Financial Considerations
Don’t think that if you make a dollar you have to spend it.
What you need to do is always keep a financial cushion.
—Douglas Kirkland
A very important component of career transition is figuring out how you are going to follow your passion and, at the same time, make enough money to fuel the fires of that passion. One of the greatest barriers to change is thinking that the financial considerations are going to be too big a hurdle to overcome. So some people dismiss the idea of transition and give up before they even try. It is better to take a good hard look at your options and develop a plan you can stick to than it is to defer your dream. Remember, an underlying theme of this book is to help you take advantage of the opportunities that lie before you, so you won’t have to look back ten, fifteen, or more years from now and say, “I should have done something back then to live my life the way I always wanted.”
So what are some of those options? If we take a look at the lessons of our own past and the lessons of others who have gone on to be successful artisans, we notice one common theme: if you really want the change, you will find a way. Different people take different routes to achieve what they want, but they all manage to accept the fact that what they are embarking upon is so important that they will not let anything stand in their way, not even something as monumental as money.
Starting over doesn’t have to mean starting out all over again. Just the word “over” in the phrase starting over indicates to some degree that you already have some experience, contacts, technical skills, and most importantly, life skills that will help you make the jump to the next level much more easily. You are wiser now, so you won’t spend time making certain mistakes; and you are more clued in to how the system works and what will be expected of you, so you won’t have to stress about the small stuff. You can detect what works for you and what doesn’t, and you can have more confidence in your instincts. You know that rejection is not the end of the line; it is just another opportunity to prove something to yourself. If you sense that you are being lulled onto that Plateau of Mediocrity, you can take action, launch into the next round of Creative Ascent, and not fall down the slippery slope of the Valley of Despair.
A lot of would-be new ventures never get off the ground because many people think they will have to acquire enormous sums of money before they can get moving—and they don’t have the kind of capital to start with. While it is true that many, if not most, new businesses fall flat because they are under-funded, it is also true that it probably does not cost as much as you might think to get things moving in the right direction.
You can choose one of three options. First, you can choose No Change. In this scenario, the future is too uncertain; you can put up with the disenchantment and abuse for a while longer. It will take too much effort to make a move. The second option is Change in Small Steps. This option allows you to keep the job you have now, but earnestly dedicate increasing amounts of time to your new venture. I say “earnestly,” because it is easy at this level to put off taking action if you are too comfortable; you get lulled into putting off your goals. So you have to commit to short-, mid-, and long-term goals and monitor your progress or else you will kill your dream with procrastination. The third is Complete Change. You’ve had it. You can’t put up with the rut you are in anymore, and you must take action because you can’t bear another day of mindlessness. You are convinced that you must leave what you are doing now, and you need a completely fresh start. You know that this option is adventurous and you could fall on your face, but once you start down this road there is no turning back. You may be adverse to risk, but you must will yourself into going out there because an unknown future is better than the known unpleasant present.
If you chose option one, No Change, then you will only be allowed to fantasize about what the future will hold. However, if you chose options two or three, you will first need to figure out what your startup costs will be. What kind of equipment will you need to get started? Where and how will you live? How will your lifestyle change? How much will your fixed monthly costs (rent, utilities, food, transportation, insurance, etc.) be? And, after you have figured out your fixed costs, you will have to calculate what your variable costs will be, i.e. the prices you pay for things that change from month to month. For example, your entertainment costs will probably have to be minimal. But look at it this way—you will be working so hard at what you love to do, your life will be your entertainment.
Once you have figured out your startup costs, you will have to determine how to acquire the money. If you chose option two, you have between six months to a year to obtain the funds. If you want to jump right in, you need the money now. Some people are savers, some are not. Some want instant gratification; some are willing to impose self-discipline to get what they want. You will have to ask yourself: what price are you willing to pay?
When I asked Douglas Kirkland how he had financed any of his new directions, he reflected on what was most important to him: “Well to begin with, don’t spend everything you make. One of my friends from New York, Arnold Newman, used to remind me, ‘Save it, save it.’ He exaggerates a little, but you have to be very, very careful. Don’t think that if you make a dollar you have to spend it. What you need to do is always keep a cushion.”
