Discounting ~ Professional photography advice

Oct 6, 2015 | Business, Wedding | 18 comments

In this article for professional photographers I explain the perils of discounting and the knock on effects of giving real discounts to your customers. I also discuss ways to entice customers who expect a discount to buy your goods, products and services.

Discount

A discount is the difference between the amount of money a client pays for a product or service and the amount of money they should have paid for the same product or service. It’s only a true discount if they receive the same benefits, quantity and quality of goods provided. Genuine discounts come straight out of profit and straight off the bottom line. You can read about fake discounts at the end of this blog post.

Profit Margin

The profit margin is the percentage of revenue left after the fixed costs and direct costs associated with a job are subtracted from the income. Most successful photography business’ run on a profit margin of around 35%. Those with minimal operating costs can occasionally return a 40% margin.

Fixed Costs

Fixed costs are things like; building rates, rent, utility bills, computer equipment depreciation, photography equipment depreciation, vehicle depreciation, insurances (professional indemnity, public liability, equipment, and buildings), advertising, new client acquisition costs, website design & hosting, SEO, show albums, exhibition stands, accountancy, professional organisation memberships, office consumables, software subscriptions, mobile phone contract, ISP contract, building maintenance, staff salaries, cleaners etc. In fact just about every cost occurred not directly associated with a particular job.

Direct Costs

Direct costs are those associated with jobs. For a wedding photographer they might be; Wedding albums or posh memory sticks, prints, outsourced picture editing, travel and sustenance, suit dry cleaning, photography consumables like batteries etc.

Analysis is the most important part of understanding the real world effects of discounting on a business. It’s not until we see the figures in charts or spreadsheets that the real horror becomes apparent.

A chart showing why not to discount

1. For a wedding photographer with a 35% profit margin, look at the column associated with a 35% profit margin in the chart above and drop down to the discount offered. If the wedding photographer offers their clients a 10% discount they will need to shoot 40% more weddings just to make the same profit. That’s the difference between shooting 35 weddings per year and 49 weddings per year for exactly the same profit. Scary! This chart doesn’t show how the figures are calculated but the one below does…

A chart showing the effects of discounting

2. The column on the left shows the normal non discounted transaction. The column on the right shows the percentage shift from margin to cost as the photographer gives nearly ⅓rd of their profit back to the customer. 25% of the £140 sales figure in the right hand column is the £35 profit.

Problem: “My customers always want a deal.” If you have set the right price there should be no real reason to discount. However there are some cultures/ communities where discounting is expected if this applies to your customer base follow this advice…

Solution: Pre inflate your pricing. Work out how much profit you need from each wedding and what fee is required based upon your operating margin to achieve that profit. Set your advertised fee 10% above that then list it on your website and on your price list at the studio. You then have some margin to play with. Some people will just pay your new rates whilst others will want to knock your fees down a bit. Give them the satisfaction of getting a discount knowing you are still getting the fee you need for the profit and lifestyle you have planned for. This customer will delight in telling their friends how they negotiated a discount and this in turn provides you with a free marketing strategy. You are likely to become the photographer for that community.

Pre inflation is what hotels do too. The price for rooms displayed on the wall behind reception is always inflated to make the customer think they have a bargain when they booked online thorough booking.com or late.rooms etc. Estate agents do this too. They set a high figure on a house then advise the vendor to accept an offer below the advertised rate.

Fake Discounts

Fake discounts often run in clever and confusing ways. Take a recent supermarket promotion structure on Pinot Grigio wine from Italy. A leading supermarket used a flip flop promotion in store to always have a key brand on a 50% discount. Ogio would be sold at £9.99 a bottle (12 bottles on the shelf) for 28 days while Dino was sold at ‘half price’ (100s of bottles on the shelf) for the same 28 days then the promotion would flip. The real value of the wine is £4.99 per bottle. The producers were happy, the supermarket were happy and the consumer was left thinking they had a bargain when actually they paid the full market value for the wine. Promotions like this have caused lasting damage as the consumer smelt a rat and now the genuine discounters like Lidl and Aldi with permanently low prices have seen massive growth in market share.

Feel free to discuss your findings below.

 

18 Comments

  1. James B.

    Thanks for sharing! I’m interested in doing real estate and commercial property photography part-time and then possibly full-time. I’m in the process of doing my research. Part of my research is knowing all the costs as you mentioned in the post. What is the average customer acquisition costs for my field of photography? Can anyone help me out? Thank you!

