Determining Your Cost to do Business
Lesson 5 from: How To Set Up Your Pricing StructureTomayia Colvin
Determining Your Cost to do Business
Lesson 5 from: How To Set Up Your Pricing StructureTomayia Colvin
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Determining Your Cost to do Business
Alright, let's make some goals. Now, let's get some happy time. Alright. Now we're going to, we're gonna do that three step again, but this time we're going to do it with real numbers for your household and for your studio. How 'bout that? Okay? Alright. So, number one: how much do you need to survive or contribute to your household, plan for you vacation, open a new studio, etc. in the next year? That's number one. Write that down on your paper. Be bold. Be audacious. Whatever you like. Be somewhat realistic. (laughter). And if you are into budgeting, I would highly suggest Mint and Prism. Or you need a budget. Those are online or apps for your phone. Every Dollar, the Envelope System, Wallet System and then Financial Peace University by Dave Ramsey if you are not familiar. The thing about being a freelancer, photographer, are not having a steady income, is that it's very hard, a little bit to say "I'm getting this much on the first and this much on the twentieth." On the Dave Ramsey ...
website, there is a budget and it's called a irregular budget. And what you do is on there, you put your bills and then as the money come in, that's how you pay. So you still put yourself on a budget, it's just not a zero based balance like, normally if you would get paid, like a direct deposit, like on the first and the fifteenth. Does that make sense for you all? So, it's two. So the one, if you're a freelancer and you're kinda working for yourself, then I would look at the irregular budget. That's what I would do. That's what I've done in the past when I need to budget for my household to find out how much I need in order to survive. So, this is your full-time gig, you need to write down how much you need to keep your lights on at your house, feed the kids, go on vacation and all those type of things. The number may be high. And it's okay. But again, we're dealing in real life. Okay? This is number one, it's where you can not short change the system or you will be homeless. So you just have to be honest and would just have to bite the bullet and say "This is how much it costs to live my life." Period. Okay? Does everyone have a number for number one? Good? Okie-dokie. Now, number two. How much would you like to save in twelve months? How much would you like to save? And here are some apps for saving: Digit, Stash, or Acorn. If you need to, little resource to help you on the saving. There are some resources for that. So do we have number two? How much would you like to save? Okay? Alright. So, how much are you required to pay in for your local and federal taxes? You need to look at your suggested resources for taxes. I sent this pdf, actually, to my CPA before I came out here to present it to you all. And she looked at it and we made a decision because she was going to give us the link to the IRS on how much you should be paying and different things like that. But she said it would be too difficult and it would just make you more confused if I posted the link. So that's why you don't have the link. And she wanted me to let you all know to definitely call the CPA. Yeah. (laughter) Mm-hmm. Because she looked at it and you know, she saw some errors and we fixed it on the Keynote, and she had a link and she was like "Don't." Because it's going to open like, a whole can of sales tax and then federal tax and this tax. And again, like I said earlier, there's fifty different states. Who knows what happens in different states and different counties? And all types of laws and regulations, so. We're going to again, we'll just guesstimate in this column, fifteen to thirty percent-ish. Okay. And then you made a pinky promise earlier that you would go check (laughter). Okay? And then, how much profit would you like to earn? Your salary. Your owner's profit. Dream big. So ideally for me, when I look at a salary in Texas, teachers make fifty six thousand-ish a year. With a Master's degree. If I were to work for myself, I wouldn't pay myself anything less than fifty six thousand. So, if you are thinking "Well, how much should I make?" If you want to walk away from your day job, or your full time job and do photography full time, then ideally, this number needs to match how much you're bringing home. That make sense? Or more. Because then you're not inside of a big group insurance, so you also have to account for that as well. So you may need a little bit more if you're not in a group for like insurance plans and different things like that. So you may need a little bit more. But number four would definitely be like your replacement income. If not, it's how much you want to have for your, your money on the side. It's up to you. Okay? Questions for me? Go ahead, before I go on to some more math. Just to clarify, so you're mentioning, so if you're leaving a full time job and coming to this, so how is number one and number four different then? Because sometimes, the profit, we pay ourselves and there's also the profit of