Mark Edward Harris had this to say on how he financed a new career direction:
We live from assignment to assignment, from one inconsistent payday to another, and it is hard to think of saving money. We may go for long spells without income, and when the check does comes in we may go a little wild and think we are rewarding ourselves by making expensive purchases—only to find ourselves quickly in the hole again. It pays to take a long-range view, as Bob Krist related: “Building the stock files has been good to us over the years, and we’ve built a residual income that generates money in and of itself once you get a collection big enough. Plus my wife is really, really smart with investments. When we were doing a lot of annual-report work in the 1980s and making disgustingly great money, and I wanted to buy BMWs and speedboats; she set up little trust funds for the kids’ education and invested in all this other kind of stuff. So now when I am faced with these college tuitions that bring you to your knees, it’s not so shocking, because she invested wisely back in the early 1980s when you could do that kind of thing.”
You could be extremely fortunate to have some of your startup costs gifted to you by people who believe in you and your venture. That gift could be a tax write-off for them and a financial blessing for you—a true win-win. You may find through such a gift that other people believe in you more than you do in yourself, and that knowledge can give you the confidence to take steps you previously only dreamed about.
Some of the photographers I have spoken to, like Ken Merfeld, found money through other means, but they never give up finding ways to finance their vision: “Like any artist, we beg, borrow, or steal, or find scholarships, or if you get involved in the fine-art world, explore grants, etc. So money is always an issue with artists, and you have to get pretty creative as to how to maintain your cash flow.”
Ken touches upon a very important point when he says you have to get pretty creative with how to maintain your cash flow. It takes a special breed of person to be an artist/entrepreneur and to make a living from the things he or she creates. We are all so close to the things we create, and sometimes it is hard to part with them. You have to take the attitude that what you are doing is important work that has to be shared, and in our present-day society you have to be as creative with your business as you are with your artwork.
Another way to fund your new work would be to find a business partner and split the startup costs. But that also means you will have to split the profits. Partnerships in business are tricky. You have to share the same vision, mission, and commitment to make it work. There must be clear definitions as to how things are going to be done, where the money comes from, where the money goes—in other words, total disclosure, so there are no false expectations that will breed distrust. The best thing about partnerships is that two people working together, with equal energy and respect, can create more than they could individually, and they both reap greater benefits.
You could also get money from a venture capital (VC) group, but it will want a portion of your company and will want fast results. And, generally speaking, VCs want to invest in larger, moneymaking opportunities, instead of one-off products such as photographs. They go through a great deal of due diligence before they write the big check, because they have investors who want a significant return on investment. So unless you have a high-volume enterprise, a VC group probably would not find your art enterprise lucrative enough.
You could also wait until you win the lottery and use the winnings to fund your future project, but if this is your business plan, with a million-to-one odds, then you are not taking this whole idea seriously—you may as well settle down to enjoying your hobby and take the pressure off of yourself for starting a new career.
You can also barter or trade out your services, but you will have to have very carefully spelled-out definitions of the value of the goods and services traded, so neither party feels as though it has been taken advantage of. One person’s idea of the value of a product (especially an art product) can be quite different from another’s, and it is very easy to get burned. As one of my students said, in a barter situation, you want to be on the “money end.”
So let’s review. You can do the following to raise money to finance your career’s reinvention: other work (i.e., non-photographic); save, reinvest, or have money gifted to you; get scholarships and grants; get a partner; gamble; find venture capital; or barter. Or you could go the route that most entrepreneurs go, which is to borrow money. You can borrow from family and friends. You can use credit cards or get a business line of credit from a bank or credit union. You can borrow on the equity in your home. And you can get a loan from the Small Business Administration. If you have collateral you can borrow against it. In his book The Entrepreneurial Age, author, lecturer, and entrepreneurial consultant Larry C. Farrell states: “The fact is, the average cost of a business startup in America is only around $14,000, and the two biggest sources of ‘entrepreneurial funding’ are available to anyone: personal savings and credit cards.” The challenge here is to be constantly aware of what you are spending, and not get so far in debt that your all your talent is doing is servicing your debt. Getting out of debt should not be the reason why you create; it will quickly spoil the reasons why you create.
Knowing the value of things is at the basis of what we create. Many people think that since we are doing what we are passionate about, we would do the work even if we were not being paid for it, simply because we enjoy it that much. Of course the problem with this line of thinking is that if we do not set a reasonable price, the work will be viewed as being without value. In our contemporary economic climate, the value of anything is judged by how much someone is willing to pay for it. That value of a photograph is determined by a long list of factors, which include the background of the artist, the history of the piece, supply and demand, and its intrinsic aesthetic.
At first, you create your work, people like it, and you give away a few pieces to those who really admire the work. Then someone, perhaps not that close to you, offers to pay you for a piece they find interesting. You come up with a price, they immediately buy it, and then you kick yourself because you probably could have gotten more. Does this sound familiar? That is when you wish you had some pricing guidelines to help you, but the more you look into this the more you realize that it’s a wide-open market, and you will probably have to make it up as you go along.
