Here’s how I define the American Dream: living a middle-class or better lifestyle while building enough wealth to send your kids to college and retire at a reasonable age (i.e. before you’re too old and infirm to enjoy it). Your mileage may vary. Personally, I have much higher financial goals than this but I’ll use this as a baseline for this discussion.
This post is based on the experience and knowledge that an MBA and 20 years of business experience (both inside and outside of photography) has brought me. It is probably the most important post that I’ll ever write. If you plan on making photography your career, please don’t skip this one.
There are lots of ways to build enough wealth to live the dream. I’ll outline some of them here:
The Investor is at the very top of the wealth-building food chain. Just about all of the wealthy (entertainers and athletes aside) have generated their wealth through investment. That is, through ownership of assets – either businesses or real estate. They’ve earned their wealth by (1) being willing to take big risks and (2) by using leverage. I’m not talking about saving some of your salary and buying mutual funds here. Think bigger.
Let’s take, for example, a fairly typical real estate investor. He buys a small commercial property for $500,000. He put 20% down ($100,000) and took a $400,000 mortgage. His tenants pay enough rent to cover the operating expenses, including the mortgage. He was smart and bought in the right market. Twelve years later he sells the building for $1,000,000. His profit? He turned $100,000 into $1,000,000 – a $900,000 profit (less the repayment of the remaining mortgage) in 12 years. Or in other words, 30 years worth of income for the average photographer made with a single deal.
It’s easy to see why/how most large fortunes are made this way.
“You see that building? I bought that building ten years ago. My first real estate deal. Sold it two years later, made an $800,000 profit. It was better than sex. At the time I thought that was all the money in the world. Now it’s a day’s pay.” – Gordon Gekko
Professionals (dentists, lawyers, accountants, etc.) build wealth in a couple different ways. First, they can earn high incomes. The primary reason for the high income is that their profession may require a high level of expertise acquired at a very high cost. It takes a lot of time and money to become a lawyer. Four years of undergraduate education, three years of law school, and then you have to pass the bar exam. This is an extremely high barrier of entry. Graduating from a top law school raises that barrier even higher. For example, the median starting salary for lawyers graduating from New York University (my alma mater, although I went to the business school, not the law school) is greater than $160,000. Not bad for an entry level job.
But beyond salary, professionals build wealth through equity and leverage/scalability just like investors do. The lawyer eventually becomes a partner, which opens him up to ownership of his firm. And then there’s the leverage – the lawyer no longer makes the bulk of his earnings through his own labor. He begins to earn income through the labor of his employees (law firm associates).
The Corporate Employee
Entrepreneurship isn’t the only way to build reasonable wealth over time. Lots of corporate employees do it too. They do it through investment (of profit sharing, stock options, bonuses, employee stock purchase programs, 401k company matches, etc.) and leverage. An employee has leverage? Sure, let’s look at this example:
Let’s say you work at a big box retailer like a Best Buy. You work at the cash register or stocking shelves. At this level you’re simply trading your time for money. You don’t earn much because there is a very low barrier of entry for a stock clerk. There is no way to leverage your earnings. You make $10 per hour.
Now let’s say you’re a good employee and have a few promotions over the years and eventually you’re managing one of the departments – say the cell phone department. You’re making $40,000 / yr. You have leveraged yourself because now you’re getting compensated on the results of the entire department. A few years later you’re the general manager of the store and make $100,000. Now you’ve leveraged your earnings again because you’re responsible for the efforts of all of the employees in the entire store.
A few years after that you’re a regional manager responsible for a dozen stores. Now you’re making $200,000. You’re making the big salary because of leverage and the fact that now you benefit from an extremely high barrier to entry. There are millions of people who can be trained to stock shelves in a day, but there are not that many people who have the skills and expertise to oversee a dozen large stores with hundreds of employees.
The Public Employee
Public employees have a great opportunity to live the American Dream and build wealth over time. They do this through (1) higher than average wages and (2) extremely generous benefits unavailable to private sector workers. Let’s say you’re a police officer or fireman in a big city. You probably have a pension that’s based on your last few year’s salary. Work some overtime your last couple of years and you can easily have a six-figure per year pension + free health care for you and your spouse for life. Oh, and you’re retiring before age 50. The dollar value of these benefits boggles the mind – it’s easily in the $millions for a single worker. It’s a great deal if you can get it.
