Raising Prices: Two Stories

In any business, pricing is not, and should not be, an arbitrary decision. Neither should raising prices. How we price is based on a seemingly simple formula, Price = Cost of Doing Business + Profit. I say seemingly, because gathering data to arrive at the cost of doing business is not an easy task. It requires keeping records of ALL business expenses, computing for breakeven points, depreciation values of equipment, return on investments (ROI) and many other accounting works. However, this article will not deal with how to arrive at pricing. Instead, we shall concentrate on two real stories about raising prices.

These are our actual stories at Adphoto, and I hope that telling them would encourage other photographers to share their own experiences.

IN 1989, when a few photographer-friends and I were trying to form the Advertising Photographers of the Philippines, I met Eddie Go – a well-respected and successful photographer – and his wife, Lydia – an equally successful food stylist. (Eddie Go has passed on, and his son has taken over as photographer-partner to his mom).

They were a few years ahead of us in the business of photography, and I looked up to them. Even without looking at our rate sheets, Eddie suggested a pricing experiment. He challenged me to raise prices, and he predicted the results. I don’t remember his exact words, but the message was essentially this: “Raise your prices, and you will find that you would lose some of your clients.” He continued with his prediction, “but in the end, you will find that your profitability will go up, and you would actually be grossing higher than before you raised your prices. Even if you did not earn more, you will be surely be working less for the same amount! ” Challenging me further, he asked, “Would you rather accept 100 jobs at P1, 000 each, or 10 jobs at P10, 000.00 each?” To seal his argument, he reminded me, “We’re in services, Harvey, not in selling retail. There is only so much that we can do in a day.”

Suffice it to say that I heeded his advice, and benefitted from the wisdom he shared with me.

Our next pricing challenge was in year 2000, when the Philippines was suffering from a deep economic slump. President Estrada was being tried for corruption and no one wanted to invest in the country. Everything had stopped to a standstill, as the country stayed glued to the court proceedings being broadcasted on TV like a riveting teleserye. There were not enough advertising jobs, not just for us but also for everyone, and our facilities, equipment and people (among them three photographers and one digital artist) were all under-utilized. We didn’t know where the country or the industry was going.

We needed to do something – to have “one, big, hairy, audacious goal” to lift us from the flat lines that we were experiencing. Searching the Internet for ideas, we got excited over developments in digital backs. But they were scandalously expensive – at more than a million pesos for a piece of equipment that was small enough to hold in one hand. I emailed Phase One, and told them that we were interested in their product, but there was no way that we could buy something that expensive yet had neither seen nor touched. They sent a quick reply, and said they would send someone to the Philippines to demonstrate their product.

If they came just for us, all the way from Denmark, I feared that we might feel pressured to buy, so I offered to organize an audience of the top 10 photographers in the country for his demo. If we decided not to buy, maybe somebody else would. I also volunteered to introduce their sales and marketing representative to possible distributors in the Philippines. They said not to worry, their man was going to Japan and Manila would be just a hop away. We were assured that he would come, whether he makes a sale or not, as they needed to reach the Asian market.

We hosted this demo, and the 10 photographers whom we invited brought in 20 more. But at the end of the evening, although everyone was excited at the features and capability of this new piece of equipment, everybody felt that this was not the right time for such a heavy and risky investment. One photographer said to me, “But, Harvey, you could buy a van with that kind of money.” On the other hand, we were convinced that this was the way for us to wake up the industry that was in doldrums. I answered him, “But, you have a van and we have a van, but we can’t shoot with our vans.”

At the end of that evening, we were the only ones who signed up for an order of a Phase One digital back. Aside from real estate (our Bautista home and studio), this was the biggest single purchase that John and I had ever made. I had to bring out our entire life savings to purchase this tiny piece of equipment. It was one of our biggest gambles. We could only pray that we were doing the right thing.

As soon as the digital back came, we had to master the equipment and the software. And we had to go full-blast in marketing this new, expensive “toy.” We prepared samples of our digital work, a Keynote presentation enumerating the advantages of a high-end digital back vs. film, and made a list of agencies for our sales blitz.

At our first presentation to an ad agency, everyone looked excited and convinced, but the moment of truth came with the question, “Would it cost us more to go digital?” John and I answered at the same time. He said “No,” and I said, “Yes.” We looked uncomfortably at each other but to John’s eternal credit, he said, “Well, pricing is Harvey’s territory,” and literally took a few steps back to motion me to walk up to the microphone.

Nervously, I repeated the benefits of going high-end digital, but one of our clients impatiently demanded, “We know, Harvey! How much more would this cost us?”

“Just enough for us to recover our investment.” I looked at them, and saw that they did not quite accept that as an answer. I knew that what they were expecting were not words, but numbers. With as much courage and confidence as I could muster, I said, “15% more.” The split-second while I waited to see if they would approve or disapprove was like eternity, but that magic number must have been acceptable because I did not see any disapproving looks. I heard a couple of clients softly mutter, “OK.” Again, silence for a few seconds, and then they stood up and applauded our presentation. They excitedly approached our computer to see more images, and to ask more questions – no longer on pricing but on the capability of the digital back. Before we left, they had asked for our earliest availability for a photo session- which was the following day.

The biggest surprise was that we did not have time to continue or finish our planned marketing blitz. Our clients – folks from both agencies and advertisers – took care of spreading the word.

The representative from Phase One computed ROI based on the number of films (4×5 and 120mm) that we were using and spending on in a year. This, plus what we spend on Polaroid prints, is the expense that the back would replace. My rough computation on possible ROI was based on one photographer using the digital back, but not everyday. I knew that our computations were not 100% accurate, not foolproof and not guaranteed – everything still depended on how well our new pricing would be received.

