Discounts Will Kill Your Business; Gifts Will Make You Money

Hey Peeps,
Yep, that’s right, we’re looking at the business side of photography(or ANY BUSINESS really) again, but I feel it is an important aspect that most businesses and industries ignore – at their own peril.
First off, let me just say, I love shooting images.  LOVE IT.  But I have found – originally to my dismay, that I also love the marketing/business side of photography.  
Don’t get me wrong – I hate running numbers, I hate discussing profit margins, I hate keeping tabs on expenses and revenues and etc etc etc, so thank God or the gods or Buddha or the great vast emptiness of oblivion that I have an accountant to keep me both sane from such drudgery and out of prison.
But I LOVE discussing the human element in business, because without knowing your clients – or better yet, the clients you WANT to have – you will do very poor in business.
Now what I want to get out here today is a look at an old model of increasing sales compared to a new model.
You know the old story – especially if you run your own business,”Hmmm, business is slow this time of year, maybe I should put on a sale, yeah, how about 20% off?  That should drum up some clients.”  I’ve been there, believe me.
Great.  
Sounds wonderful.  
It may work.  
It may increase your current client list.
Let’s say you normally have 5 clients a week(these numbers are completely fictitious, it doesn’t matter if it’s 5 or 5000), and you drop your prices by 20% like the situation above.
You may increase your number of clients, let’s say by one person.  Doesn’t sound like a lot, but a single person is a 20% increase in your client list.  Which would be a huge jump in new clients for any business.
But guess what?
You didn’t make anymore money. Actually you lost money.
Really.  You did.
But you did work 20% more than you normally would have.
Let me elaborate with more numbers – forgive me.
You normally have 5 clients a week at $100 a pop, this would give you $500/week in revenues.  
You give a sale of 20%, making your clients sale cost $80.
Your client list increases by one person or 20% – which seems like the sale was successful. 
So let’s take a look at the new sales numbers.
Six clients at $80/client is $480.
Wait what?
But you worked 20% more!(remember?  That 6th client that you brought in with the sale?)
How could you have lost money?
Simple, the gains in clients wasn’t enough to upset the loss in revenue from the sale.  In other words, you brought more clients in, you spent more time working for and with your clients and you made less money overall/per client – even with 20% more “sales”.
Jeez, having a sale sounds dangerous if you don’t make some really significant increases in new clients.
So my question is: why have them at all?
“Well Michael, how am I supposed to compete?  My competition is undercutting me, having specials and deals and etc…”
Yeah, yeah, yeah, but you know what?  Your competition feels the same way about you and they are stressed with having to cut their prices so much to get clients in the door.
I say that client numbers are irrelevant, who needs 1000 clients at $1 each when you can have one client at $1000?  Know what that is?  It’s called scalability.  But we’ll touch on that another day.
The NEW model is something great and wonderful, with no risk and generates money.
I’m talking about gifts.
This needs a little explanation I think.
I want to drum up more clients, but I don’t want to cut my prices.
No “2-for-1 deals”.

No “n% off now”s.

No “2nd or 3rd purchase free”s. 
You know your clients.  You know which ones need/want your business more than others and you know which ones fit your ideal clientbase.
So reward them.  Indefinitely.
You do what’s similar to an affiliate program. 
I will use myself in this example.
My main clients are corporates, brides, models, fashion and lifestyle for all intents and purposes.
So if I want to increase my bride sales, I approach a client that fits in the range of my ideal bride.  Twenty-something, career, well-to-do family(they do need to have the money to pay me right?).  Just to name a few characteristics.  Most likely, she will have friends of the same make up that are primed to becoming brides soon.
The real kicker is this:  the client that I approach should want work from me on an ongoing basis.  She has to love to work with me and get new material whenever she can.  Why?  You’ll see.
I say to her,”Hey there “Suzie”, I know that we have a lot of fun working together and come up with some great shots of you when we do.  Because you have been such a treat I wanted to see if you were interested in becoming one of my exclusive affiliates.”
She may not know what I’m talking about yet – I wouldn’t at first glance.  But I have already established our great work history and am introducing something “exclusive” to her that speaks of rewards.
“We’ve worked a lot together and I want to make it more affordable for you to get what you want out of our shoots.  So for any and every potential that you send to me that becomes a client, I will give you a $25 credit any prints or products from a future shoot this year.”
“Hey Mike, this sounds like a discount/sale, you told me not to do this!  What gives?”
I know, I’m getting to that.  But before I do, let me explain that my prices are more than just a number/client, that’s just the baseline, then we get into orders that can differ greatly depending on the client.
Let’s go back to the numbers. *sigh*
I have 5 clients/week @ $100/client.  Makes $500/week(again these numbers are simplified for the math)
I make one of my clients an affiliate, and they bring in one extra client(same 20% increase in clientbase as the previous “sale” scenario)
With NO sale pricing, my numbers register at 6 clients @ $100, making $600 in sales(a 20% increase in $$$)
But remember, I have a new cost now.  My affiliate gets $25 of credit for bringing me that new client.  
So my REAL sales is $575.   
Still over 13% increase in sales as apposed to the -4% decrease from the “sales” scenario at top.
And yes, I am still working 20% more for that 6th client, but the difference from the old model to the new model is an increase of 17%!
But wait again. 
What if my affiliate doesn’t bring in any new clients?
Then I make what I normally make and lose NOTHING.
Okay, but what if my affiliate doesn’t use their credit before it expires?  Remember, the shoot using these credits has to be used “this year”.  Then I get that $25 back.  Another increase in revenue.
What if a client builds up $1000 of credit and wants work done?  You will be out $900 after your $100 charge.
No I won’t.

I take the affiliate credit out of the money I make from the clients that they send me.  I put this money in an account especially made for affiliate credits and track individual credits with Excel to know when they expire so that I can transfer those funds back to my business.

This way I NEVER pay affiliate credits out of pocket.

The money for credits is ALWAYS there for use.  Plus, the credits are not even close to being the same amount as the money made from the clients brought in to generate them.  Basically, a $25 credit is taken from a $100 sale.  The more credits really means more revenue.  And revenue from the clients I WANT to have, that pay what I want to get paid and make the work I want to make.

Another good part of this is that the credits only go towards the orders, the prints/products.  
Never the baseline price off shooting.  That’s my bread and butter, orders are the gravy in my pricing.
So in the end, here are the major differences in these models:
Old “Sales” Model
– lose revenue immediately from baseline
– unoriginal tactic – everyone does sales
– undercutting competition, really hurting your own business
– stress of loss in sales only adds to apparent desperation when interacting with clients
– more time and work for less money
– lost sales
-worse shape than before the sale
New “Gift” Model
– baseline revenue stays stable
– unique tactic – unavailable from competition
– NO undercutting competition(because there’s no need to)
– no stress of loss in sales, able to be more receptive and patient with clients, creates better environment
– time & work/money ratio is minimilized
– more sales/client and overall
– better shape than before, this system is not restricted by a limited time, it’s indefinite remember?
– no possible risk of lost sales due to model
– rewards loyal clients, rewards new clients, builds loyalty with ideal clients
– empowers loyal clients, gives altruistic feeling
creates “ideal client generators” for your business without cost or time on your part
So can you translate this into your own business?  Or maybe you can use it for a non-profit?  Fundraising? 
Tell me how this model can help YOU in your endeavors, I want to hear from you, even if you are having trouble grasping how to utilize this.  Let me know what you’re missing and I can help.
Anywho, I think this is a long enough and mind-numbing post as is, so I will cut it off here.  Sorry no pics.
Laters,
Michael Carty

Michael Carty Photography Email

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