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Today, we’re diving into all things profit margin. As we know well, a healthy profit margin is an essential part of running a business successfully. Understanding profit margins can help you make informed decisions and grow your business sustainably. So let’s explore further what it is, why it matters and some strategies for increasing it.

Calculating profit margin

First, let’s define it. Essentially, profit margin is the percentage of revenue that exceeds the costs of running your business. It’s what remains AFTER we’ve paid all expenses. It’s calculated by dividing your net profit by your total revenue, then multiplying by 100 to get a percentage. 

Here’s an example, if your business made $100,000 in revenue and your total costs of running the business were $70,000, and that includes your salary or wages, then your profit would be $30,000. Straight forward enough right. Your profit margin however is reflected as a percentage of your total revenue rather than as a dollar amount. Your profit margin would be ($30,000 / $100,000) * 100 = 30%.

The formula is straightforward, here it is:
Profit margin = net profit, divided by total revenue x 100

So in that example net profit was 30 000, divided by total revenue of 100 000, multiply that by 100 and you get a percentage of 30%.

So this is why we need to track all our revenue and expenses accurately so that we get an accurate picture of our profit margin. The answer we get from this calculation is only as good as the data that we put into it. So make sure that you’re regularly tracking your revenue and expenses, there are plenty of great options out there like QuickBooks and Xero to help us do this.

Healthy profit margins

Knowing our profit margin matters because it’s an indicator of the health of our business. Just like our energy levels can be seen as an indicator of our physical health or our mood is an indicator of our mental health. These indicators alert us when something is off. A healthy profit margin means that your business generates enough revenue to cover its costs and sustain its operations. This is essential for long-term growth and sustainability.

It means that we’re keeping more from every dollar that’s earned which we can then reinvest, save, pay it out to ourselves as the owner, or set it aside as a cushion.

Profit margins can vary massively between different industries and they can also vary a lot within the photographer industry. It depends on our exact niche – if we’re a wedding, portrait, commercial or pet photographer, it can depend on our business model for example if we do in person sales or sell products in addition to our services.

It really depends on so many factors and there isn’t a one size fits all margin that every business should aim for because it really does depend on the industry, how established a business is, the business model and the business goals. But what I have found in my research is that generally speaking a decent profit margin for a photography business can range anywhere from 20-40%. So knowing this general standard can help serve as a reference point for us and help to guide our pricing.

It’s awesome to know our overall profit margin every year and it’s a good exercise to compare them year after year; but it’s also important to know our profit margin on the different services or packages and products that we offer.

Do you know what your margin is on your 10 hour package vs your 8 hour vs your 6 hour package? Do you know what it is on your albums and prints? If you don’t, do not panic because I’ve got some resources for you that I’ll share at the end of the episode that will help you to quickly and easily calculate your margins. I’ve got you covered.

Don’t feel bad about not knowing this either. I’d say 99.999999% of us did not go to business school. Most of us became photographers because we’re creative souls who adore capturing beautiful moments and connecting with people, we’re passionate about our art. If we want our art to sustain us however then we do need to learn a few business skills.

4 Ways to Increase Profit Margin

So once we know what our profit margin is for the whole year and also for each service or product that we offer, once we have that clear financial picture of where the health of our business currently stands we can start to find ways to increase the margin if it’s low.

Here are a few ways we can do that: 

1. Do a pricing review and adjust pricing

When it comes to pricing, make sure that your pricing reflects the value you provide and covers all associated costs.

We should also be raising our prices incrementally every single year. If we decide to raise our prices we need to ensure that we’re also raising the value of what we provide. This could of course be in the form of simply being a more experienced photographer but it can also be in the entire experience that you provide for your clients. You can find inexpensive ways to elevate their experience with you from start to finish and you can charge more for it.

2. Reduce expenses

Monitor your expenses and identify areas where you can reduce them without compromising on the quality of the service you provide.

I’m willing to bet that there is at least one expense that could be cut from most businesses. Now I am a firm believer that it is wise to invest in tools that save us time and help us run our business in a more efficient way. But I also know that there’s often an expense or two that we don’t actually need. Can we reduce our phone or internet plan for example, or can we change our plan on other subscription services, ask yourself if you really use the top tier of that fancy subscription you have. If not, change it.

3. Upsell and Cross-sell

Encourage additional purchases or add-on services that can contribute to increased revenue. That could mean finding ways to make irresistible offers to your existing clients to purchase prints or albums. You can automate this process through pic time. Create a process for upselling your albums or increasing print sales. 

4. Increase Efficiency

We can streamline our operations and look for opportunities to optimize our workflow. That could mean outsourcing our editing for example so that we can free up more of our time and mental energy to work on high-value income generating activities.

These days we have powerful AI editing tools available that cost a fraction of what outsourced editing used to cost. Sidenote, I used to have major control issues over my editing. I could not would not bring myself to outsource it. I believed no one in the entire world could edit my photo’s as well as I could. But that thinking really just held me back because it took up the majority of my time and kept me working in the business instead of on the business, instead of growing the business.

There is something to be said about editing your own work when you’re just starting out because it’s an important step in training our eyes to really see colour and to see light and shadow and to have a solid understanding of how our editing style is achieved. But once we know that we can we can absolutely outsource it and I am so freaking happy with my decision to do so. 

The Profit Planner

Well this brings us to the end of the episode my friends and as I mentioned I’ve created a really powerful tool for you that is going to calculate and track the all important numbers in your business. It calculates your profit margin on your revenue and also on every individual service and product that you offer, it calculates exactly what it costs you in time and materials to offer those services and products and it uses those calculations to show you EXACTLY how to price them. Say goodbye to any doubt or hesitation you feel around sharing your pricing with a potential client! 

It also includes a custom pricing calculator that you can use if you offer custom pricing for every job. Because my friends we should be charging for ALLLLL of the work that we do for each job, not just some of it. And what this is going to do is show you any holes that you need to plug in your pricing strategy and where you’re not charging adequately for your time and materials SO THAT you can ultimately be more profitable and grow a business that thrives.

It doesn’t matter if you’re offering one type of service like wedding photography or multiple types – perhaps you’re a family photographer who also does branding sessions and events or if you’re also offering products like prints and albums.

This tool will give you crystal clear clarity on your pricing, your operating costs and of course, on your profit!

I’ve made it super simple and easy for you so all you need to do is just plug in a few of your details and the tool will work its magic and do the rest for you. It’s also customisable so you can edit it to fit your business needs.

Let me tell you, I’ve done a lot of courses and workshops in my time as a photographer and honestly, nothing in my experience gets as detailed and as accurate as this tool does. I never found something that could give me this type of clarity so I finally created it myself! And I’m no mathematician so I’ve made it really simple to use. I absolutely WISH that I’d had this tool at the very beginning of my business, it would have saved me so much time, confusion and frustration.  

And if you’re still worried and think that you’re “not good at numbers”, then I’ve got you covered because I’ve even recorded short video tutorials that’ll walk you through it. I personally use this myself and I know you’ll love it as much as me so head over to the Profit Planner to check it out and snag yourself a copy.