Busting a myth!

[Mike_Guilbault]

Also agree. Walmart can be beaten and I can't say that they have hurt my business much at all... and we have two of them in town. A photographer friend of mine once told me, you don't even necessarily have to be better... just different. If you're different, then you are supplying a service that Walmart (or possibly anyone else) can't. Therefore you become the leader and there is no competition. Whether people 'want' that difference is another matter - but it can be done.

[Norm_Cabana]

< But event photographers may do well to reduce their pricing if it increases volume enough to where it maximizes their net profit.>

Hmm, the formula for figuring out if you are making money is INCOME MINUS EXPENSES EQUALS PROFIT UNLESS PROFIT IS A NEGATIVE NUMBER AND THEN YOUR PROFIT IS MAGICALLY TRANSFORMED INTO A LOSS. In other words, there is Profit or there is Loss and in some exceedingly rare instances, there is neither and that is called Break Even. Anything else is accounting mumbo-jumbo.

If I understand what you are saying, you are suggesting that we should reduce the price of our products so that we sell more items and make more money. That’s the same thing as saying “Undercut the competition and make it up in volume.” What matters at the end of the day are not how many widgets I sell but how much profit I have. The sales total means nothing if there is not any profit. If I sell one widget for $100 and you drop your price to $10 for the same widget and sell ten to my one, I still make more profit than you do. Why? Because you have to pay for ten widgets and I only have to pay for one. Unless you get your total costs down below mine, you won’t make as much as me. The game is won not by who sells the most items but by who makes the most profit. There’s Bill Gates and then there is everyone else.

I fully understand about dropping prices to counter competition. I grew up during the gasoline price wars. It was great if you were the buyer of gas, but it really sucked if you were the seller and when it was all over, the only person who won were the gas suppliers simply because they didn’t drop their prices as much. There is one problem with fighting prices with prices and that is at the end, the customer wants to know why you were charging so much when you can stay in business at the lower price. I can’t begin to count the number of companies that went out of business trying to save the customer some money. I’ve said this before and I’ll continue saying it. Your customers will allow you to be as stupid as you want to be up to the point of where you don’t exist any longer.

< Too many pros I know look at the unit-profit margin rather than maximizing their profit dollars at an event. Then they gripe that nobody appreciates quality work enough to spend $25-$40 per 8x10 for a photo of one of their family members competing. What is the spending threshold that would bump up sales to a volume that maximizes net profit? Play with the pricing and find out!>

I guess I don’t know what I’m doing then because my lowest priced print is a $50 8x12 and while it is a good seller; my customers will routinely up-sell THEMSELVES to the $60 11x17 because THEY perceive it as a better value. Most of the time, I never mention the difference. My best seller is a package deal called the 12x18 Steal It special. It goes for $140 and I’m looking at ways to add on to it to bring the total sales price to $200. It’s nothing more than two prints and a CD.

I don’t gripe that people don’t appreciate our work. I KNOW that they appreciate our work. How? I have customers writing endorsements on the inside of my trailer AND they pay our prices! I focus on value to the customer, not price. We find out what the customer wants and we give it to them and a little bit more. I focus on my business and don’t worry about what the other guy is doing. Your customers will never see the value in spending more for your work if YOU don’t see the value in it. Your customers will never see the value of your products if YOU don’t show it to them. Your customers don’t care what you think is good but you had darn well better care what they think!

