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Many of my favorite photographers have built successful careers on being excellent observers. Their images are powerful because they watch, anticipate, and press the shutter at the decisive moment.

But being a keen observer of people is not enough. To succeed in the business of photography, you must employ a careful combination of observation skills. You must be an excellent observer of people AND business. To succeed, you must watch your business –- know it inside and out. As John D. Rockefeller said, “Everything that is watched improves.”

Rockefeller knew exactly how much it cost to extract, refine, and deliver a barrel of oil. He was fully aware of all his costs. Knowing this information –- and acting on it –- gave him a competitive advantage. He knew how to price a barrel of oil to turn a profit.

As a result, he implemented cost savings measures like manufacturing his own barrels and starting his own transport company. By carefully observing the data that mattered, Rockefeller made Standard Oil wildly successful.

The success of your photography business also depends on your observations. Are you watching each area of revenue and cost? What things are you tracking? What systems do you have in place to help you measure and manage your business’s success? Here are three areas that you should be observing particularly carefully.

1. Calculate Your Profitability

• First, create a price list of all your “items” (individual products and services you offer) and calculate profit margins for each item. By understanding profit margin, you will ensure that you’re making money on everything you sell.
• An item’s profit margin is based on “Cost of Goods Sold” (COGS). In order to calculate the total profit margin on packages/proposals you create for clients, identify a COGS for each item on your price list.
• COGS for an item is calculated as the total direct expenses incurred in the production of a good, including the cost of materials used to make that good and the cost of labor to produce it. COGS does not include indirect expenses, like marketing, accounting, and shipping.
• Knowing the COGS will help you determine which products and packages are turning a profit. Subtract an item’s COGS from its sales revenue to determine the gross profit it earns.
• Net profit is the difference between COGS and indirect expenses from sales revenue.

2. Identify and Track Referrals

• Referrals are the lifeblood of many photography businesses, especially wedding. In a good economy, fostering strong referral sources is the most effective growth strategy. In a bad economy, it’s critical.
• If you don’t know where your profitable referrals are coming from, you’re wasting time and money. For example, let’s say five colleagues in your community are responsible for referring 60 percent of last quarter’s business. Don’t you want to treat those referral sources differently than the florist down the road who hasn’t referred anyone? Tracking your referral sources allows you to invest valuable marketing resources into the right people and groups that will give you new business.
• Tracking referrals is a detailed process — one that requires organization and automation to be effective. You can use simple Excel spreadsheets to track referral sources and leads. There is also more sophisticated studio management software available. The good news is that both options can be cost-effective for even the smallest studio.

3. Create a Marketing Strategy and Track Your Success

• Marketing can seem daunting at times, but even a simple marketing strategy can have a beneficial impact on your business. Here are a few things that most successful businesses strategies have in common.
• First, a contact database. The importance of maintaining an organized contact database can’t be stressed enough. It may sound like a basic tactic, but trying to grow your business without a contact database is like trying to drive a car without an engine. If you want to grow your current relationships and develop new ones, you must keep track of communications with every client, referral source, partner, and prospect with whom you interact.
• Second is email marketing. Email communication is the name of the game these days. And with the help of your growing contact database, you can easily reach thousands of prospective clients with a single key stroke. Keep your contacts up to date on events, new services, awards, specials, and other important information with emails. That way, you will already be on their mind when they are seeking photography services.
• Finally, make sure to track your database efforts. Some automated solutions allow you to track the read and response rate for email blasts through easy-to-read reports. Whichever way you decide, be sure to regularly review your efforts to understand what’s helping you drive revenue and what’s not.