Most people realize this, of course, which is why it’s not so easy to get one of these jobs. In some parts of the country, it’s harder to get a job as a police officer than it is to get into Harvard. This is no exaggeration. Last year, Harvard had a 6.9% acceptance rate. My nephew is trying to get a job as a police officer in Connecticut. For every job opening there are more than 100 applicants. That’s less than a 1% acceptance rate. Just think about it.
Canon 1V, Canon 50mm f1.4, Kodak Portra 160NC, develop/scan: RPL, perfect skin tones straight from the scan with zero corrections.
Okay, thanks for reading this far. This is the part you’ve been waiting for. Where does the photographer fit in?
I’m sorry to report that photographers feed at the bottom of the wealth-creation food chain. Why?
Zero barriers to entry. There is basically a zero barrier to entry to the professional photography business. No qualifications, schooling, certifications or experience are necessary. Since most people who become professional already have a camera, a computer and Photoshop (photography was their hobby), there’s a near zero investment in equipment needed. All it takes is a $50 Bludomain website and you’re good to go. Education (from sites like this) is free and readily available. Today’s $700 Nikon D5100 is miles better than the $5,000 Nikon D2X from 4 years ago. Do 2 hours of coaching with me (or someone like me) and you can learn a topic – pricing, for example – that took me years of trial and error to learn. Is it any surprise that every single day another dozen photographers in your town open up shop?
Zero leverage/scalability. Unless you’re going to open up a chain of employee-run studio photography stores, you have zero leverage. That is, you are simply trading your time for money, and there is a fixed amount of hours you can work before you run out of time or simply drop dead. Twenty years ago photographers who shot stock for Getty Images were able to leverage their images (i.e. sell them for decent money over and over again), but that market is basically dead now due to microstock.
Zero equity-building. Unlike the owner of the dry cleaning store who can sell his business and build wealth over time, your photography business builds no equity. [remember the 70’s sitcom The Jeffersons? George Jefferson became wealthy by owning a chain of dry cleaning stores]. The typical wedding/portrait shooter (Sally Smith Photography) earns zero income the day she shoots her last wedding. Nobody out there will buy Sally Smith Photography. There is nothing to buy. Her copyrighted library of 200,000 wedding/portrait images has no value, because she’s already sold the images to her only possible customer. She might be able to sell her gear for a few hundred bucks but that’s it.
Zero benefits. You have to buy all of your own health insurance, for example. With the cost of family health insurance at $20,000 per year and going up 10-15% per year, this is a huge deal. Employees of large corporations often have dozens of smaller benefits as well – e.g. life insurance, employee wellness programs, reimbursement for health club memberships, employee discount programs, tax-saver accounts, etc.
I actually can’t think of a worse business than photography. I honestly can’t. In fact, if I were teaching an entrepreneurship class at a business school this would make a great exercise: Have my class think of a business that builds zero equity, had zero scalability and zero barriers to entry. It would be interesting to see if my class could come up with professional wedding/portrait photography. Knowing what makes a bad business would be very helpful in designing a good business.
The bottom line is this: from a wealth-creation standpoint, photography is a lousy career. But you probably already know that.
Olympus OM2n, Zuiko 28mm lens, Kodak Portra400nc, NCPS process and scan, straight-from-the-scan
So what to do?
Don’t give up! Just because photography is a bad business doesn’t mean it isn’t worthwhile pursuing. It does have other non-business related benefits (primarily, it satisfies the urge to scratch your creative itch, which has non-monetary value that’s difficult to quantify). So here are some options:
Option 1: Curl up into the fetal position and rock back and forth. When finished, complain to everyone you know about all the newbies entering the market. Look under the seat cushions to scrape up your health insurance premium. Resume the fetal position and repeat.
Option 2: Take positive action.