Here’s an example of something that I do time after time at events large and small. A guy or girl will come in and ask me “How does this work?” and without hesitation I’ll say “Very well, thank you!” After we both chuckle at the joke, they’ll then ask how much does it cost and I’ll ask for their car number and have my assistant instantly put the photos on a viewing station. Usually I’ll get some comment about the process like “Wow!” I don’t answer their question about price, for a reason. I’ll be glad to talk about price AFTER they’ve seen THEIR photos because I know that once they see themselves on screen, price is no longer the most important issue. Keep in mind that I have price sheets displayed in frames right in front of the customer and I also have order forms, with prices clearly shown, on clipboards in front of each viewing station. Our sample photos have prices on them. Prices are not hidden here. I’ll then take the mouse and print a contact sheet for him and while the computer is prepping the sheet, I’ll explain that I’m printing him a contact sheet of his photos, so they can get their friends opinion on what photos to get, and on the back of the sheet will be a price and product list. I’ll then explain how to look at their photos full screen and then I tell them to “Enjoy!” A few minutes later I’ll ask if they see anything that they like and then I show them examples of the print sizes and I go over the various purchase options. If they have a complaint about the prices that I can’t overcome, I’ll make sure that they have a copy of their “free” contact sheet and I wish them well. In the vast majority of the cases, the customer wants to know when they should stop by to buy.

The key to this knows at a gut level that you will NEVER appeal to everyone. You cannot get everyone to be your customer so we decided that since it takes just about the same amount of time and effort to sell a 4 x 6 as it does a 12x18 and the folks who buy 12x18s are a lot more enjoyable to deal with than the folks who buy the cheap stuff, why beat ourselves up to make $5 when we can be making $70.

< But, what do I know? I manufacture a commodity for my "day work" and do semi-pro photo work on the side>

Hmmm, this is what I do for a living and I’ve been doing it for seven years.

Oh, before I forget, we have bottom feeders that shoot events, post online and sell their 4x6s for $5 and their 8x10s for $15 just like you do. They're all over the place and quite often one of them will stop by and ask me if I need any photographers. I can't say that I do! [img]/ubbthreads/images/graemlins/grin.gif[/img]

[BWBrock]

I neither agree nor disagree with you, Norm. Maybe you misunderstood what I said? Let me reiterate:

- If raising a price doesn't reduce sales then you make more profit. Basic math
(so, raise prices more and make more profit!)<-- is this you, Norm?

- If raising a price reduces sales significantly, profits go down.
(that means your current price is right on the money; don't change it) <---is this you , Norm?

- If lowering a price doesn't increase sales, you lose profit.
(that means your current price is right on the money; don't change it) <--- you say this is you, Norm

- If lowering a price RAISES sales to a significant amount, profits go up. <-- this is NOT you, Norm


I have a friend who does what you do, Norm (on-site event photos), for about 5 years now. His sales and profits were dropping for two years and were terrible last year. He was making very little money to the point of quiting event photography and he kept raising his price to compensate for reduced sales. In 2006, he lowered his on-site price from $45 (8x10) to $35 and his sales more than doubled. His TOTAL NET PROFIT went up ~20% and this was during his slow period. This isn't "making it up on volume", but it is maximizing profits by generating much needed sales. He lowered his price ~22% and increased sales more than 100% so far this year. An added bonus was getting more referrals to his new (2 years old) portrait business to the point that he is booked for Q3. Consumer reaction to prices is typically exponential.

I do not have all his accounting info, but if he sold 100 units at $45, and netted $25 each (his break even point HE SAID was ~$20/ea), that is a $2500 net profit. By lowering his sale price, he sells 200 at $35 and nets $15 each which is a $3000 net profit, a 20% increase. My point was that the STRUGGLING pros MAY make more profit with a different pricing strategy. *** I should have added that sometimes that pricing strategy allows you to RAISE the price with little loss in sales -- which seems to be the case with you, Norm...that's great!*** However, the lower-price strategy my friend employed was not to meet/beat competition, but to generate faltering sales by selling at the best threshold price of his customer base. That's his current scenario in Georgia. I maximize my online profit at $15-$20 per 8x10 and I have no direct competition for what I shoot, except for some well-heeled parents that shoot with pro gear.

In your case, if sales would not increase significantly from a price drop, that means you are priced appropriately. So, no, YOU would not do better by lowering your price. In fact, it sounds like you could actually RAISE your price for YOUR MARKET. It depends on the market, customer and venue. Pricing should never be considered a standard number for everyone regardless of the product or service.