    Reply
    • Damien

      Hi James,

      That is a difficult one because you might only need one or two big companies like Frank Knight on your customer list and the cost of winning a big client might just be lunch if your portfolio is amazing. If you are after private clients then it is likely you will need to advertise. Well targeted advertising returns better than 10:1 so for every £1000 client spend you can expect to spend £100 in advertising. If there is an element of repeat business this will need to be taken into account. I don’t have any marketing spend but I do invest my time. My clients are photographers like you and by using blogs and social media I build relationships and establish my brand clearly and effectively within my client base. I hope this makes sense. If you are time rich use social media to build your client base and if you are cash rich use advertising.

      Kindest regards,

      Damien.

      Reply
  2. Simon Greenstreet

    Thanks for sharing Damien, I’ve never really stopped to think about how even a small discount can affect the bottom line and how much more work you would have to do to get that back. These charts are really useful and will definitely be using in the future. For a sole trader it’s tricky coming up with competitive pricing in such a saturated market, it’s not like we can heavily discount services such as the big brand names where this won’t affect their bottom line as much. I will definitely be looking at pre-inflating my prices at the start of next year and running more ‘discount’ campaigns off the back of it.

    Reply
    • Damien

      Hi Simon,

      The key is to feel valued and feel worth it. Once those emotions run through the veins of your business you are on course for a happy life. Cheers, Damien.

      Reply
  3. Kevin

    Good info, I would add that the unfortunate photographers de-value their service by low balling the price, should sell on value/benefit !! I know here I see people offering extremely low pricing, I was asked to do executive head-shots and the first thing out of the clients mouth was we only paid $$$ for our last shots will you do it for that, That is an obstacle !! Also depends on clients needs 1 pose or 3 poses can offer an alternative package.

    Reply
    • Damien

      Thanks Kevin,

      My gut reply to the executive head-shots at budget prices request is “Why don’t you use the same person again?” If they happen to want better pictures they will have to pay for a better photographer. If you are worth the difference in price the right clients will pay. Having clients that appreciate a superior product and service is the key.

      Cheers, Damien.

      Reply
  4. Tommy Weir

    Useful. Could actually be used to explain why you don’t discount. Wouldn’t be able to give due care and attention if you had to scale that far.

    Reply
    • Damien

      Thanks Tommy,

      I don’t think our clients have a clue how extensive our costs are. Cheers, Damien.

      Reply
  5. Alan Hutchison

    Very interesting article Damien – of course a “discount” is simply a sales tool. The danger is when the businessman does not factor the cost of that sales tool into his budget. Similarly he also has to carefully name his “discount” to match his target market and his brand.

    For instance Lidl and Aldi discount across the board – they are full on budget – as photographers many of us don’t want to be a Lidl or Aldi. But as a market place we do need Lidl and Aldi photographers to service the Lidl and Aldi price-sensitive customers.

    Then we have the mid-market supermarkets with the heavily advertised aisle-end promotions with no fear of giving a “low season or midweek wedding” discount. You can see where this analogy continues.

    For my weddings I’ll stick with the no discount Tiffany style “that’s the price”, and “of course you can afford it” approach.

    For our portraits we adopt a different discount approach to incentivise them to spend more – rewarding loyalty if you like. A different discount model, but very valid in its approach.

    It’s a subject I’m sure we could fill a book with.

    Reply
    • Damien

      Hi Alan,

      Thanks for your contribution. As you say we could fill a book with this stuff. One of the key reasons Lidl and Aldi are experiencing 16% boost in profits when Tesco profits are flat is their careful management of costs. Lower overheads means more profit at the same price point. It’s far easier to save £100 than it is to earn £100 of profit.

      Cheers, Damien

      Reply
  6. andrewvokes

    Thanks for sharing this Damien!

    Reply
    • Damien

      Cheers, Andrew :)

      Reply
  7. Jay Hoque

    Great post Damien. The charts make it simple enough to understand.

    Reply
    • Damien

      Thanks Jay :)

      Reply
  8. Bill Thornhill

    A good read Damien. I was told by salesman friend to never discount anything, just give away stuff for free. The point being you know the true value of what you are giving away and it can often seem like a better deal than a discount to the customer.

    Reply
    • Damien

      Hi Bill,

      Thanks for pointing that out Bill. The ‘free stuff’ is a great message. It’s a strategy we use every day. Our Cactus sales are tremendous because of this strategy. You can see our ‘free stuff’ promotion here: http://lovegroveshop.com/product/cactus-flash-kit-v6-v6/

      Kind regards,

      Damien.

      Reply
    • Damien

      Thanks Gary :)

      Reply

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