The response was overwhelming! We were overbooked! All clients were requesting us to use our digital back. All three photographers had shoot assignments, and the only way to accommodate their shoots was to insist that the assignments would be, not on location, but all in our studios. We had three large format and medium format cameras readied in three studios, but we only had one back. As soon as the first set up was approved, and the next layout was being set up, the digital back was shuttled to the other studio for the second photographer, and on to the third photographer, and back again to the first photographer. In the meantime, we had to find ways to keep clients entertained so that they would not notice that the digital back was not where they were.

Those were exciting times.

Epilogue:

In six months, we had earned enough to recover our investment and to order another PhaseOne digital back, and before the year was over, we placed an order for the third back.

With three backs, our three photographers were happy. They could shoot in the studio or on location, and most importantly, our clients were happy. We delivered on our promise.

PhaseOne found a distributor in the Philippines, and we helped them reach a greater market by acting as their “unofficial” showroom. Other photographers who were interested were invited to come to our studio for a demonstration and discussion of the features of PhaseOne digital backs. In return, PhaseOne gave us discounts and allowed trade-ins of older models for newer ones.

To be continued (if you are interested)… The Year After: It’s Not Always Rosy in Digital Photography.

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Instant Pricing

In a lecture that I prepared on pricing, I listed about twenty factors to consider – client’s requirements, your expertise, equipment, facilities, direct costs, indirect costs, invisible costs, desired profits, your availability, client’s expectations, your competition, urgency of requirement, added values, variations, how quickly you can shoot, how quickly you will be paid, how much you like the job, how pleasant or difficult it is to work with this client, how many people will review your images, how much time they would take, how you will submit your work, whether or not your client is VAT-exempt or Zero-VAT and a few more.

However, one young photographer who was in a hurry told me that he is not ready to analyze all these factors. He had neither time nor data, and needed a quick way to decide how to price. His potential first client was waiting for his quotation.

Reluctantly, I put aside my lecture notes to tell him the following:

1. If you are in a real hurry, or you have not kept records of your expenses, and you can’t compute your cost of doing business, you just might want to call a few competitors and ask how much they charge. You may or may not reveal who you are – that’s up to you. When we were starting, I mustered enough courage to approach an esteemed competitor, and he very generously shared his rate sheets with me. I will always be grateful, and I’m glad to say that after more than four decades, we are still friends, but that’s another story.

2. Pricing-to-wish-for happened to a friend who is a wedding photographer. The father of the bride-to-be, who happens to be a photography-hobbyist, was interviewing and screening photographers. Here’s how the conversation went.

Father of the Bride-To-Be (FOTBTB): “Do you have a ________ (fill in the blank with the latest model, most expensive camera that you know).

Photographer (P): “Is it important to you that I have a _____________?

FOTBTB: “Of course. I want only the best for my daughter. The latest and best camera now is a ______________, and the photographer at my daughter’s wedding must have a ______________. Well, do you have a _____________?

P, without blinking an eyelash while actually lying through his teeth, said, “Yes, I have a _______________!”

Convinced that he (the FOTBTB) had found the most worthy photographer, the conversation continued – about requirements, fees, photographer’s availability, details of the wedding, etc., and at the end of it, the FOTBTB and the P shook hands. Done deal! The FOTBTB signed a check for 75% of the wedding coverage. Unknown to the FOTBTB, the photographer had tucked in the cost of a brand new __________ in his price.

The photographer then bought himself a brand-new _____________. He did the work, submitted his photos, and collected the final payment.

Then, at the next meeting of his camera club, he brought his _________, which was slightly used (only one wedding), not only to show off but also to raffle off. For the price of one ticket, in a limited edition raffle, his camera club co-members could have a chance to win the still shiny, almost brand new camera. And that is how the photographer doubled his take on the latest, most expensive camera model, ___________. ☺

3. This is a tale of two photographers. Their wives usually handle sales and do pricing (well studied, consistent, and based on the formula Expenses + Profit = Price), but because cellphones now allow clients to directly call their favorite photographers, they did.

One such client called a photographer to ask him to quote for a project. He described his requirement but while the photographer was still thinking of a price to quote, his assistant barged into the studio and said, “Excuse me, Sir, but the water pump broke down.” The photographer said to the client, “Excuse me for a moment,” covered the phone with his hand and asked, “How much is a new pump?” His assistant named a price, and the photographer signaled him to wait. He turned back to his client on the phone, and gave the same price. The client agreed to the quoted price, and the photographer gave the thumbs up sign to his assistant. It turned out that his client was delighted with the unexpectedly low price.

On the other hand, the second photographer’s computer could not do the job at hand, and he needed to upgrade to a newer, better model. When asked how much he would charge for a job, he gave the same cost that the computer store quoted to him. He also got the job, and he was thrilled that he could have such a high quote (something he was unused to) approved.

4. Super Whopper. I attended a talk on pricing, and the speaker was a portrait photographer. Unlike advertising photographers who have to customize quotes for customized projects, portrait photographers have published rates for pre-described set ups. She advised that if you have a low, medium and high rates, offer also what she calls a “Super Whopper.” A lot more expensive than your high rate, but with a lot of bells and whistles. It just might work for some of your customers. It did for her.

5. One advice that I hear photographers – not account or sales people – say is this: If you don’t like the job or you don’t like the client, charge higher. This way, if you are feeling miserable while doing the project, then you can be consoled by the fact that you will be earning more than your usual rate.

Photographers who can laugh at themselves laugh when they hear these stories, (being told among themselves and understandably, not in the presence of clients). However, I still hope that they would bring out their business records, sit down in front of their computers and seriously study their numbers for proper pricing, because photography may be fun, but pricing is a serious matter.

As for the young man in a hurry, he was happy enough with the advice to just ask his competitors. He did not even have time to digest the other stories.