[Norm_Cabana]

<Maybe you misunderstood what I said?>

No, I pretty much understood what you were saying. What you’ve done, however, is to take a position that really has nothing to do with my original message. My point was that people just entering a business segment and immediately setting their prices lower than the existing businesses are making a big mistake. You have to survive to succeed and if you are making less money than the other guy, you probably won’t survive. Who can best survive a price war, the new guy or the entrenched veteran?

< I have a friend who does what you do>

That’s nice but there can be any number of reasons why a company can experience significant changes in their sales patterns. I did an event in the second week of April and then another event 2 months later with many of the same people at the same location and the sales were roughly ½ of the April event. The only significant difference between the events was the outside air temp. I’ve had events go just the opposite way, one year I made x sales at a particular event and the next year, with no significant changes, my sales were up 70%. At one event I saw a 700% increase in sales from one year to the next and the only difference was the use of large sample display photos. Go figure! We have several formulas that we use to get an idea of what we can expect to sell but sometimes people just don’t want to be pegged like that.

Your friend could be losing sales simply because his displays are stale or he might wear his clothes funny or his assistants aren’t pleasant or maybe his computers are too slow or maybe, his customers might be tired of the same old’ photos. I’ve seen photographers lose business because the people talking to the customers wore their hair long and greasy, their hats were on backward, they smoked cigarettes while they were talking to the customers and they said “Yo” quite a lot. Their potential customers weren’t comfortable dealing with people that were so out of tune with them and they shut them off. I tried to tell the guy what we were seeing and hearing but his response was, “Ah you’re all a bunch of old farts!” They went out of business shortly thereafter.

I don’t raise my prices very often and I’m not trying to imply that raising prices is a panacea for what ails a company. What I’m trying to say is that dropping prices is also not an automatic solution. In your friends case I might not have dropped prices at all. I seldom ever recommend a drop in prices because while that’s an easy fix, it may not be the best one. If he can sell stuff at $45 but his sales picked up at $35 this tells me that his customers don’t perceive enough value at the higher price. There are many things that you can do to change that and it doesn’t have to mean working more for less money.

As an example, take my $50 print… please! We know that people may think that $50, 60 or 70 for one print is high so we developed the “Buy 2 get 1 Free” special. If the customer buys two photos of the same size they get a third print of the same size free. The idea for this came from another event photographer that I met on the RG Forum. We initially though that dropping the price back to $33 would increase sales but all this did was leave me with the same number of sales as before but for less money.

The B21F special does several things. The most important thing it does is to give the customer a strong reason to buy more they normally would. I can now tell the customer, with a straight face, that if they buy this package they will be getting a discount of 33% off of the single print price. They perceive a much higher value of three photos for $100 as opposed to $50 for one print and for me it almost doubles the total income on the sale. Yes, I have to give away the material cost of one print but it in my book it is a fair deal to give up $5 to make $45 extra dollars. The customers have responded by snapping them up. I almost never sell a single print any longer.

A business rule that I learned years ago and still follow today is that in a situation where you are tempted to give a discount, give away product instead. You are giving up far more if you give a cash discount but the free product will be viewed by the customer as being worth more. Let’s say I have a customer that has shopped with us several times and I want to reward that customer for their loyalty. I might give them a size upgrade on their prints or I might give them a free mouse pad instead of cutting their price by a like amount. Upgrading a customer from an 8x12 to an 11x17 costs me roughly 50 cents whereas if I give them a discount equal to the price difference between the two prints it will cost me $10. If I give them a mouse pad they are getting a free gift that is worth $30 but only costs me about $2. I would rather give a customer a free size upgrade instead of paying for shipping. Learn to keep your cash in your pocket.

[BWBrock]

[ QUOTE ]
If I understand what you are saying, you are suggesting that we should reduce the price of our products so that we sell more items and make more money. That’s the same thing as saying “Undercut the competition and make it up in volume.”

[/ QUOTE ]

NO, that's not what I was saying. I don't want to argue with you, Norm. It's not my intent. <font color="blue">I agree with what you originally said </font> about someone who thinks breaking in with a lower price will automatically give them an edge...it won't because there is so much more than price as you said. HOWEVER, I was saying that for an existing business, <font color="blue">if the price/package/giveaways aren't generating enough sales to make a profit</font>, then the business needs to adjust something and if they determine that the "something" is price, then they adjust it. There are fixed costs that must be covered, not just the cost per additional widget so to speak.

