PayPal, margin pressure and the small business perspective

A few days ago, I received an email from PayPal informing me that some of their terms and conditions of service had changed – ostensibly to ‘ensure high standards of service continue to be maintained’. I read that immediately as a greedy grab: turns out I was right. Buried in the fine print of the changes were a bunch of rate amendments, effective 10 Sep 2013, that now make the cost of receiving payments in my part of the world anywhere up to 6% plus a fixed fee (for commercial payments that fall into the “International micro payments for digital goods” category, which includes my videos). On top of this, there’s a ‘micropayment fixed fee’ of MYR2.00 (US$0.65). And then there’s a 4% currency conversion fee to Malaysian Ringgit on conversion. And a further 2.5% added to the exchange rate when you withdraw the funds to your bank account. Very cunningly, they don’t provide a like-for-like fee comparison, either. That’s a grand total of anywhere up to 12.5% PLUS RM2.00. Previously, I calculated the net cost of using PayPal at about 5% inclusive of FX; a merchant credit card terminal would be around 3%. Given the long payment times for credit card providers and relative discomfort of people using cards overseas, I elected to stay with PayPal for the time being – lousy service and lack of regulation notwithstanding. See why this has now become a problem?

[Read more…]

The pricing game

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Just your regular headache.

Following on from an earlier article on understanding licensing, I thought it’d be instructive to spend some time on the remaining elephant in the room for any photographer – especially newly-minted ones – is the question of how much to charge. Attached to that comes the mechanics of it all: invoicing, accounting, collecting payment, and the big one: licensing. Oddly, I find that this part of the business is something that seasoned pros are the most reticent to discuss; perhaps it’s part self-protectionism, perhaps it’s the cultural omerta towards money (at least in Southeast Asia, everybody seems to judge you by how much you earn, but to ask outright would be a major social faux pas*) or perhaps it’s because some of us are afraid to admit how little we’re actually charging.

*Nobody is likely to tell you the truth anyway; culturally, it’s like asking a lady her age in the West. It’s the age-old dilemma of one’s ego wanting to show their success, but simultaneously being afraid of being a target of jealousy. Whilst boastfulness is never a desirable trait, I think we need to be proud of our work and position as professionals and craftsmen – like every other form of social posturing, others tend to judge your implied relative value on external appearances.

And here’s the dilemma (or is it a trilemma since there are three options?): if they ask, do you tell your competition – remembering that you may well be competing for the same job – what you’re billing, in order to maintain rates across the board? Do you not tell them so you win the job, but potentially at the expense of eroding rates for everybody? Or do you give them wrong information – for any one of a number of possible reasons? Let’s consider the last situation for a moment: perhaps you give a false answer because you simply don’t want anybody else to know. It could be higher or lower than the other guy – in the end it probably averages out to no harm, no foul. You could deliberately give a higher number – all other things being equal, that would win you the job at the expense of long term sustainability. Or you could lowball and hope the other guy just backs off without submitting an even lower quote, in which case you’d lose the job and affect future rates.

The problem with all of these scenarios is that none of them are win-win situations for everybody. The only situation that’s sustainable is complete transparency and meritocracy in selection – and we all know that not only does this not happen, it’s pretty much impossible to be objective when judging the relative artistic merits of photographers. Here, client opinion is law – if they don’t like your work, there’s no point in trying to argue otherwise. (In fact, there are plenty of reasons not to pursue the job – but that is another topic for another day.) As a photographer and industry member – this situation is concerning, to say the least.

Like it or not, the reality is that the professional photographic industry – perhaps to a greater extent in Asia than elsewhere – is a numbers game. Education plays a big part in this: even relatively savvy clients will choose a photographer on price as one of the primary considerations. If the difference in image quality or output is say 10%, but the price is 50%, diminishing returns never wins. This of course means two things: firstly, mediocrity thrives because it’s cheap and easy; secondly, it’s very, very difficult to perpetuate and promote a premium product and service because the incremental cost to do so far outweighs any potential returns. And in the end, if you’ve got to charge the same or close to it to get the job and the client doesn’t really appreciate the difference, then all you’re doing is running at lower operating margins than the competition. This will not be in your favor in the long run. This is also one of the reasons I decided not to switch to medium format even though there was definitely a clear jump in image quality. I’d have to spend north of US$30,000 just for a basic kit, and even then I’d still have to retain the Nikon for some things – it simply didn’t make sense in our economy.

