How I Did It - Chanel Parrott

Chanel Parrott was working herself to death without reaping the benefits. Pricing and cost of sales adjustments saved her business—and her sanity.

By Jeff Kent

Chanel Parrott started her photography business in 2003 with no clear business plan or objectives, just talent and enthusiasm. The first year, her portrait studio in Bloomington, Ill., Your Reflection My Style, booked three weddings and about 40 family portraits. Clients loved her work and referred others by the busload.

In 2004, volume exploded—23 weddings and 450 portrait sessions. Referrals continued to pour in, and Parrott was booking portrait sessions at least six weeks out. At the end of the year, the studio had grossed $175,000, but with a minimal net income. Frustrated as she studied the books, Parrott thought where’s the money?

In 2005, business continued at a brisk pace. By May, Parrott was booked through the end of October. She cut back weddings to 18, but packed in as many as five portrait sessions a day. Attempting to boost net profits, she assumed all the tasks she could handle herself, but at year’s end, there still wasn’t any money left over. Had her living requirements not been modest, she wouldn’t have been able to survive.

The answer must lie in doing more sessions, she thought, and she continued to load her schedule. But to keep up with the workload, she had to hire a full-time graphic designer, a parttime sales person and a part-time receptionist/production manager. “I knew there had to be an easier road,” she says. “I was working all the time—12-hour days and weekends—but I wasn’t seeing any financial result.”

So Parrott called PPA Studio Management Services (SMS). Her SMS consultant, Scott Kurkian, CFO of PPA, instantly identified the problem: Her prices weren’t high enough to meet her costs. The PPA Financial Benchmark Survey illustrates that a studio’s cost of sales (COS) and employee expenses should be a combined 35 percent of gross sales. Parrott’s total in 2005 was 65 percent. Moreover, her administrative costs were 19 percent, nearly double the benchmark. With 65 cents of every dollar going to production costs, and another 19 cents going to administrative costs, Parrott had nothing left to grow her business or pay herself a salary.

She needed not only to raise prices, but also to decrease expenses. Worried about scaring off her client base, she put off raising prices until August 2006, when she nearly tripled her prices in one fell swoop. She also stopped doing weddings after September 1 so she could concentrate on portraits during the busy fall season. The price hike bumped up annual gross income by $80,000, to $330,000 in 2006. Yet with the still high COS and employee expenses, she ended 2006 in the red by $7,000.

With the help of SMS, Parrott went to work on trimming expenses and better delegating tasks to her employees. She streamlined her order fulfillment process by sending job orders to her lab in batches rather than individually. This decreased both employee labor costs and lab fees. She also adjusted her in-house workflow and order packaging, handing over more of the work to her receptionist/production manager. “It took awhile to figure out what I
needed to delegate,” says Parrott. “I knew I needed help, but I didn’t want to relinquish everything right away. But the more I released, the less stress I felt and the more I could concentrate on the photography.”

Looking closely at what it actually cost to produce each of her products, her SMS analysis revealed that the total cost of an 8x10 print was far more than the $2 she’d been basing her prices on. Including packaging and handling, the actual cost was more than $14.

Understanding these costs helped Parrott adjust her prices based on her real COS. In 2007 and 2008 she increased prices an additional five to 10 percent to cover the rise in her production costs. She also began offering more products—custom Christmas cards, canvas wraps and wall collections—to boost the total sales from each session.

With higher prices and a richer product offering, Parrott generated more income with fewer sessions. Between 2005 and 2008, her average session revenue grew from $450 to $1,000. This helped her drop the yearly number of sessions from 450 to 340, and freed up time to work on marketing, business growth and having a personal life outside the studio. Fewer sessions also meant she needed fewer hours from her support employees, so she trimmed personnel expenses as well.

By the end of 2008, Parrott had reduced her COS plus employee expenses to 46 percent. Compared to 2005, that translates into 19 cents more in her pocket for every dollar coming in. She reduced her administrative costs to 10 percent, earning her another 9 cents. These might not sound like big numbers, but keeping 28 cents from every dollar in 2008 netted Parrott an owner’s compensation plus net profit of $75,000 for the year. That’s far above the average income of a photography studio, and a world away from Parrott’s figures of a mere three years ago.

These days, Parrott is not only earning more money, she’s also enjoying her work more. “When I started working with SMS, I was hesitant to raise my prices,” she says. “Then I found that by increasing my prices, I changed the type of clients who came to my studio. A higher-priced product brought in a higher-end client. These clients don’t want to drive all the way to your studio for a $6 print. They’d rather spend $40 and feel like they’re buying something of real value. With fewer sessions, I’ve been able to concentrate more on each client, really inputting the artistry that my new prices demand. It’s definitely more satisfying for me, and it’s made a huge difference for my business.”

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