I was fortunate enough some years ago to attend a lecture sponsored by the Advertising Photographers of America/Los Angeles and given by world-class negotiator, Herb Cohen. He is the author of You Can Negotiate Anything and Negotiate This, By Caring But Not T-H-A-T Much. Cohen negotiates on behalf of governments, multinational corporations, and travels anywhere his skills will open up deadlocked negotiations. He worked on the release of the American hostages during the Iranian hostage crisis, the release of the hostages on the Achille Lauro cruise ship, and a number of other headline-capturing world events. After hearing of his accomplishments, you expect Moses to walk in the room. But Cohen is a surprisingly average-looking man who has taken the time to understand how human beings perceive situations and negotiate—and his investigations are monumentally important to us. As impressive as his résumé reads, his guidelines for negotiation are, as I understand them, deceptively simple. Basically, you must be well informed and you must be patient. That’s it. Of course, you never want to make the first move in a negotiation and paint yourself into corner; you always want to give your opponent a place to go that will be in your favor. You want to ask as many questions about the item as possible because then the value of the item becomes clearer; you want to be willing to go the extra mile in reaching a fair settlement. But ultimately, you want to do your homework and not panic. Keep in mind that when a client says, “Money is no object,” it invariably becomes the subject. As my good friend photographer Harry Liles always says, “Keep your lips moving.” As long as you are talking there is hope.
Herb Cohen’s information and insights were extremely helpful for me as I set off to find a simple method I could use when talking to a potential client about a fee for an assignment. I knew to ask the right questions, and I knew I could supply the patience as long as I kept the client talking about what the job meant to him in terms of increased sales and return on investment. That’s the key: you have to help the potential client see lots of money coming back to him if he utilizes your talent to promote his product.
Now, before you enter into negotiations with your would-be client, think of a vertical scale with a base point (a price you cannot go below), and a high point (a fee above which you will price yourself out of the market). These two arbitrary points become your range. You may decide your range is $500 to $1,000, or $10,000 to $20,000. It doesn’t matter, as long as you develop a range that is reasonable and one within which your interests and your client’s interests can operate. Start off by looking at your layouts and shot lists and ask, “How complex is the assignment?” Then mark a line between the two points—is it towards the bottom, middle, or top?
Something else is important to mention here. Before you talk with potential clients, it is necessary to have a little talk with yourself. Once you have settled on a fair price, it would be wise to ask yourself if there is a lower price you could live with. If there is, then hold that as a fallback position, but don’t go any lower. So, you are talking; you ask all the right questions. If they ask you for a figure—and they haven’t offered any amount to start with—tell them you have determined that such and such, say $5,000, is a fair price. Now, they can say okay—in which case you will think, Darn, that was too easy. I probably could have gotten more. Or they can say no—in which you can ask them what they feel is a fair price. If they come up with a price that is not lower than your fallback position, you can say you would like to think about it and get back to them. Never rush negotiations. When the time is right, you may call them back and accept their lower price, and say that in the future you would like to encourage them to pay the higher fee because they will find out that the images are worth more to them in increased sales.
If, however, they come up with a price that is lower than your fallback position, you can just say, in a very professional tone: “I will have to respectfully decline this opportunity. It would be a disservice to my other clients if I accepted it at this price.” This implies that there are other people who see the value of your product, and they are willing to pay the price because it helps them immensely to promote their product. Also, this prospective client will now know what price you and others put on your work. So, if they decide to call you in the future, you will have established a starting point for future negotiations.
Phil Marco had this insight when I asked him about how he determined prices for his work: “It depends on the client, usage, and what’s involved. On average, I would say ten to twenty grand an image, but depending on the logistics and complexity of the photograph it could be fifty to one hundred thousand per shot. But having said that, if there is something really exciting editorially, or an important public service announcement, or a friend or an art director I respect who has a great idea and no money, I’ll waive my fee. So it always comes down to the work—for me that’s always the most important consideration.”
