We are currently getting a lot of questions about refunding clients due to wedding cancellations. Can you keep incurred costs? We have a guest blog today, from photographer and business coach Andrew Miller. He explains how to calculate your costs of doing business (CODB) so you can ensure you are not refunding more than you need to. We asked Andrew to share his views about this hot topic for wedding suppliers.
First off, your CODB are the total costs associated with running your business. Everything it costs you to deliver a full and final service to your clients. It is an essential aspect of running your business or even to start thinking about setting up a business. You should not ignore this.
The costs associated with a business are many and varied and will depend on what type of business you run, how well regulated your industry is (or isn’t) plus many more. The lower a business overall costs, the more profitable the business can be and the easier it is to run a business.
Examples of COBD
- Rent/ Mortgage
- Fixed-rate utilities
- Business insurance
- Website (hosting, domain names, developer fees)
- Accounting fees
- Vehicular costs (insurance, MoT, fuel etc
- Food/ alcohol/ soft drinks
- Paper/ Card/Ink
- Tax/ National insurance
- Wedding albums
- Variable-rate utilities
- Tax / National Insurance
- USB memory boxes
- Continuous Professional Development (CPD)
- Professional Fees
- Marketing / Advertising
- Coaching / Mentoring
- Virtual assistant / Staff wages
- Travel, accommodation
Note, again, that these costs are dependent on your business type and are shouldn’t be used as a definitive guide for all business. A hotel, for instance, may include food and alcohol as costs whereas a marketing consultant wouldn’t. The important thing is to list out ALL your costs.
Next Step – Add Them Together
Next you add of these costs together – it’s easier to do this on a spreadsheet of some kind. Whatever figure you get, however high, is your Costs of Doing Business, your CODB. You can work out an average CODB per client by dividing CODB by the number of clients you want to service.
Now, the awkward part. We are now going to look at that list and split it into two columns. One column for Total Fixed Costs and one column for Total Variable Costs.
Fixed VS Variable Costs
A fixed cost is any cost you have to pay regardless of whether you make money or not. A fixed cost won’t change in amount regardless of how much work/business you do. A variable cost on the other hand is any cost that changes with the amount of work/business you do. The more you work, the higher your variable costs will be.
Fixed Costs Examples
- Business Insurance
- Website Fees
Variable Costs Examples
- Paper / Ink
- Wedding Albums
- Part Time Staff Wages
- Variable Rate Utilities
Pre Covid-19 Wedding Deposits & CODB
Small business would base their booking fees / deposits based on the CODB. Let’s look at Llanvair Castle (fictional wedding venue company) as an example.
e.g. Llanvair Castle has fixed costs of £100,000 and variable costs of £75,000 giving a CODB of
£175,000 and wants to host 75 weddings a year.
Average CODB per client = £175,000 / 75 = £2,333
It’s safe, therefore, to assume a booking fee / deposit of £2,333 and is an acceptable amount to charge.
Post Covid-19 Refunds & CODB
Your clients are requesting full 100% refunds and using the information provided by Competition & Marketing Authority (CMA) and Martin Lewis as the basis for that. However, the law isn’t that clear cut. The legislation allows for a business to keep back the costs of servicing the contract up to the date of cancellation, and it always has done. Advice by the CMA and Martin Lewis do not change the law as it stands. Only Parliament and the Judiciary can do that.
If you cancel the contract, the business is generally only entitled to keep or receive an amount sufficient to cover their actual losses that directly result from your cancellation (eg costs already incurred or loss of profit). See the Government guide here.
Notice the phrase ‘actual losses’ – The wedding venue example above has used variable costs in setting the booking fee amount. However, those variable costs have not materialised UNLESS you have carried out part of the service. So Llanvair Castle may have carried out menu tasting sessions, that could be claimed back, as this is part of the service.
What Can We Do When A Client Demands A Refund?
Easy. We re-calculate our booking fee based on our Fixed CODB only.
Llanvair Castle has Fixed Costs of £100,000
Therefore £100,000 / 75 = £1,333
The initial deposit was £2,333 so we subtract the Fixed Cost amount from the initial deposit to give us £1,000 which we refund back to the client.
The £1,333 is what it takes to secure the booking in the first place and covers all the costs associated with keeping the business viable. Without the castle being there, without a reception, front of house staff, bedrooms, function suite that needs maintaining, we wouldn’t have a business and it is safe to assume the client wouldn’t have come to us.
Proportionality & Reasonableness
If the client refuses to accept the offered amount and insists on going to court, then in my opinion, you have two options:
1. Refund 100% in full to save the stress, with the added complication of perhaps your business not being viable to survive the current pandemic.
2. Offer the refund and contact Stanford Gould to help you with any possible legal action arising as a result.
In my considered opinion, the courts will pass judgement based on proportionality and reasonableness and a fair interpretation of the law as it stands. So, if we stay on the side of proportionality and reasonableness, and add in some outstanding customer service we should be ok.
Winning The PR Battle
You need to win the PR battle before the war actually starts. It’s about winning hearts, minds and wallets or purses. Communicate constantly with your client base. Set out in emails or blogs what your process, policies and procedures are for moving dates, postponing dates or outright cancellation. Set the expectation that you will be keeping an amount from any deposit based on your costs.
If you act reasonably, with decorum, with empathy, are realistic in your fixed costs etc it will look much better IF the couple decides to take you to court.
If you want any extra information on working your CODB in particular, or business coaching in general, please contact Andrew Miller
Andrew has been self-employed for nearly 18 years and running a full-time wedding photography business for 14 years as well as a boutique management development consultancy. He specialises in business coaching for wedding photographers, wedding videographers, and others involved in the wedding and creative industries. He nurtures and coaches newly formed small business on behalf of the Welsh Government and its Business Wales initiative. Andrew holds a master’s degree level qualification in coaching & mentoring as well as several qualifications around the use of psychometric assessments which he uses to help change his clients world views and become better business people. He’s a lover of Jaffa Cakes and Bearded Collie dogs, of which he has two, and is the author of a self-published book on running a wedding photography business “How Much is Enough.”