The cost of sales for a photography studio represents the direct costs of each job. Costs which support these jobs, but are shared among a number of jobs, are accounted for separately on your income statement. Knowing your cost of sales helps you to determine the gross profit you earn from a given job. It is this number, rather than the price of a job, which you should use to study the profitability and value of different jobs and clients.
What goes into cost of sales?
For location shoots, cost of sales will include all of the direct costs of travel to and from the location (whether it is gas, taxi, train, bus, etc.) If you are delivering prints, an album, or framed work, the cost of materials and labor to provide those services should be included. If you hire an assistant or additional photographers on an hourly or project rate for the job, the cost of that additional labor is also part of the cost of sales. However, if you or other employees work on a salary basis, the portion of your time spent on a given job is not considered cost of sales. As this salary would have to be paid regardless of the job happening, it is considered a general operating cost or fixed cost.
What you learn from cost of sales?
By looking at the cost of sales for different types of jobs and different clients as a percentage of the revenue earned for each, you will be able to compare the profitability of each project. Over time you may develop a standard maximum percentages for cost of sales. You should keep an eye on jobs which threaten to rise above this percentage. You can then determine on a case-by-case basis whether it is worth working with that client again, if the project should be priced differently, or if costs can be decreased in the future. Sometimes higher costs should be borne for certain clients because there are non-financial returns to take into account (such as the publicity and reputation you might earn by doing photo shoots for celebrity clients).