Re-evaluate whether or not to be full-time vs. part-time. I wrote about this topic in my post “for love or money“. While photography is a lousy career (from a wealth-creation perspective), it can be a GREAT part-time business. The “low barrier to entry” issue is not a problem for the part-timer. In fact, it’s an advantage. Shoot 10 weddings a year and you can easily bring in $20,000 of extra annual income. Invest this extra while living on the salary from your day job and you will be on your way to financial independence and lasting wealth. How many people do you know can save and invest $20,000 per year?
Pick the right spouse. Photography as a full-time business works best when coupled with a spouse who has a solid job (with health insurance). If your family can live on your spouse’s salary, then you can save/invest nearly all of your photography income. How great would it be to save and invest $40,000-50,000 per year!
Invest your profits outside of photography. Spend less than you earn. Invest your savings wisely. Set a specific savings goal for the year. Do not make a single discretionary (i.e. non-essential) purchase until you’ve socked away that amount into an account earmarked for investing. Read a lot about investing. This will build your wealth a thousand times more than spending time reading ridiculous online forums where people debate Canon vs. Nikon and display their photos of brick walls. I don’t care if you choose real estate, stocks, mutual funds or whatever. Become knowledgeable, save and invest. Since your photography business does not build equity, you need to build that equity outside of photography. Unless you’re a professional sports photographer who needs the ultra-high frame rate, buying a new D3s is NOT an investment, it is luxury, unnecessary spending. The $5,000 D3s will not earn you a single penny more than the $2,500 D700.
Hold on to your cash. Photographers spend way, way, way, way too much money. If I were hired as a business consultant to a photographer, the first thing that I would look at are their expenditures. Let’s look at some examples:
Gear: If your camera is less than 3 years old, there is NO NEED to upgrade your cameras. EVER. Cameras are so good now that you should use them until they wear out. I am still using my 5 year old 5D and getting stunning images from it. I could shoot all of my portrait sessions with my $60, 30 year old Olympus OM2n and my clients would be thrilled with the results.
Software: No need to upgrade. At most, upgrade with every 3rd release. Do you really need those thousands of fancy features that you’ll never use?
Branding: Branding is one of the most misunderstood topics for wedding/portrait photographers. YOU are the brand. Your images. Your attitude. How you treat your clients. Your brand is NOT your logo/letterhead. There is no reason to spend thousands of dollars on professional graphic design. Sure, it’s important for large corporations like Pepsi, Apple, and McDonalds to have the recognizable logo. But in order for your logo to establish your brand, you would have to have thousands and thousands of impressions (speaking with my MBA hat on) at a cost of hundreds of thousands of dollars. Your name in an attractive font is all you need for a logo.
Advertising: Don’t spend your hard earned cash on magazine ads. They are a waste of money. Spend a few thousand dollars on a magazine ad and you’ll be lucky to book one wedding from it. Great, you’re now working that wedding for free.
The most effective ways to generate business and profits are free or nearly free. How much does it cost you to not be an a-hole? How many times have you read a post on online forums like this:Â “My contract does not allow clients to use images without my permission, yet I saw they posted some of their wedding images on Facebook without my permission!Â How do I get them to cease and desist and/or compensate me for those images?” Are you f_ing kidding me!! Who are you, Annie Leibovitz? Instead I would thank them for the free advertising. In fact, on my client’s DVD I include a folder labeled “Facebook” with images perfectly sized for it. Which approach do you think will better improve your “brand”? And how much does it cost you to pick up the phone and make some sales calls? You can make more with a single phone call than you can with a $2,500 magazine ad.
Maximize revenue. Since your time is fixed, you have to maximize the revenue from each session. This is way too big a topic to be covered in a single bullet point or single blog post. It’s the basis of my entire blog. Read up on marketing and especially pricing. Photographers leave way too much money on the table. They don’t have a recognizable style, which results in average pricing. They don’t know how to price albums. Their package design invites nickle-and-dimeing from their clients. They sell online instead of face to face. They don’t know how to price prints. They don’t do proactive marketing. How many sales calls did you make this week? Zero? Then why are you amazed that your phone isn’t ringing?
Yes, you can be a photographer and still live the American Dream. But in order to do that you’ll have to recognize the limitations of working at the bottom of the wealth-creation food chain and what to do about it. Keep your chin up!