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From Doug's "Heaven, Earth, Tequila" project, which was a commission as well as a book and exhibition, with prints like this one now for sale on his website. ©Doug Menuez

So far in this column I have touched on general issues of starting a photography business. Now we’ll explore the mystery of profits. If you want to make a profit, stay in business, and retire some day, you need to know your break-even point. Break-even is reached when your income is equal to all your costs: production, marketing, fixed overhead, taxes — everything.

Why is this useful to know? Because every decision you make impacts your costs and/or potential revenue, so you should be evaluating all options in the context of your cash flow and whether you will make a profit. When you print a new portfolio, buy a camera, or advertise in a source book, you are taking a calculated risk that these expenditures will yield jobs and revenue. If you can’t do the math and actually calculate that risk, it’s just risky.

Most of the photographers I know take every job they can, happy to be working and oblivious to the fact that some jobs cost them more money than they will earn. This happens because they don’t know their break-even and are not factoring in all their costs.

You simply must know if you can even afford to take a particular job before you consider it. Sometimes photographers take a loss for a great assignment that will help the portfolio. But if you rationalize a low fee because the job makes you feel better, or think it gives you momentum, think again. Sometimes we are asked to do a job as a favor with the promise that next time we’ll be paid properly. I can pretty much guarantee you that this promise is a lie 99 percent of the time. Especially in this economy.

You can go out of business in a hurry working under the illusion that being busy is the same thing as making a living. More likely you are just churning and burning resources without getting ahead. If things slow down, look out. Instead, be strategic. Your goal should be to make a profit to provide financial security and funding for future creative endeavors. Therefore, each job you accept should fit into what you defined in your business plan.

The next step is to understand your profit margin. This is where you can really refine your goals, focus your mind, and get the business in gear. This often-ignored tool is simple: profit margin equals your net profit after taxes divided by total revenue.

Say your net profit is $30,000 on $300,000 of revenue. Your profit margin is 10%, not so great. Average business margins are around 30%. With that knowledge, you know it’s time to cut overhead, raise your fees to earn more, or both. If you regularly check yourself against an ideal profit margin, you are utilizing a potent tool to analyze your business costs. Now you are starting to take control of your own destiny.

Let’s break it all down another way: Say your total yearly overhead at the moment (Fixed Expenses + estimated Cost of Goods Sold + estimated taxes) is in fact $300,000. That is the minimum amount you have to earn to break even. Now look at your income and how it is billed. If you bill per ad, and you’re getting an average of $10,000 per ad for usage fee, and you shoot about two ads per month, your total annual income is $240,000 — and you are losing money.

Until you do this math you probably think you are skating by because the checks are coming in. You are short and late on some bills, but you are working. But by not making a profit, you are actually way behind and won’t last long. You shot 24 ads at $10K each, but you need to do 30 ads at that rate just to break even. To make a profit you’ll need to significantly cut costs, raise your rate, or both.

Based on your break-even today, and considering your market, forecast a number of jobs for the year that seems conservatively realistic and how much you’ll need to charge to arrive at a 30 percent profit margin. Carve that in stone or on your forehead and aim for it. Now you can be strategic about every job you accept and every dollar you spend. You can keep track of your progress easily and push yourself and your team toward that goal. Profit. Make it part of your plan.

Pouya Dianat
Free time is a terrifying thing to have, at first. When I was a staffer, I talked about everything I was going to do and kept a list. The first week I had off from work, though…I sat staring at my computer just crushed by the overwhelming weight of freedom. So I set up a comprehensive list of everything I wanted to do and organized my days to have a loose rotation. If I have a week off while the Braves are out of town I rotate my days between:

(1) PHOTO DAY – Spent working on personal projects, screwing around with studio ideas, editing photos, researching things I want to work on, planning future projects

(2) FILM DAY – Working on scripts with my roommate, who is a writer, watching shorts, reading FilmMaker, MovieMaker and Film Comment, watching movies, reading about other filmmakers, researching

(3) TRAINING DAY – Log on to Lynda.com and choose something from SEO, Flash, Final Cut, PhotoShop, or any other program and learn something new — it’s been phenomenal

And on the seventh day of the week? Errands and finances: getting bank accounts into order, budgeting for the rest of the month, paying bills, buying way too many Magic Arms at Showcase Inc., etc. The key to my new career is constant growth, continuous learning, and striking a balance between paying the bills and doing what I want to do.

Nanine Hartzenbusch
Establishing my professional identity in a new community — we moved to a different city and I created a new business. I was known and well-connected in the Baltimore Washington community because I had worked as a staff photographer for the Baltimore Sun for 11 years. In Charlotte, where we’ve been for two years, people are still getting to know me and my work. My biggest challenge is to grow my client base, while getting to know Charlotte. A friend counseled me, “This is a marathon, not a sprint,” which has helped tremendously. Being patient has been key.

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An ad campaign for Target shot by Deanne Fitzmaurice, a Pultzer Prize-winning photographer who left the San Francisco Chronicle last year.

As we look around the photojournalism world today, it’s hard not to worry about one trend in particular: Newspapers, magazines, and wire services have been cutting pages, budgets, and staff positions, for years — and they’re not coming back. With fewer staff jobs to go around, more photographers than ever are deciding to work for themselves. Being the innovators that photographers are, they’re exploring new markets, new mediums, and new skill sets, especially those needed to run a business.