Just because the price goes down does not mean that you have to work harder to generate more sales. If you have to work harder to sell at the lower price, then higher price was NOT the reason people weren't buying in the first place. Sometimes at a lower price point the sales can come in so fast that timely fulfillment becomes the issue. Too many sales to handle means one can probably raise the price and increase profits...to some point, anyway.

Think about this: Many people think the $123,000 Porsche 911 Turbo is an excellent value for the money, but only a few thousand people can afford it. If it's profitable, why change it? It is a low production volume vehicle meaning only a specific quantity can be built per year. Sales are 100% of production. Lowering the price will surely lower profit. Conversely, at the low end of the market, you have Civics, Cobalts, Camrys, Sonatas, etc. People are quite price sensitive at the low end...more elastic demand. They shop around price points for comparable features and unmeasureable qualities.

If you effectively employed the 4 basic Ps of marketing: Product (quality photos), Place (direct on-site sales), Promotion (B21F), Price ($50) you don't need to change anything. But your situation does not clone itself to every other photographer's situation. That's my disagreement with you.

You just supported my point about a "lower price", a promo in your case, as follows:
[ QUOTE ]
The B21F special does several things. The most important thing it does is to give the customer a strong reason to buy more they normally would. I can now tell the customer, with a straight face, that if they buy this package they will be getting a discount of 33% off of the single print price. They perceive a much higher value of three photos for $100 as opposed to $50 for one print and for me it almost doubles the total income on the sale. Yes, I have to give away the material cost of one print but it in my book it is a fair deal to give up $5 to make $45 extra dollars. The customers have responded by snapping them up. I almost never sell a single print any longer.

[/ QUOTE ]

[AlistairH]

Oh man the business section is blowing my mind. When I started up a couple of months ago I thought my prices were "cheap". I hadn't done any research

Now I find out my prices are about on a par with everyone else and yet still people are booking me. At the minute I'm doing this part-time with a 5 year plan to go full-time (my current job allows me to drop hours/days whenever I want, which is handy) but I've yet to do a business plan. I just don't know where to start with actually planning how my business will grow and still have worries about where my next bookings will come from.

It's all exciting stuff though

[ChrisPerry]

It's not as simple and cut and dried as the OP stated.

She has 60 customers at $100/per
I open across the aisle and offer the 'same' product at $80.
I will take some of her sales. She is the known quantity but a good number of folks will be more than happy to buy "the same thing for less" - it's what makes teh Hyundai and Walmart successful.
I will sell some to folks that would never pay, or could not pay, $100. I see this all the time in the HS senior market around here.

So she now has perhaps 45 sales at $100 and I have 45 at $80 - the total market is now larger, the total spent on photography is now more, but she is worse off and my sales are less than hers. Profitablity is not a function of this equation.

She shoots with L glass and 1Ds - $10,000 in hard costs. I shoot with a 400XTi and tamron glass - my hard costs are $1500. I will be more profitable.

If you increase your prices 10% and sell 5% less is that better? Less work for more money it might be. But you've spread your overhead over fewer units so that ups costs too. If you lower prices 15% and sell 25% more units, what does that do to you profit? Again, more units spreads out the overhead so you total unit cost may be quite a bit lower.

Lets say you hire a person to sell your prints at that other table for $80 per. Now you are your competetion...what does that to this equation? You've got the whole market for the cost of an employee and a second booth. Your fixed overhead has not changed and you're moving more units, so your costs go down in one way.

And can Walmart be fought? Yell yes. they are the #1 retailer in the country, er world probably. Today that is.
So were Montgomery Ward, Woolworth, Sears and Kmart. The first two are long gone and the last two are trying to hang on. Walmart will also be replaced one day, don't worry, Walmart will crash and burn one day. Everyone else has.