Ross Shares Cost-Control Strategies

Posted on 1/12/2009 by Jim Pickerell | Printable Version | Comments (8)

One of the world's most productive stock photographers, Jonathan Ross of Seattle's AndersenRoss, shares his strategy for controlling costs, particularly when it comes to microstock shoots.


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Comments

  • Gerard Fritz Posted Jan 12, 2009
    These kinds of shoots (people smiling to camera) will flood the microstock sites to capacity fast, just like it did in RF. Then the move to more sophisticated shoots starts...and the expenses go up. Eventually microstock will slow the intake of images due to over supply (how many is enough, 5 million, 20 million?).

    Eventually, photographers will have created a world of $5 photos, without the volume acceptance rate.

  • Greg Ceo Posted Jan 12, 2009
    Gerald, I agree completely and state again that interesting work is what Art Buyers will be looking for in the future. Microstock will be flooding with content, and sales will go down. The real question is will hobby photographers take over the market. Remember, 20 pictures from 3 million people is quite a collection.

  • Tim Mcguire Posted Jan 12, 2009
    The cost cutting strategies in this article are not exactly new in the stock business. I think many were doing this in the 90's.

    For an independent photographer trying to run a profitable stock business I can think of a number of questions regarding the business model presented that would be helpful to have answered for many photographers (it seemed photographers were the primary audience).

    Does the $200,000 overhead include a salary for the photographer? If so, what is the salary range?

    Is that $200,000 the overhead costs associated with only microstock production? I'd imagine there is a lot of overlap between traditional RF and RM production overhead and microstock production overhead. It would be helpful to know how much overlap there is since it sounds like Microstock production is just one piece of Anderson-Ross’ business.

    Is Anderson-Ross making a profit from their microstock image production? 80 shoot days/yr would cost $298,800 per year given the above figures, resulting in 15,520 images accepted per year. To break even each image on average would have to bring in $19.25 per year. To make a profit it would have to be more than that assuming a photographers salary was figured into the business overhead. It would be even more if it hadn’t. Is Anderson-Ross making $24,900 / month from microstock production for 12 consecutive months? That would be the break even point.

    What is the reasonable shelf life of a microstock image on average?

    Can one reasonably assume you can continue creating and getting accepted, 15,000 + images per year, year after year?

    How does traditional RF and RM image production fit into the business formula at Anderson-Ross?

    Another thought - The biggest problem with the stock photo business from an independent photographers perspective is the lack of any real link between cost of production and prices charged by distributors. The distributors have padded themselves with the lions share of the revenue allowing them to lower prices. Distribution costs are part of the equation in determining pricing but production costs don't factor in at all. It's an unsustainable business model in modern 1st world societies. It's sustainable for a bit longer if you go to 2nd and third world production.

    Perhaps the better business model would be one in which the distributor and producers were one and the same, photographers as employees. Then the production costs would have to be tied to the prices charged. In this current race to the bottom though, nobody will do that until there are no independent photographers left to exploit because they could not be in business at competitive prices while having to charge enough to cover both production and distribution expenses... not to mention any profit margin.

  • Jonathan Ross Posted Jan 12, 2009
    Hi All,

    Great comments from everyone. I'll try to answer them as best as my knowledge will allow.

    Gerald : These kinds of shoots (people smiling to camera) will flood the microstock sites to capacity fast, just like it did in RF. Then the move to more sophisticated shoots starts…and the expenses go up. Eventually microstock will slow the intake of images due to over supply (how many is enough, 5 million, 20 million?).

    Reply : Good point no one knows for sure that is why we did the small R&D testing to check the strength of this emerging market.

    Greg : The real question is will hobby photographers take over the market. Remember, 20 pictures from 3 million people is quite a collection.

    Reply : Again I don't know but not a good enough reason to find out some real stats for cheap.

    Tim : Does the $200,000 overhead include a salary for the photographer? If so, what is the salary range?

    Reply : Well Tim I'm not going to tell you what I make but from what Getty tells us there are only a few that make more so my salary I guess is as good as Stock gets.

    Tim : Is that $200,000 the overhead costs associated with only microstock production?

    Reply : Nope that is our full over head for the year we did 3500 images for Micro at $19.50 dollars each our R&D for Micro was around $64,000 but that is shot cost and overhead so our actual overhead from Micro without models was $2500x16 shoots= $40,000 of our annual overhead. That left us with 64 days of shooting for all our other Brands. I have many agencies I provide to and the 3300 Micro images are just a portion of the 14,0000 images we have in the Macro market.

    Tim : Can one reasonably assume you can continue creating and getting accepted, 15,000 + images per year, year after year?

    Reply : No I don't think I could without burn out but we have never put all our work into one model we are about as divested in the Stock market as we could possibly be. We are owners in two different Macro stock collections and have quite a bit of work at the leading sites. This years focus for the first half is RM.

    Remember guys the photographers did not build Microstock so if you do harbor ill feelings towards this emerging model that is okay I wish it never came along but I also know when standing on a soap box has past it's time. It is the agencies that let this happen. Micro is a multi million dollar business and to test a market that is imerging at such a fast rate I actually think is a good idea. I understand the frustration people are feeling in these changing markets but I also think that if you stop moving forward you are destine to stop moving.
    If there are any questions you would like to ask fell welcome to contact me at jonathan @andersenross.com Remember this was just a test the bulk of our work is in the standard industry but if you want to try this new model I wanted to be able to share what we have learned over our year of following it.

