The Business Corner | Your Dream Studio: Creating An Annual Plan with Jeff & Lori Poole
Building Your Dream Job
In last month’s Business Corner, we asked you to daydream about your ideal studio and lifestyle. Considerations include:
- What’s your goal for a take-home salary after studio expenses are paid?
- If you didn’t have to accept every job that came your way, what would you shoot?
- How many days a week (or month) do you want to shoot? Do you want to be high volume or low volume? High margin or low margin? (For more on this, see June 2018’s “Your Dream Studio: Start With Your Business Model”)
This month, we’re going to take these dreams and turn them into an actionable plan. In order to do so, your vision for your dream studio must be clear. We’re going to start with your end goal, and then build a plan to get you there.
Your Salary Is a Portion of Your Sales
Let’s say that your goal for a take-home salary is $75,000. It’s important to understand that your studio must make more than that $75,000 in order for you to keep $75,000. The total amount your studio needs to make is called your gross sales target. The amount left over after expenses are paid is referred to as net profit. Your take-home pay, or owner’s compensation, comes out of your net profit.
Gross Sales – Expenses = Net Profit
Net profit can be expressed as a total dollar amount or as a percentage of gross sales. In other words, you might say your net profit goal is $75,000, or you might say it is 45% of your gross sales target. The average net profit for a successful studio in the United States is between 35% and 45% of gross sales, depending on whether the studio is home-based or retail. Home-based studios have a higher net profit (around 45%), while retail studios have higher gross sales. In a pie chart, we might say that home-based studios get a bigger percentage of pie but retail studios have a bigger pie.
For this article, we are going to assume you are running a home-based studio and use the 45% target. If you are retail-based, change your percentage to 35%. For simplicity, we’re also going to assume you are keeping the entire net profit as your owner’s compensation, meaning you keep all the profit. You may want to leave some profit as savings or to reinvest in the business.
If your target net profit is $75,000, this means your gross sales target is $166,666.67. How did we get there? Simply divide $75,000 by 0.45 (or 0.35 if you’re retail).
So now you know that you need to gross at least $166,667 in order to take home $75,000. Isn’t it great to know you have a solid goal to work toward?
Time to Take Inventory
Now that you have a solid goal for how much money you need to make, you need to take inventory of where you are currently. If you use accounting software to track your sales, this process will go more quickly. If you are not yet doing so, we recommend it.
Looking at the past year, you will need to calculate your current…
- Annual Sales: The total of all the money your studio brought in, before expenses.
- Annual Sales per Session Type: If you shoot more than one genre (families, seniors, weddings, etc.), calculate your sales per type.
- Average Sale per Session Type: Take the annual sales per type and divide by the number of sessions of that type. For example, if you shot 10 families and had a total sale of $10,000, your average sale is $1,000 per family.
- Net Profit (Total and Percent): Subtract all of your expenses from your annual sales to determine your net profit. If your annual sales totaled $100,000 and your expenses totaled $60,000, then your net profit would be $40,000, or 40%.
Look at all those numbers you just calculated. You’re becoming a business guru.
Looking at all the numbers you just crunched, how are you stacking up against your goals?
- Net Profit: Are you meeting your take-home salary goal of $75,000? If yes, you’re doing great—close this magazine and take the day off! If not, look at the percentage. If your percentage is greater than 45%, you need to boost your volume. Focus on marketing. If your percentage is less than 45%, your expenses are too high and they’re eating into your profits. Stay tuned next month for strategies on getting your expenses in line.
- Volume: How busy are you compared to your dream life? If you feel like a hamster in a wheel because you’re too busy, it might be time to raise your prices to bring back some balance. If you’re not busy enough, focus on a marketing plan to find the right clients who want what you have to offer.
Build Your Dream
Now that you’ve thought about where you want to be—and you’ve taken a look at where you’re at—it’s time to start bridging that gap.
Recall your dream lifestyle. How often were you shooting? Let’s say you wanted to do three shoots per week. Estimate your annual calendar based on 50 weeks, because you should have two weeks of vacation. Three shoots a week for 50 weeks is 150 shoots per year.
Remember your sales target? In our example, a $75,000 salary required a gross sales target of $166,667. Now that we know we need to aim for 150 shoots, we can figure out our target sales average.
To achieve our $75,000 salary, we need to do 150 shoots per year (or three per week) at an average sale of $1,111.11. Pretty straightforward.
The math does get a little trickier if you shoot multiple genres with vastly different averages. For example, if you shoot weddings at a much higher average than your portraits, you will need to take the different averages into account.
Your next steps involve booking those 150 shoots per year at a $1,111 sales average. You get those 150 shoots per year with your marketing plan. How will you reach potential clients and get them in the door? Your sales average derives from your sales system. Can you build an effective price list system that encourages your clients to spend an average $1,111? There are a lot of great resources online and in this magazine to help you with both sales and marketing. Stay tuned for future articles from the Business Corner where we’ll address strategies in these areas of your business plan.
Putting It All Together
By now, you’ve been able to take a dream lifestyle and dream salary, and put together concrete goals that will take you there. You’ve set a target net profit, target gross sales, and calculated how many sessions you’ll need to shoot and at what price average to get you to your goal. We’ve taken something that seemed nebulous and turned it into something we can actually achieve.
You’ll notice throughout this article that we’ve assumed your net profit is 45% of your gross sales. This also means your expenses are around 55% of your gross sales. In the bonus video, we talk about how to calculate your expenses. In next month’s article, we offer suggestions for reducing your expenses so you can keep more of what you make.