Not often, but once in a while you may meet a potential client who will go ballistic when you quote him a fee. Most people are reasonable if you give them room to negotiate, but, every once in a blue moon, you will run into a manipulator who wants to trim the budget or to look good to his boss. I have encountered this only a few times in thirty-plus years of negotiating, but it is still worth mentioning. I suppose this tactic is used to intimidate the photographer into lowering the fees on the spot. First of all, you have to ask yourself if it’s worth working with someone who, before you have even started the job, is treating you so poorly. The answer is obviously no. If this is how he is before the job, imagine how he will be during the shoot, let alone what it will be like trying to get paid by him. One of the greatest attributes of going through the negotiating process is that you will get an instinctive read about how clients treat you, how they communicate, and whether or not you want to be stuck on a job with a person (or group) you would rather not be around—especially for an extended amount of time on a stressful shoot. There is nothing worse than being on a job you hate, knowing that you picked up a bad vibe early on and refused to acknowledge it.
But say they do go bonkers on you and scream out, “Who do you think you are, Michelangelo? Why I’ve never paid that much to anyone! This is highway robbery!” You can just calmly say, “Well then, what did you have in mind?” Don’t lose your cool. Just stay calm and ask the question very professionally. That usually defuses the situation, and I’ve had potential clients get downright apologetic after I respond to their tirade this way. I know they are under pressure. My job is to help them solve a creative problem, not make it worse, and to preserve my integrity and the integrity of the people I represent. And there are plenty of other people I’d rather work for out there who are respectful and willing to pay the price, because they know it will benefit them.
Here is what Douglas Kirkland had to say on negotiating: “You have to have some notion of what the field is. If you have friends in it you can discuss it. That’s become more of a problem today than what it once was. There used to be a gentleman’s agreement type of thing. For example, when I started, I never asked how much money there would be for something, because I always knew there would be enough, that I would be well looked after. And if there was any disagreement or problems, I could say something and they would respond. That was quite a different time. Today, if somebody says, ‘How much will this be?’ you have to protect your rights as much as you possibly can, number one; number two, set your fees high—‘This will be $20,000’—you can always reduce it. If they fall off the chair, and you feel you’re going to lose it, you can be clever and counter with, ‘We can work something out. What will work for you? What were you thinking about?’ And then that way you get them speaking. You can see if it can be worked out. On the other hand, don’t go so low you lose money.”
This brings up another interesting observation. If you look at the way people respond to questions, you will find that there are four basic responses. In most interpersonal exchanges, you have the ability with your response to Accept, Reject, Ignore, or Negotiate. That is a powerful thought, because it puts the power in your hands. Just realizing that you have options gives you a sense of control of the situation. That simple acknowledgment is empowering. For example, if someone says something to you and they expect a response, you can say yes and agree with it; or you can say no and flat out reject it; or you can chose to not acknowledge it and ignore it; or you can debate and negotiate the statement. It is surprising to me that so many people think that their options are limited because someone else has taken control over them by virtue of status, or rank, or money position, or whatever. In actuality, we give them control by the caliber of our responses. Therefore, if we conduct ourselves professionally and respectfully, we will know how to clear the way to stay focused on doing the best possible job and not fall into the wake of someone else’s agenda.
I noticed that all the professional photographers I interviewed for this book had slightly different styles in the way they negotiated, but there were a lot of similarities in the content. We all essentially encounter the same issues, and we all have had to find ways to coax a price out of a client. Ken Merfeld has this well-thought-out approach to pricing: “My pricing is determined on the usage, the duration [the amount of time is it going to be used], where it is going to be seen, and what the original ad-placement budget is for commercial work.”
A sense of fairness obviously plays a big part in negotiations, because it strengthens mutual respect. Another attribute I noticed among those interviewed was that they had proven to their clients that their prices were commensurate with their professionalism. Every day we go out on a job, we have to prove ourselves, and every day we fortify our reputations by performing to the level of expectation we have promised. Eric Meola put it this way when I asked how he determined the prices for his work: “By who the client is—and a combination of fairness and realizing that many clients return based on that first experience.”
As was stated earlier, information is one of the important keys to pricing. You have to ask questions of industry professionals you trust, and it is informative to study pricing surveys put out by trade organizations. There is no proportion wheel on which you can dial in to find the exact amount you should charge. Also there are laws regarding price fixing. But you can ask, read, and do your homework. These, together with an understanding of what the customer is willing to pay, will give you a starting point to determine your price. Bob Krist had this to say when I brought up the subject of determining a price for his work: “We use Cradoc Bagshaw’s fotoBiz [business-management software] to quote for stock. For assignments it’s just whatever the going rate is. You know what rates are by osmosis, by talking with other guys in the business.”