    Best of luck,
    Jonathan


    Best,
    Jonathan

  • Tim Mcguire Posted Jan 13, 2009
    Jonathan,

    Revenue from Getty does not equal Salary. When I write salary I'm talking about the amount you take home with you outside the business of photography. The money you buy your groceries with... motgage, kids education, retirement, vacation, health care, a gift for your spouse...

    Is that covered in your overhead amount of $200,000?

  • Jonathan Ross Posted Jan 13, 2009
    Hi Tim,

    I see my salary as everything above and beyond what goes into running my business that year. From taxes to every expense spent that year. I am sure there are several ways of figuring out my salary maybe you could help me with a better approach than I am using but I would love a reply either way. This is a great chance for me to learn something if it doesn't make sense. I remove all costs from overhead, shoots, taxes, every penny I spend running my company throughout the year. What is left over is my salary. Example. If I produced 1.2 million in revenue in a year and my overhead was 400,000 for every single penny I had to spend to run my business down to the gas, insurance and toiletries, models, studio, contractors and pay my taxes then I would assume my salary is the remainder of the 1.2 or $800,000 minus taxes.
    However I stay on the conservative side of the shelf life of the different stock models from RM, RR or RF. I would actual place my realistic return almost 20% higher to help compensate for the up coming year recession and the drop even further in Stock returns. Can you help me establish a better system.

    Thanks,
    Jonathan

  • Tim Mcguire Posted Jan 13, 2009
    Hi Jonathan,

    I'd say paying yourself for your time and your employees time is an overhead expense for your business. Salary is part of your business overhead.

    My business is incorporated so my business money is completely separate from my personal money. In order to pay me, my business has to write me a monthly check and pay the appropriate taxes etc... actually my business uses a payroll company so all the taxes get paid on time and correctly. This salary comes out of my business account and is deposited into my personal account. My salary is based on what I need to live my life outside of my business. It is my businesses largest expense. It sounds like your business is doing very well as far as cash flow (lots of money coming in every month). What I'm trying to figure out is how much more or less money is going out than is coming in. If there is less going out than coming in then your business is making a profit and is probably healthy. If more is going out (including salary) than is coming in then your business is not making a profit and may not be so healthy. You personally may be doing very well financially because you are paying yourself a nice salary but the health of your business could still be suspect. In the context of this article I was interested in only the inflows and outflows of cash related to microstock production and since you spend 80 shooting days a year on it a good portion of your salary expense would be attributable to your bottom line when assessing whether microstock production is worthwhile or not.

    Look at the Big Three auto makers CEO's. Self employed independent photographers are the CEO's of their companies / their businesses. The auto makers CEO's make many millions of dollars in salary and yet the health of their businesses is very suspect and that business creates cash flow of many billions of dollars. In the auto makers business the salary of the CEO's probably doesn't make a lot of difference in the bottom line of the business because it is relatively small compared to the overall scope of the business (it's more of a perception and PR problem) but in your business and my business, if we look at the finances without including our expenditures for our salaries then we're not getting a clear picture of the health of our business. If our businesses can't afford to pay us, the employees of our business a livable wage then the business will eventually suffer.

    It sounds like your business pretty much breaks even every year because your business pays you a salary based on what's left over. That may be working very well for you but I wouldn't recommend it as a good way of running a business. It works great when times are good but if you're not watching the money carefully and there's a downturn you'll come to the end of the year (or some time in the future) and find you have very little left over or nothing left over. At that point either you personally or your business will have to take the hit. If it's you, then you're working for less or for nothing and if your business takes the hit, your business starts to build debt or can't pay it's bills.

    I personally think I should be paid to work whether it's for myself or for someone else. If it's fun and makes you feel good that is great but in business the goal is long term longevity and without a clear assessment of revenues coming in vs. revenues going out of the business (including salary) then you'll never really know how sound your business operations are. Photography is fun and it does feel great to see your vision come to life up on a billboard or in an advertisement or in a photo essay but when you can't pay your rent / mortgage and collections agencies are calling the fun quickly subsides and you either figure out how to make more revenue to cover costs, how to cut costs, or you just continue, slowly going out of business.

    My business pays me a very modest salary (under $50k) that allows me to live my life and pay my bills. If at years end I have a bunch of money left over I plan and budget for my businesses projected expenses. Sometimes my business will give me a year end bonus based on what my business can afford. Sometimes that is nothing. The point is, pay yourself first. If you can't afford to live a decent life from what you can afford to pay yourself, then IMHO your business is failing and something needs to change.

    Sorry for my long, long, posts. I obviously have a lot on my mind.

    Cheers,

    Tim

  • Jonathan Ross Posted Jan 13, 2009
    Hi Tim,

    Thanks for the feedback this is where everyone gets to learn including me.

    Great explanation! Tim we operate the exact same way. I just don't run the books so I had to go ask the book keeper Amy Andersen my wife. We are also incorporated and I receive a salary and I have a budget for next year ( we stay one year ahead ) and we invest in separate ventures through the help of an investment broker. Everything is paid for but just a small bit on the house to make my broker happy I guess. And the kids college is also covered. I just have to stay in shape now so I don't kick it and let my kids have all the fun. I look forward to seeing you at the ASMP gig just walk up and say hi.

    All the Best,
    Jonathan

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