio operates by completing lots of shoots for a relatively low price. Examples at one far end of this business model service schools, dance studios or sports teams. The goal of a HV/LM studio is to move ’em in and move ’em out. Profit is directly tied to volume, so more volume means more profit. A good analogy is a burger chain that boasts “billions and billions served.”
In order to sustain HV, studios should operate a low-touch model, meaning there is little interaction with clients. HV studios generally do not offer consultations or in-person sales, and most client interaction is automated or conducted via email/phone. Generally, less client contact allows for increased volume. As a result, clients do not have high expectations for quality or customer service. Continuing our analogy of a fast food chain, there are no waiters at the restaurant. Order placement is done at a counter, through a window or even through an app. We don’t expect amazing service at a fast food joint.
Product turnover for the HV model must also be quick. When profits depend on moving product, faster is better. To support that fast turnaround, products are generally limited in range, lower in quality and possibly even partially assembled before the client orders them. Studios may offer low-cost products such as a slip-in album. There’s not much customization available, but it’s fast and cheap. Studios often choose to sell packages to make the client’s decision process equally quick. The fast food restaurant keeps precooked food hot with heat lamps and offers easy, cheap value meals. You eat, you leave. You don’t linger in the booth.
HV demands lots of customers. To support volume, HV businesses spend a lot of money on advertising. They’ve got to get new customers in the door, and keep them coming back. Customers must be lured in with low prices and the product must be something they can come back for again and again, keeping volume high. HV models do best in larger markets, where there are lots of customers to bring through the door. For studios, schools provide that evergreen market. Fast food restaurants employ flashy TV ads, coupons in the mail every week and daily specials to get customers in the door and keep them coming back.
Can a HV/LM model work for you? That depends. Many photographers are more comfortable charging lower prices. If you decide to go for this model, you still have to make a profit. Operating at a loss isn’t fixed by volume. “Hmm, I see that I’m losing money on every wedding I shoot. So if I shoot more weddings, I’ll make money.” Nope. It doesn’t work that way.
If you are considering a high-volume business, first figure out if your market can support your goals. If you live in a tiny town, it’s unlikely that you’ll be successful as an inexpensive wedding photographer. There aren’t enough people getting married in that town, and there certainly aren’t going to be repeat clients unless residents get divorced and remarried annually just for fun. If your market can support you, decide if you’re willing to invest in customer acquisition. Advertising for volume costs money.
The HV/LM model can certainly be successful. Fast food restaurants manage to make it work. This model has a low barrier to entry: It doesn’t cost much or require a ton of expertise to get started. But it’s a market with extremely stiff competition and a high failure rate. With low margins, it can be very difficult to get off the ground and gain momentum to get the volume you need to be sustainable.
Low Volume/High Margin
At the opposite end of the spectrum is the LV/HM model. Studios with this model have fewer clients than the HV model, but they focus their time and efforts on making more money per client (in other words, higher margins). These studios generally offer very customized photography to their clients. The goal of a LV/HM studio is to maximize each sale. Profit is tied to margin rather than volume, so higher margin means more profit. In contrast to our fast food joint, a LV/HM model would be a fine dining restaurant.
In order to achieve high margin per client, the LV/HM model requires a high-touch approach to customer service. Studios wanting to garner the highest sales have a consultation with their clients before the shoot. This qualifies the client and allows the photographer to customize both the shoot and the product offering. Clients have high expectations for quality and customer service, and the studio must deliver on both.
For higher-quality product offerings and more customization, turnaround times are going to be longer. Custom design takes time. The studio cannot pre-order custom items in bulk. The vendors the studio works with may also have longer turnaround times to produce the custom products. For the clients to be willing to pay more, the studio must offer products and services that are rare, beautiful, unique and/or specialized. Customers of fine-dining restaurants sip wine and converse long before entrees are ordered. Each course is a production. Food is of the highest quality, and the presentation is a work of art. Dining is unhurried, and the experience is just as important as the product.
The LV model, by definition, requires fewer clients than the HV model. But those clients have to be the right clients. Marketing efforts are focused on building relationships. Studios build referral networks with other businesses that serve the same clientele rather than spend money on advertising. While repeat customers are appreciated, they are not as necessary for a lower-volume studio. A large market is also less important. LV studios can thrive even in small areas, and studios can afford to serve a smaller market share by offering niche or specialized services.
Does a LV/HM model appeal to you? Photographers considering this model must come to terms with charging high prices, and must get comfortable with in-person sales. Studios that specialize in a smaller niche (newborns, boudoir, etc.) tend to do well with a LV/HM model since there is generally a smaller pool of the population looking for their services.
If you’re considering a LV/HM model, brush up on your people skills. Between client consultations, in-person sales and general schmoozing to build a referral base, you will be spending a lot of your time and effort around other people. Your new hashtag will be #hustle.
This model has a higher barrier to entry. You’ve got to know your stuff. You’ve got to hustle. You’ve got to work with vendors and learn to sell. But because it takes more effort and knowledge, there’s a lot less competition in the market. It can be a little scary to raise those prices, but it can also pay off big time.
The Other Two: HV/HM and LV/LM
There are two more possible business models that combine volume and margin. In theory, you could be high on both measures or low on both. Can these work for photographers?
This model is pretty rare. Let’s make lots of money per client and have lots of clients. Sounds great, right? This type of model works in specialty fields with an extremely high barrier to entry—something that’s so hard to get into that you can charge whatever you want once you’re in. Examples include fields like law, engineering, medicine and tech. The problem is, this space can be so difficult to get into that failure rate is high. Consider Exhibit A: the dot-com bomb. A lot of companies don’t make it past the startup phase. For photographers, our barrier to entry isn’t high enough to keep the competitors out, so this model isn’t realistic.
This may sound counterintuitive: low profits and few customers. This model can work for items with an extremely high sale price. Examples include luxury cars, mansions and jewelry. These products have a high cost of goods, which makes it an expensive space to get into. Buyers are also rare, which means advertising costs are high. Imagine that you have a 15% margin on a million-dollar sale—would you take it? Of course. Unfortunately for photographers, the products we’re selling generally are not on this scale unless you’re selling diamond-encrusted wedding albums. If you are, teach me your ways.
What about the middle?
By now, we’ve examined the idea that an HV/LM studio requires a lot of clients to be successful. It also operates in a market with a large pool of potential clients, whom it lures in with low prices. Conversely, a LV/HM studio requires clients who spend a lot per sale. It operates in a market with a small pool of potential clients, whom it lures in with high-quality products and specialty services. This can be visualized as a pyramid, with low volume at the top and high volume at the bottom. The width of the pyramid represents the potential number of clients.
Many photographers are most comfortable operating in the middle of the pyramid. They don’t want to be too high on their prices but they also don’t want to operate at the fast pace a high-volume studio requires. These photographers service a handful of clients a week, often shooting in the same locations as every other photographer in the area and offering the same types of products. The problem is that potential clients have a hard time choosing when everyone looks the same, so they base their decision on price. The photographers in the middle often end up in price wars to compete, and ultimately operate at lowered margins without enough volume to keep up. The middle is the hardest model to sustain.
Revising the Dream
Now that you have a better idea of the factors that influence volume and margin, how does that affect your vision for your dream job? By now you should have a clearer picture of whether a HV/LM model or a LV/HM model suits your dream the best. If you’ve been struggling in the middle, you should now have better insight about which direction you want to go. Fast food and fine dining can both work. Each has its challenges and rewards.
With your business model firmly in mind, join us for next month’s Business Corner as we map out your dream studio’s annual plan.