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.
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.
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 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 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.
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 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.