Some former staff photojournalists saw the writing on the wall long ago and now run their own thriving businesses. Many more have made strides in the last year or two, but still have a few questions — or they’re planning to make a move soon and have lots of questions.

Next week, August 10-14, RESOLVE will run five days of posts designed to answer these questions. Of course, no one person has the answer to all questions, especially the big ones about where the industry is going and how photography will continue to be profitable. But every photographer and editor and rep out there has the answer to one or two questions. That’s why we’ve asked as many as possible to share their experiences.

We’ve talked to dozens of former staff photographers working in a range of markets and will share their insights with you in daily posts next week. Each day we’ll also explore and explain an alternative market for photojournalists, including commercial assignments, wedding photojournalism, fine-art, and working with NGOs.

On top of that, an “expert of the day” will be available to answer questions in real-time as you ask them. They’re here to help, but we also need people will come together and help each other. We’ve heard about so much of this going on offline, we know you’ll have a lot to share here online as well.

If you are now or have ever been a staff photographer, please check in next week and join the discussion: ask a question, offer advice, and make some new contacts. If you’d like to contribute your thoughts about transitioning from a staff position, please email us this week: resolve [at] livebooks [dot] com. We’d love to hear from you and share your story (and website) with the community!

From the new ad campaign ‘Meet Dubai’ for Emirates Airlines. Photo copyright 2009 Doug Menuez

Ross Perot once told me that when he was starting his new company, no one would invest in his idea except his wife and mother. “And that’s why I have 3.3 billion dollars!” he said, with his characteristic ear-to-ear grin. “It’s all about equity son, equity.” His risky hard work paid off, but Ross was also lucky that he had some money from his wife and mother to start out with. That’s not realistic for most people starting a new photography business. You’ll need to use other people’s money to do that, the kind you find in a bank.

In my last column I mentioned writing a business plan and getting an SBA (Small Business Association) Loan. The good news is, the Obama administration recently beefed up the SBA, and there is a new push to give out a bunch of $35,000 loans. What are you waiting for? Write the plan! You might qualify for more.

Tell Them Who You Are
One small problem you might run into is that most bankers know little about photography and are skeptical that there is much money to be made with a camera. They understand restaurants or furniture stores, but they usually don’t get many photography businesses applying for loans. (That’s probably because, unlike furniture store owners, photographers expect money to arrive via magic, without the normal agony of sweating up a five-year income projection.)

In order to overcome the banker’s doubt, your business plan has to be solid, satisfying their need to understand what you are selling, who you are selling to, and how much money you expect to make over a set period of time. They need to be able to asses the risk for the return of their loan. It will help to clarify your vision for your future to the point that you can explain it in a mission statement that is 25 words or less. Tips for writing business plans are all over the internet, especially at SBA.gov.

Show Them What You Do
When I first heard about the SBA in 1993, I was technically bankrupt, having spent my life savings on my first book project. I won’t deny that learning to create spreadsheets and to write marketing and sales stuff was a nightmare. Like being stabbed in the eye over and over.

On top of that, I felt completely out of my element as a photographer going in to meet the banker. Although I’d been trying to build a relationship him over the past few months, I was sure when I asked for this big SBA loan, he would laugh me out of the bank. But I was pretty desperate, with a mortgage, a wife and child, and a ton of debt. I had to try.

On my way out the door for my bank meeting, I did something people might laugh at: I grabbed my portfolio to show my banker. I knew my business plan might not get through, but I was pretty sure I could get his attention with my images of news events, sports, and celebrities. Turns out, I was right. A banker’s world is fairly predictable; lots of numbers. It was a welcome break to go through my work, and it gave me the chance to connect on a basic human level with this critical decision maker. I got the loan — $100K — and never looked back.

Get Them On Your Team
An important part of this story is the concept of “relationship banking.” I had gotten to know my banker over time. It’s important to identify a bank in your town that is actually supporting small business through it’s lending policies — even in this economy — and then make friends with the bank manager.

Build a relationship as you would with a picture editor you want to work with. Take out a small loan, even $5,000 and repay it regularly over three months. Take out another loan for $10,000 and repay that quickly. Build trust. Then bring in your plan, along with your portfolio, and make it happen.

After I got the SBA loan for $100K, and knowing I could get my business going with half of that money, I turned around and asked my banker to put half of it in a savings account and freeze it to collateralize a 50K line of credit. That told him how serious I was and how hard I intended to work. It also gave him another incentive to help me grow into a larger customer. And I asked him to agree that if I handled that credit line properly, that line would be unsecured in a year. He agreed and a year later I had both the SBA money and the credit line, giving me ample capital for further growth: new equipment, portfolios, and serious marketing campaigns.

I learned then that it pays off to engage everyone on my team as a partner in my success — insurance agents, lawyers, and all my labs and equipment vendors. By getting them invested in my endeavors, since they were also relying on me for their business, they all had a vested interest in my continuing success.

This seems obvious in retrospect, but so few photographers take the time to really build relationships with the people they most rely on. A few lunches, gift prints, and keeping people abreast of your new projects and successes can go a long way when times get tough. And if you can get an insurance agent excited about the photographs in your portfolio, imagine how easy that next meeting with an art director will be.