Role of Product Costs In Negotiations

Posted on 4/28/2017 by Jim Pickerell | Printable Version | Comments (0)

I was talking to a friend today who sells Microsoft’s cloud services to large corporate clients. He helps his customers understand how various aspects of the service can provide them with more efficiency, save them money on in-house storage costs, reduce staff and hardware costs and provide them with greater security and dependability. These tend to be million dollar deals.

Invariably, when he totals up the standard costs for the service the company asks for a discount.

At that point someone at Microsoft headquarters looks at the real costs of maintaining the server farm and providing the service in order to determine how much of a discount the company can give this particular customer. Based on this new number the customer will make a decision as to whether they really need and can afford this new service, or whether they are better off living with what they are doing at a lower out-of-pocket cost.

Microsoft knows what it costs them in hardware, software, staffing and general overhead to provide a particular service. They also know what kind of profit they need to make to keep their investors happy. If it is going to cost them more to provide the service than the customer is willing to pay, then they won’t do the deal. There is a bottom line.

Stock Photo Agencies

Most stock photo agencies deal with their customers in the same way - with one big exception. The stock agencies quote a price and the customer asks for a discount. However, the stock agencies have little idea of the true cost of the product they will be providing.

In the stock photo business there is no fixed cost for the product they supply. Stock agencies know what they have to pay for marketing, staff salaries, and equipment, and the cost to them of the service they are providing, but for THEM the product they are delivering has zero cost. They must pay out 20%, 30% of maybe sometimes 50% of what they receive to the producer, but in real numbers that may have nothing to do with what it cost to produce the photograph.

Regardless of what the customer is willing to pay, all the agency has to do is determine if they can cover their fixed costs after they pay the creator a small percentage of what they receive. If the customer isn’t willing to pay much then the product doesn’t cost them much. Sometimes the product may cost them hundreds of dollars. In other cases, customers may pay pennies for the same product. Neither of these figures has anything to do with the real cost of producing the product.?
Agency’s staff salaries are not reduced when the product sells for a lower price. Office rent stays the same regardless of the prices at which the product is sold. Equipment and supply costs don’t change when they sell their product for lower prices.

If the agency can’t cover its costs, then the answer is to pay the supplier of the product less.

There is no incentive to set a bottom line below which the product will not be sold. Every sale is additional revenue coming into the agency and, in most cases, very little of that goes out to the image creator.

Working on a percentage basis the producer/supplier has no idea how much he/she might earn from the pictures produced. The creator not only has no idea how many times the product might be licensed, but the price of any of those licenses.

Bottom Line

Knowing that there is some bottom line on price is a critical issue for photographers when it comes to managing their businesses.

In the traditional stock photo business there is no guarantee concerning price. That worked when average prices were much higher. It is not working today.

With microstock agencies, at least creators have some idea of the prices and the volume discounts that are offered.

VideoBlocks is the only agency I’m aware of that has established a bottom line for prices. Creators will always receive a certain fixed amount of money whenever an image is licensed. If the customer isn’t willing to pay at least that much then the image will not be licensed. The amount may not be as much as creators would like, but it is a guarantee.

Copyright © 2017 Jim Pickerell. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz

Jim Pickerell is founder of, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to:  


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