This brings us back to the core question: pricing. You can’t charge more just because you’re using a more expensive camera, or at least it makes no sense that it’s justified; I’ve said it time and again: your equipment is in no way indicative of your skill level. And if anything, if one photographer requires less equipment to achieve the same results as another, then it should be clear that the deficit is being made up through skill. But how does this translate into money? How much better qualitatively is a $100 image vs a $1,000 one?

Ultimately, it’s down to the client, of course. But it’s important to have at least some internal scale of charges you use as a baseline to start from. Although ostensibly getting a rate quote from a photographer should be fairly simple, it’s not. Let me explain why by starting with a list of things we have to consider:

  • Physical shoot time required
  • Retouching
  • Travel costs, if any
  • Complexity of setup
  • Whether we have to bump or reschedule other things – you might do this for a large project, but not for a small one – this of course comes at the expense of other things and potentially written-off revenue
  • Permits and planning
  • Any additional things we might need to hire or buy – props, talent, lights, location, equipment, makeup artists
  • Volume
  • The client – both ability to pay, and how much you want to work with them
  • License model

In practice, the last two items are the ones that invariably provide us with the largest headaches. Let’s look at three examples, and calculate cost on a per-image basis.

  1. Photojournalism/ reportage style assignment for a corporate client, one day of shooting. Let’s say it’s documenting a new production line process or something. Final delivery of 50 images, for internal PR and comms use only.
  2. Commercial shoot for an ad campaign for a large international brand, five images of a couple of watches, some of which involve props. Has to be done on-location at the factory in Switzerland. Images will require heavy retouching and compositing, and be used worldwide for a period of two years across multiple media.
  3. Whilst on job 2, another one of your existing clients calls you up and says they heard you were in Switzerland; would you mind coming over and shooting a couple of watches for them? They don’t know how many images they’ll need, but it’s two watches and you can do your usual thing of shooting first, sending over a contact sheet and they’ll pick what they need from there. You happen to have a spare day, and the necessary equipment.
  4. A new client calls up and says they got your name from a friend, they’re opening a restaurant and need some photos of the food and interior. How much do you charge?
  5. You get an email from a small agency who would like to use one of your images they saw on Flickr for an advertisement in Peru. There is no indication or offer of payment.

Life is suddenly not quite so simple, is it? Day rates go out of the window for #3, 4 and 5. And yes, I’ve had all five situations happen to me. In the same month. For 1., I’d go with a day rate – let’s say 100 units**. That number of images and the scope of what I have to cover sounds like about a day of work; the retouching/ postprocessing should be relatively minor since it’s documentary rather than commercial work – perhaps another day at most. I generally assume a day of shooting translates into a day of processing; this is mostly true except for the most demanding commercial work, where it’s higher. This might seem counterintuitive, but if you’re shooting fewer pictures in the first place, chances are a) you’re getting more of it right in camera, and b) those images are going to need increased amounts of individual attention. So for the most part, it’s accurate. I price retouching in with my day rates – I’ve found it easier than to split the two out; if you do, clients tend to ask ‘would it be cheaper without retouching?’ The answer of course is yes, but there is no way any halfway serious commercial photographer worth their lenscaps would even contemplate releasing unfinished images. As for licensing, in this situation the images probably have zero value to anybody but the original client, so the license model doesn’t affect pricing – I can’t make any more money off them, so whether it’s single use or worldwide unlimited exclusive makes no difference.

**I’m playing coy Asian now. Of course, how you determine what 100 units translates to in real dollar terms depends on several factors in itself: your skill level, your credentials, your client list – clout and experience, if you will – prevailing domestic conditions like cost of living etc – and how much you personally need to survive off. I figure there are two ways to do this: either make it a low number so you’re billable and busy for a relatively high portion of each month – income will be consistent, but you will be tired and not really able to grow – or assume you’re going to shoot only about 1/4 of the time or less, and extrapolate from there. The reality is that I average between four and six shooting days a month. The rest of the time is retouching, planning meetings, client pitches, producing content for the site, teaching etc. This allows for both variety and expansion: if suddenly I’m shooting 10-12 days a month, my income doubles – success means that I spend less time pitching and meeting, and more time planning and shooting because people come to me. 