The area of fine-art photography is its own unique universe. Once it was looked at as an anomaly, but it has become a respectable part of the fine-art world. I wanted to understand how pricing fine-art photography works, so I asked Jerry Uelsmann, and this is what he had to say: “It’s what the market will allow. My New York gallery constantly wants me to raise my price. But I have discovered that when I have a show in Kansas, they think my prices are incredibly high, whereas they may be a bargain for New York. You just try to strike some middle ground. For years I would raise prices very slowly. Now the phenomenon of people doing limited editions has occurred, where they raise their prices as they go along.”
Then I turned to gallery owner David Fahey to get the art dealer’s point of view:
So the general advice is to have enough things going on to be able to sustain what you love to do, and by the same token you may have to make some concessions along the way, or you may have to diversify in some other way.
David Fahey in his office. © Tony Luna
In the next chapter, you will find out that almost everyone believes that the billing step begins when the job is shot, but actually it should begin way back when you have been awarded the job. At that point you have the most leverage with your client, because everyone is excited about the upcoming job, and they want it to get off to a good start. That is the time to ask your client who will be paying the bills. That way, you can establish a working relationship with the person or people who will actually cutting the check. By introducing yourself to them early on and finding out how they want the bill submitted—this is important—you can cut weeks, months maybe, off the billing process. Because if you wait until after the job to send the bill to the art director, he may be on another job and your bill will sit on his desk for weeks. When he returns, he will send it along to somebody else (who may be on vacation), and your bill will sit on her desk for another two weeks. When she returns, she will want to check through it, maybe call you for some clarification (send original receipts or redo it in triplicate), and that will hold up payment. Then your payment will have to wait for the next billing cycle before it is finally sent out through the postal service, which may take even more time.
Conversely, if you call the bookkeeping department at the time you are awarded the job, you can learn who to contact and what are their procedures. Then, if you give them what they want, in the manner they wish, in a timely fashion, chances are you will get paid much more quickly than you ever have in the past. Most accounting departments only get calls from suppliers when the suppliers are demanding money. So, if you call them to introduce yourself and ask them how you can make their lives easier, they will love you. You would be surprised at the number of calls I get from photographers who are trying to get a payment, and when I ask them how long it has been since they sent their bill out, they tell me sixty, ninety, or even one hundred and twenty days ago! My first question of course is, “Why did you wait so long to call me?”
I would be remiss if I didn’t include the following observation. We were on a job many years ago when I asked a wealthy designer friend of mine, Erick Erickson, how he had managed to do so well financially being an entrepreneur in an artistic occupation. Instead of dismissing my request, he said straight out, “You will never get wealthy in a service-oriented occupation.” He paused long enough for me to repeat the words in my head, and then he said, “You have to figure out a way to make money while you are asleep.” Lord knows, I’ve spent many a sleepless night pondering what he meant. And what he meant was that, in order to become wealthy, you have to find a way to generate income beyond the obvious and without having to be present.
He went on to tell me that, as an independent contractor, there are only two ways to make money directly from working. I could raise my fees, but eventually I would reach a ceiling, because the market could only allow me to go to a certain price level, after which I would be too expensive and not be called for any work. The second way I could make money was to work more hours, but that too had a limit, because there are only so many hours a person can physically work. At some point, no matter how good I was at what I did, nor how much stamina I had, I would tap out in both areas. I would have to create something that has a life of its own and let it make money while I was off doing what I loved to do, such as:
1 · License your photographs as stock. They are equity in a box (or sleeve, or drawer).
2 · Take the equipment you bought for past jobs that you don’t use anymore and pool it together with equipment from other photographers and start an equipment-rental company.
3 · Rent out your studio space when it is otherwise not being used and convert that into a revenue stream.
4 · Make a book of your work.
5 · Invest a portion of your money in companies you shoot or have shot for. You have the distinct advantage of observing the behind-the-scenes workings of those companies. Choose businesses that you like and feel have potential.
In other words, it is in your best interests to look for ways to create revenue streams that are not directly dependent on what you are presently shooting.
One of the great benefits of our occupation is that it allows us to see what is new in the world. We get to meet the movers and shakers, the people who are creating new products and services. These people need our talents to present their work to a waiting world. We are in the envious position of being right there when things hit the marketplace, and we can take advantage of those opportunities. Who knows, you could be present when the next great breakthrough happens, and you can turn that in to a cash flow that will open other doors for you. The key is to recognize a good thing when it is in your presence, to assess its potential, to create a plan to take advantage of it, to implement that plan, and to verify that the plan was the right course of action. Sound familiar? I though you would think so.
Speaking of movers and shakers, let’s take a look at how companies are managed in the next chapter and measure our own managerial attributes so we can do our jobs more effectively.
