This article is written for all the wedding photographers who work insane hours editing, shooting, meeting clients, blogging, doing social media, networking and so on so that they can make ends meet. We hope the ideas presented here will help you build a more profitable business.
What is Dynamic Pricing?
If you ever bought a plane ticket, booked a hotel room or rented a car, chances are you experienced dynamic pricing. Instead of charging a fixed price, airlines, car rental companies and hotels employ a variable price that depends on the following variables.
The Three Tier Pricing System
This is the simplest pricing model that can be easily implemented in wedding photography. DP companies often have 3 tiers of prices. A low price (also known as the floor price), for periods of low demand, a high tier (the ceiling price) for the peak season and a mid tier for the rest of the time.
Let’s suppose you are a car rental company with 100 cars in your fleet (of course, most companies have massive car fleets, but please bear with us).
The company can rent its cars for $20/day for a total of $20×100 = $2,000 per day but there is an even better option: dynamic pricing (DP)
If you have use a 3 tier pricing, you will rent 33 cars at $20/day, the next 33 cars at $25xday and the last 34 cars at $30xday and you will make $2,505/day.
A More Sophisticated and More Profitable Tier System
Instead of having 3 tiers, the business can have 10 tiers and the revenue is even higher in this situation.
One of the most important variables dictating the dynamic pricing (let’s call it DP for simplicity) is the % of inventory sold. Various industries call it utilization or occupancy but that is less relevant. What matters is that the more units you sell, the higher the price becomes.
By using a DP model, the car rental company books the first 10 cars at $20 per day, the next 10 cars at $22 per day, the following 10 cars at $24/day and so on.
The revenue per day is determined by the increment ($2 every time 10 cars are sold) and by the fleet size.
In our case, here is
$20×10+$22×10+$24×10+$26×10+$28×10+$30×10 + $32×10+$34×10+$36×10+$38×10=$2,900 (versus $2,000 when using a flat fee and $2,505 when using a 3 tier system.)
As you can see, the company made an extra $900 by using DP.
The Ultimate DP – Fluid Pricing
The most profitable system is when the price rises after each transaction by a defined increment. In other words, after each car sold the company raises prices. However, for wedding photographers this is not a realistic system as it is difficult to implement and requires the ability to receive online bookings and a continuous update of the inventory database.
Time to Expiry Date
Plane seats are perishable. We can say that an empty airplane seat will “expire” when the plane departs.
In general, the longer the period between the booking date and the expiry time, the lower the price. Just think about your trip to the a vacation that you booked 2 years in advance. You definitely took advantage of a low price 2 years before the departure day compared to someone who booked a week before.
If there are many companies on the market and they own a large inventory, the size of the inventory also dictates the prices. For example, in certain years, the large auto makers offer exceptional rebates to car rental companies to “dump” unsold cars. When that is the case, the price of the rental days drops as there is an abundance of vehicles waiting to be rented. Here is an interesting article you might want to read.
A change in weather conditions always impacts pricing. For example, before the 4th of July many Americans rent a car but if the weather forecast calls for rain, quite a few of the clients will change their travel plans. That in effect causes a spike in inventory, which drives prices down.
It is extremely important to keep an eye on your competitors’ prices to avoid customers migration to your colleagues. After all, many brides are very price sensitive and if you are not booking too many weddings, your competitors’ prices might be at fault.
While the costs are not a direct variable determining DP, any business owner should know the costs of operating the company as they dictate the minimum prices charged. It is very important that the floor pricing (your lowest pricing tier) should cover the costs of running the business and ideally, a small profit.
DP for Wedding Photographers
If you are a wedding photographer (this applies for virtually every professional in the industry), your weekends are your perishable inventory. If the car rental company has 100 cars, you have 100 weekend days (technically you have 104, but we will keep it simple.
We know that it is very challenging to shoot 100 weddings but there are photographers in New York City who regularly shoot 80+ weddings a year.
While having 10 different prices is difficult to implement, a 3 tier system is actually very simple.
You can have long weekend prices (National Holidays Prices) – that is your top tier (say $4,000 per wedding)
Your low tier is the price you are charging during periods of low demand (say $2,000 per wedding).
Finally, the mid tier is somewhere in between (for example $3,000 per wedding.)
Many venues have winter and summer weddings, Friday, Saturday or Sunday weddings and so on. Slowly, dynamic pricing is entering our industry and we are hoping it will become the norm soon. That will allow you not only to capture beautiful images, but also a higher share of wallet during periods of high demand.
It is our intent to educate the photo professionals and couples about the importance of maintaining a profitable industry where the artists receive, besides thank you notes, the right price for their beautiful photos and outstanding skills.
We believe that dynamic pricing is a great system for wedding photographers, especially in large metropolitan areas with many competitors and couples getting married. In those areas, the market is very closed to what the economists call a “perfect market” where nobody enjoys market power (either the clients, or the professional).
We would like to thank our guest writer Calin (www.bycalin.com) for his contribution to this article.
How to Reap Higher Profits With Dynamic Pricing, by Arvind Sahay, Sloan Review, July 1, 2007