Turn down the volume

A well-known saying from an unknown source:

“We lose money on every sale but we make up for it with volume!”

There are several web sites which sell discount vouchers to groups of online shoppers. A business will publish a discount offer on such a site and as long as a certain minimum number of folks buy it, the discount vouchers are e-mailed to the buyers. If there aren’t enough buyers, the discount is cancelled and no one’s credit card is charged.

This volume discount voucher system can work well for a company that sells “widgets”, meaning anything where the marginal cost is very low. It can also be good for a business such as a sports, theatrical or other event that needs to unload unsold tickets. Unloading leftover or end-or-line product at a discount can help reduce a loss.

But…

Here are screen grabs of two photography businesses in Toronto, (and I use the term “business” very loosely), which were each recently selling discount vouchers for a portrait session PLUS retouched print(s) PLUS some retouched digital images (PLUS, in one case, all images on a disc for future printing), for $49.00 and $50.00 respectively.

Those prices included the 13% sales tax, local travel expenses and the commission the photographers have to pay to the discount web site.

(I’ve blacked-out the names and web addresses and also blurred the people in the sample photos so as to not embarrass them).

One of these photographers actually promotes themselves on their own site as doing “Cheap Photography”. I guess there’s something to be said for honesty in advertising.

“We give you your money’s worth and not a penny more.” – unknown

If you can read the above screen captures, one photographer sold 650 photo session vouchers for $50 each (including taxes), and these discount vouchers must be used within one year. Feel free to do the math.

Let’s say this photographer manages to do the 650 shoots in one year:

Gross:  $32,500

Subtract sales tax:  – $3,739

Subtract car expense:  – $7,768 (CAA numbers for subcompact car, per year)

Subtract camera gear, lights, computer, software:  – $1,500 (assume cheap, minimal gear and a four-year life cycle)

Subtract liability and business insurance:  – $350(?) (bottom-end insurance for one year).

Sub-total so far:  $19,143

Now continue to subtract: the commission paid to the discount web site (I have no idea what this might be. **Edit: apparently, it’s 30% to 50% off the top. See comment below**), studio lease cost (this photographer said they have a studio), tenant insurance, repair costs, cell phone cost, Internet cost, and who-knows what else.

Even with conservative guesses, we’re now certainly well below $10,000.

For comparison, the minimum wage in Ontario is $10.25/hour. This works out to $21,300 per year (that’s $10.25/hr for 40 hrs/week). So this photographer will earn less than half of the minimum wage.

So this begs the question: Why?

Is there a market for cheap photography? Absolutely. But why would any photo business want to be the bottom-end? Perhaps the photographers are just learning and are using their customers for practice? Perhaps they’re “weekend warriors” with a day job?

These online discount vouchers are great for a business that sells assembly-line products such as bottles of shampoo, cans of soup, or any product that has a low marginal cost. In some cases, boosting sales volume by selling some product at discount prices might even lower the cost of the regularly-priced items (i.e. higher manufacturing volume => lower marginal cost).

But for a photographer who essentially sells time and creativity to individual consumers, increasing sales volume does not decrease the marginal cost of providing that service. No matter how many customers they have, it takes four hours to do four hours of work.

To earn more, a volume-discounting photographer has no choice but to work more. Discounting the price guarantees working more for less money. The more they work, the more they lose.

A high volume – low price photography business is not scalable. Barring a sudden change in business practices, such a business has nowhere to go but down. On the other hand, a low volume – high price photographer and a medium volume – medium price photographer both have room to move and adjust.

Customers who pay more often expect more. But customers who pay less never expect less. Providing customer service to a low-paying client requires the same time and effort as for a higher-paying client.

The easiest way to attract better-paying customers is to raise your prices. Or to rephrase it, lowering your prices will attract more low-paying customers. What business ever says, “If only we had more low-paying customers!”

Turning up the volume has nothing to do with increasing profits. Sales volume and profit per sale are unrelated.

To increase profits, raise prices and value, and turn down the volume.