So, in situation 1., we have a per-image cost of 2. In situation 2, we’ve got travel costs, props, rental of stuff over on location, possibly location rental itself and permits, and in this case, either a day rate or a per shot rate. I’m guessing it’ll take two days to shoot, but given that it’s for a global ad campaign, even a raw per shot cost of 40 is on the low side. Here, I’d probably start with say 100 per shot, add incurred expenses at costs – travel – I dunno, perhaps another 200 – rentals etc – another 100. Now we’re up to 800, for a total of 160 per shot. Would the license model make a difference here? Oddly, again not directly: you can’t use the images for anything else, but what it does give you an idea of is the scope of use, and how much money they’re throwing at the overall campaign – and thus its relative importance, and the relative importance of your images. If your work is helping to sell more expensive product, why shouldn’t you get a larger portion of the proceeds? It seems like a win-win to me.

Scenario 3. is a tough one. You can’t charge travel costs because they  know you’re already there and your costs are being covered by the other client – and it’s important to find out if they mind or not for the longevity of your relationship – and you can’t charge a day rate either, because you know the end images will be used commercially and require similar levels of work to the campaign images. But you’re also going to have to shoot a lot of raw material because the client hasn’t given you a shot list or have a concrete idea of what they need. In this situation, I have an idea of what these kinds of images cost – let’s say 30-50, on a relative scale compared to situation 2. – so what I’d probably do is say it’s 50 per image for x images, then if you pick more, I’ll give you a sliding scale discount down to 30 per image. You’ve already done half the work, so if for not much more incremental work you can increase your revenue, then you might as well do so. At the same time, if you’re the client, you need some incentive to buy more images – especially if they’re ones that that are ‘nice to haves’ rather than critical. I see this situation as an incremental opportunity rather than a new one – so the rates tend to be dictated by  preserving the relationship and long term sustainability.

Scenario 4. happens more often than you might think. If the brief has that little information in it, chances are you’re dealing with a client that has absolutely no concept of IP, licensing or even retouching. They’ll ask you to do things like ‘photoshop in people to make the place look busy’. With jobs like this, I will usually ask for an estimated number of shots and assume unlimited use since they’ll probably be no good to anybody, and explaining any other kind of licensing model is near-impossible; if they can’t even give me that, then it’s a day rate and a guess based on what they need. If the number works, then we go ahead. If not, then I don’t touch it with a barge pole: I’ve been burned in the past. Convincing people isn’t the problem; it’s the disconnect in their expectations and yours. Never underestimate how much of a headache the inability to communicate your artistic requirements can be. Many years ago, I once had a fashion client that insisted he didn’t want the model looking at the camera; I warned him that the images would look distant because of a lack of direct viewer engagement; he insisted; and then complained afterwards when ‘the model isn’t even looking at me!’. Ugh.

The final scenario is also fairly common. I start off by informing them that I’m a commercial photographer and images are available for license; rates depend on the usage. If they come back after that, then usually we’re good to go – name a number and if it’s reasonably in line with prevailing rates, then you’ve just gotten a sale. I guess it’d be around 10-20 or perhaps more, depending on usage. If you get a reply along the lines of ‘but it’s only for xyz and it’ll be great exposure for you’, then thanks, but no thanks. Not only will nobody remember the photographer in some obscure campaign in some obscure location, but chances are your image will probably land up being used somewhere else too because they have no understanding or respect for IP. It’s one of the many reasons why I will never put full size images with any remote sort of commercial value online anywhere^. The basis is this: clearly your work has commercial value because the end user would like to employ it to help sell whatever widget or service it is; but they are not willing to reward that value, so why should I give away something for free – especially when there’s no value that returns to me?

^And given that I refuse to show unfinished work in case it’s attributed to me, this means I’ll just never post full size images period, no matter how many review commenters ask.

