Profit First for Photographers | Planning Your Business Based Off of Percentages

If you have been around the business world long enough, chances are you have heard somebody mention the book Profit First. A few years ago I finally caved and read this book that I had heard everyone raving about and it completely changed my business finances and the way I managed the money in my business.

Have you ever sat down and tried to figure out exactly what your expenses are, then when the end of the year rolls around you realize you spend wayyy more money than you expected? It is incredibly hard to predict what expenses will arise in your business when you are running a $250,000 photography business if you are currently only bringing in $30,000 a year. This is where the Profit First way of thinking comes in handy.

Profit First teaches a method of accounting for your business that allows you to create a plan for your business finances based on percentages. The author of Profit First, Mike Michalowicz, lays out suggested percentages of where money goes in a business based on their total revenue.

He uses the following categories, Owners Pay, Operating Expenses, Taxes, and Profit (Savings). Based on his work and findings he has standard percentages that should fit most businesses. For example, if your business has a revenue of $300,000 he says that 35% of your revenue will go towards Owners Pay, 40% towards Operating Expenses, 15% towards Tax, and 10% towards Profit.

Using this principal this means that if a client spends $1000 with you, then $350 would go in your pocket, $400 would cover the operating expenses of your business, $150 would go towards taxes, and $100 would be profit, or as I like to call it, savings.

Using this simple principal allows you to figure out about what your finances would look like when you are running the business of your dreams and meeting your revenue goals without having to know every single little detail of the expenses that you may incur.

I will take this idea and expand it a little further to what I have found works for my business and most photographers who I work with. I have shifted the recommended percentages slightly.

40% Owners Pay

20% Operating Expenses

20% Cost of Goods Sold

15% Taxes

5% Savings

I have created a PDF Guide that walks you through this breakdown and helps you figure out exactly how much you should be making from each client you photograph. You can grab it here.

Now let’s talk about implementing the Profit First System in your business.

The true Profit First System teaches that you should have a bank account for each of the categories, then twice each month you will do your “distributions” or transfers to each account.

I however do it a little differently. The first Monday of each month I do my distributions to each bank account.

All of my money is deposited into my Operating Expenses account. This account is what I spend money out of for my expenses and any products I order for clients. Then the first Monday when I do my distributions I simply take my total revenue for the previous month, and transfer 40% to my Owner Distributions account, 15% to my Tax Account, and 5% to my Savings Account.

I have a handy spreadsheet I use to track my clients each month and my financials. I am able to enter my total revenue in that spreadsheet and it calculates my transfers for me then I just manually do the transfers on my online banking.

The most important part about this process is that you are always taking a percentage of what you make and setting it aside for yourself. You can choose to take a regular “check” out of your business so that you can a steady income, or you can just pay yourself your entire Owners Distribution each month.

I prefer to take a regular check each month and then let some extra money pile up in my Owners Distribution account so that if a situation arises where I need the money it is there to pull out. In 2020 we decided very spontaneously to buy a house, and I was able to go to my Owners Distribution Account and pull out the entire down payment we needed for our house.

Now, the real questions for you is. If you could make any amount of money in your pocket, in a perfect world, how much money would you love to take home from your business? Once you know what that number is, you can take these percentage and reverse engineer how much revenue your business needs to bring in.

For example:

If you wanted to pay yourself $80,000- Your business would need to bring in $200,000.

$120,000- $300,000

$160,000- $400,000

Next up, use these numbers to figure out exactly what you need to bring in from each client you photograph.

Ask yourself:

How many months out of the year do I want to photograph clients?

How many clients do I want to photograph each month?

Then you will know exactly what you need to be working towards in your portrait photography business.

Profit First is an incredible book, and I highly recommend it to all business owners. There are quite a few other nuances and reasons why the Profit First System works so great for business owners especially those whose businesses can be seasonal such as photographers.