Understanding Cost of Goods Sold
The second half of figuring out what to charge for your photography requires us to figure out our cost of good sold or COGS. So what is COGS??? It is simply the costs associated with making a product. Let’s use a laptop computer as an example. The manufacturer must invest in all the parts necessary to build a working laptop: i.e. motherboard, screen, hard drive, ports, etc. Adding up all the cost of these parts is the COGS. So while they may charge you $2,000 for a laptop, their cost to actually make it could be half that.
So what makes up your COGS?
- the cost of albums, prints, canvases, frames or other items you purchase from a lab that can assigned to a particular customer
- Square, PayPal or other credit card company processing fees
- Parking fees, tolls to get to a photo shoot
Now that we know what can be included, what is not?
- Camera equipment, including cameras, lenses, CF cards, etc.
- Books, workshops or other continuing education
- Business cards, order forms or other marketing materials
- Insurance, utilities or professional fees
How about a couple of real life examples?
1 – You have a shoot at your own ranch….
Customer purchased 20 digital images from the session. These are delivered via Dropbox or email.
Since you have not traveled anywhere, there are no costs associated with travel, (ok, you are so lucky to have your own ranch to shoot at!!!). While the customer placed a nice order, you have no cost associated with the deliver of images since you are delivering them digitally.
So what is your COGS for this example?? If you came up with $0, then you would be correct!
2 – We are still shooting at your ranch (you lucky photographer!)…
You customer has decided to purchase 15 of your amazing images, but they want them on a USB drive.
Once again you have no costs associated with travel, so there is nothing to include there… But, you have purchased a USB drive to deliver the images to the customer. You purchased the drive for $15 (if you purchased a bunch of drives in bulk, I would still calculate the cost of each drive then assign that cost to each customer that gets one).
Our COGS for this examples is………. yep $15.
3 – Shooting at a customers ranch…
Our next customer had you come out to their stunning ranch to do portraits of their prized horses and their family. And guess what they have decided to purchase a very large canvas of the family, 5 – 11 ” x 14″ prints of the horses, some digitals for advertising purposes which shall be emailed to the ad design company and a usb drive with some family photos on it. So now what is our COGS???
The usb drive still has a cost of $15
The emailed images have a cost of $0
The large canvas cost from the lab is $65
The 11″ x 14″ prints are $4 each so $20
So our COGS for this shoot is $100
We also need to remember that every COGS is only associated with the production of a service or tangible good.
Knowing our COGS tells us if we are pricing our products appropriately to make a profit. I mean really who wants to work for free?
Well now that we know how to figure out or COGS, what the heck do we do with it??
When we start setting our prices, we need to take into consideration not only our CODB, but also our COGS. By using all of the information we have work so hard to figure out, we can now decide how much to charge not only for our time, but also for our product. While looking at what others are charging will give you a good idea of what your competition is doing, it will not help you. Usually you want to at minimum triple your COGS for each product. You have no idea what their CODB or COGS is, which will not help you, your costs could be less or more than what theirs is, and by just using what they use, could put you in the red.
Ok next up we are going to start shooting!!!!