In these five fairly common scenarios, we’ve got per-image prices that range anywhere from 2 units to 160 units – a variance of 80x – for the same photographer, and probably the same equipment. Now, see why the question of ‘how much do you charge?’ is about as easy to answer as ‘how long is a piece of string’? Of course, if you only shoot one style – say full blown commercial campaign only, or reportage only – then your prices are likely to be a lot more consistent, but I’m sure you can also understand why there’s no way I can charge 160 units per reportage image, and 2 units per campaign image would be completely unsustainable.

To some degree, this means that rates are self-moderating; I can’t actually think of that many other photographers who both shoot reportage assignments and luxury watch campaigns. And within the categories, there are of course tiers; the more famous you are, the more you can charge. Of course, we all know that fame doesn’t necessarily correlate with ability the domestic wedding photography market is perhaps the best example of this, and also the worst example of a regulated industry. You’ve got famous society ‘pros’ who are little more than button pushers charging five figures per day; at the same time you’ve got some seriously skilled amateurs who do it as a weekend hobby for a few hundred for the entire event. There is simply no consistency here.

The same applies to teaching and workshops: if that’s all you do for a living, then you need to have consistency of income, which is brought on through volume. If you’re a bona fide working commercial photographer, then there’s always a tradeoff: the time you spend teaching is time you can’t bill a client for, and it must be committed to far in advance of the actual workshop – and you have to do it even if you have another better paid job for the same period, and less than half capacity. Here, as a student, you’re paying for the photographer’s opportunity cost and of course their knowledge and experience. Value here is relative; clearly there’s more to be learned from somebody who’s proven their images have commercial value than somebody who just blogs. Yet this doesn’t seem to be the case in the market, most of the time: as usual, the loudest voice wins. Just because he shouts loud doesn’t mean what he has to say is worth listening to. As usual: judge value by output. Be very careful of people whose images are either limited in style/ subject matter – a lack of diversity points to a fundamental lack of skills in some areas – or just downright crap.

In a roundabout way, this brings us back to our starting point. I firmly believe in a couple of things: how much you charge should be proportional to both the work required (obviously) and your level of skill. And your level of skill should be determined by both your clients, and by implication, your peers who also shoot for those clients. There’s a degree of information available that should give you a fair idea of what to quote; if not, be honest and ask what your client’s expectations are. Some will try to lowball or game you; most will be honest. The nice thing about this system is that whilst nobody really knows how much everybody else charges, they all have enough of an idea not to spoil the market. In the long run, whilst charging less will get you the job today, it means that things become tougher in the future: in every other industry, rates up with inflation and experience, not down. At the high end, a lot of this is semi-regulated by the agencies; whilst traditional ad agencies engaging photographers directly almost always take a sizeable cut of the bill presented to the client, they also handle a large number of major commissions; large enough that there’s a general benchmark for prices. Still, in recent times I’ve experienced (and heard) a lot of companies going direct to the photographer in the interest of saving some money; the photographer, not always being aware of the agency markup, will (if they’re smart) quote a lower price than the agency would, but a bit higher than their normal rates; there’s a bit of a positive shift going on at the moment.

Now what we need to do is be consistent to ensure that a) everybody wins and b) rates don’t erode further in the longer term. I don’t think the sharing of actual numbers is a bad thing, but I think we need to be a bit careful who we share with: you want to make sure that a) they’re not direct competition but still in a similar line, or b) you have tacit agreements not to poach each other’s clients unless the client makes the first move. There are a small circle of pros here who believe the same; in the longer term, the plan is to set up some sort of agency or accreditation/ regulatory body with the aim of both taking care of the long term commercial interests of the photographer, as well as educating clients and ensuring quality control. Despite what everybody thinks – it isn’t all doom and gloom in the industry, but it’s going to require a lot more collaboration than we have at present*** to make it stick. MT

Coda: Look out for a future article on understanding licensing: I originally wanted to roll it into this one, but by the time I explained the pricing model, we were already at dissertation-length and probably broaching the limits of most readers’ patience.

***In Malaysia, at least

____________

Enter the January 2012 black and white challenge – win a multispectral Sony NEX-5 B&W machine modified by yours truly!

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