the business. Yeah. Two different things. Okay, are we ready? You good? Okay. Let's do some math. (breathes deeply) Alright, so you should have now, your expenses ideally from the first page. You can write that down right there. Because you know how much it's costing to run your business. We had an idea. And again, don't get so bogged down on making sure the number is just like so nailed in. For today, we're just doing guesstimates and if you need to make sure these are nailed down correctly, I don't mind helping you. Okay. Then how much you want to save. (hums rhythm) You're estimated taxes. And then I put here you're owner's profit for your salary and I didn't put the profit of the business on this one and I apologize. So let me show you an example. So, I put some numbers here just to help guide us for example purposes. So, you cost of doing business, your expenses. Let's just say for example, on my first sheet, that it was ten thousand dollars. That's how much it costs per year to operate my business. So if someone says "Well, what's your cost of doing business?" Then you can just say, "My cost of doing business per year is ten thousand dollars." Because you've added up all of your expenses, your equipment, your education, your traveling, your parking fees, your tolls, your mileage. You've added all of that up and now you can say "My cost of doing business is ten thousand dollars." Okay? It is very helpful when you have your cost of doing business for you as well, because you know about how much it costs to run your business and how much you will accept for a client. You'll know that if it costs ten thousand a year and someone offers to pay you fifty dollars, you'll know that that's not going to at least, that's not covering the minimum amount to cover your expenses. Does that make sense? So, it makes it so much easier when you know this cost of doing business number to say "No." It makes this very very easy. You'll be like "Uh-uh, I can't come because this is not covering my bottom line, like at all. Like, I'm actually taking a loss coming. Like, it takes more gas money to get to your house than to shoot your session for twenty dollars. Like, supreme gas is expensive. Like, I can't do that, I have to pay gas, I have to pay a baby sitter, I have to pay all these things." So, when someone says Tamia, "Can you shoot for a hundred dollars?" "Absolutely not, because the baby sitter costs seventy!" Unless I'm just going to donate my time because that's what it would be. Because in order for me to leave my house, I have to get a baby sitter. I even have to pay my grandma who's watching my kids right now. Okay? She's like "So when are you coming back? Yeah, come get your kids, Mia." Okay? So. I have to put that in my cost. How much does it cost? So if someone says to me, oh, I can say so easy no. That's not enough money for grandma to go to the casino, I'm sorry, no. (laughter) No. If it's not. Because if I show up to grandma's house without enough money, I can't leave my kids there. Well, I probably could but I would still hear it. Okay. How much would you like to save? Your estimated taxes-ish. And then remember I told you, that in Texas, teachers make, with my credentials and such, about fifty six thousand a year. So, I added all of this up. And so, per year in photography or whatever I'm doing in life, I would need to make at least seventy six thousand. Mm-hmm. I'm just curious why you included savings separate because typically, you would take that out of your own salary. I have to save for my business too, if I want a new camera. Okay, that explains it. Thank you. Yeah. Yeah, like Black Friday's coming. (laughter) And if I didn't save, then what? I wouldn't have any money. Yeah. Because the expenses are just what it takes just to get this thing going. Not if something goes on sale, he-he, or if I see something that I need or if I want to do a style shoot and I need to pay the florist, the hair and make-up artist and rent a gown and those type of things. I didn't put that in that number up there. I would probably pull it out of my savings or if I put it in my cost of doing business, then that would be fine. But we have to make sure that we have some cushion money somewhere. I mean, heaven forbid, you don't pay your insurance and someone breaks in your car and steals your camera. And then you don't have a camera anymore. Nor a savings account to cover it. So now you're dipping in to your personal money, to make your business go around and that shouldn't be the case, you shouldn't be commingling your funds. You all okay? (laughter) Okay. Any more questions before I go to the next slide? Hopefully, I added these up correctly. I think they're right. So, I need seventy six thousand in order for me to live a life, ideally. If I wanted to walk away from my job as a teacher. In order for me to have a full time photography business, I would need to make seventy six thousand a year.
Ratings and Reviews
Sher
Great information. Simple, clear and interesting presentation. Thank you for sharing your knowledge.
Robin Spencer
Tomayia Colvin is delightful, a great storyteller and easy to listen to. A very simple explanation of basic accounting for photographers and a real eye opener for many.