Product Profitability

Work Less – Make More

1. Which of your services is the most profitable?

2. On which product are you losing money?

3. Which product or service should you make more sales to optimize your bottom line?

So many questions without answers.

You absolutely need to know the profit generated from each product and service you offer.

How? : Divide all your sales into categories. The global sum represents 100%. Example: weddings, commercial photos, children studio portrait, maternity studio portrait, industrial photos etc.  Even if you have sub-categories, do not hesitate to include them, if they represent at least 5% to 10% of your income.

Afterward, analyze the percentage represented by each product or service on the whole. From there, calculate what every product represents as production costs including all the variable expenses of subcontracting (retouching, lab, frames, albums, etc.). A simple division of expenses on sales will give you the percentage of gross margin for this product or service.

I have always recommended that a gross margin should be situated between 75% and 80%. Since photography is considered a service industry, this is a normal percentage for this type of industry.

To add to this analysis, I like to calculate what each product and service requires in man hours.  Example: portrait studio = 4 hours of work in total: weddings = 25 hours of work in total, etc.

This will give you the ratio of time/money. The higher that ratio is the more profitable it is.  The higher the gross margin is, the more profit is left to fill other essential needs.

Not complicated but extremely important, believe me.

After this precise analysis, you will know which products need to change with either an increase in price or a decrease in costs or a combination of the two.

IMPORTANT: Inevitably, you will have to face some difficult decisions: increase your prices, concentrate on more profitable products and services and eliminate those on which you are losing money. You will need courage, believe me, but ask yourself what the consequences will be of your inaction.

This is a very important exercise which will also enlighten you on a good strategy to use to make an effective marketing plan. Think of all the time and money you will save!

Need help to calculate it all, consult form 102 from Profit-Pro that will make things much easier.

Powered By Wordpress Tabs Slides