Is RPI A Useful Measure?

Posted on 3/7/2008 by Jim Pickerell | Printable Version | Comments (1)

Royalty free shooter Don Farrall argues that return-per-image (RPI) as I have calculated it has weaknesses as a measure of success. Companies offering stock images for sale need to continually provide customers with new material and a greater "depth of choice." But as growth in number of images exceeds growth in revenue, RPI automatically falls. The problem is that older images in the count have less chance of selling and that skews the averages.

In any business one would hope that the rate of increase in supply would match the increase in demand. However, that is impossible to manage in stock photography, particularly when competitors increase their supply and offer a broader base of imagery in an attempt to gain market share. All a falling RPI does is call attention to the fact that supply is exceeding demand.

RPI has little relevance for a distributor but it has relevance for suppliers that pay all production costs. Assuming producers are attempting to turn a profit from their photo businesses, they need some basis for determining what they can afford to spend on production in order to realize a profit, over a reasonable period of time.

Farrall points out that "useful life" is an important consideration in conjunction with RPI and says, "Images become dated, concepts become over used, and some images reach market saturation as the majority of potential buyers for specific images have already purchased the photo. If older images are not thrown out of a collection, then each successive year the collection has a larger percentage of dated, irrelevant and un-saleable images. However, agencies have little incentive to remove already keyworded and uploaded images as they add to the depth of the collection and occasionally sell."

Farrall has found that the vast majority of his income comes from the most recent images produced, despite the fact that he has more than 2,000 images on gettyimages.com produced over a 10- year period. Older images have very little effect on overall revenue.

To determine his sales trends, Farrall only looks at sales from the previous three years production. Sales of older images are considered a bonus. He tracks sales by years and divides gross revenue for images that have been on Getty by the number of years they have been on the site. Then, he divides the resulting sum by the total number of images produced in those three years.

Farrall said, "This is a far more relevant number to me. It tells me what I can expect to earn from new work that I produce. It tells me what I can afford to spend for production. By this method, my RPI has remained surprisingly steady. As I produce new material I am earning the next three years Accounts Receivables.

This strategy should work better for someone with a depth of imagery in a collection and some years of experience, but it doesn't help the novice. It also has weaknesses in that it doesn't account for changes that Getty might make, such as accepting a significant number of competitive images from other suppliers, instituting a tighter editing policy, re-pricing the collection downward, or the impact that the availability of microstock may have on traditional collections in the next three years.

Photographers considering joining Getty and looking for some way to estimate possible earnings may find my figures useful. In addition, contributing photographers can determine if they are doing as well or better than their colleagues. If they are earning more than the average RPI, the only way to grow revenue is probably through greater volume, not better quality images.

Most businesses adjust their production of new product based on demand. There is always hope that demand will grow, so suppliers usually produce a little more than is required by current demand. But, when demand begins to decline, manufacturers cut back on production. Unfortunately, reacting to demand in this way is impossible in the stock photo business, and those hurt the most as the volume of sales declines are the producers who invested in creating new images based on the expectation of growing demand.

Copyright © 2008 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 www.selling-stock.com, 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: http://www.jimpickerell.com/Curriculum-Vitae.aspx.

Comments

Tom Grill Posted Mar 10, 2008
For years now, I have used RPI as a prime tracking indicator of stock photo sales. Many times photographers have told me that they use this indicator but prefer to eliminate their earlier material from consideration because it is too old, because it is not as good as their current material, or because it doesnâ€™t rise to the top of agency search engines, etc., etc. Frankly, I view all of these explanations as delusional excuses. Hereâ€™s why:
Stock photography -- like movies, like books, like plays, like song writing â€“ is a long-term royalty producing business. Sure, royalties diminish over time, but the goal is to produce a body of work that has longevity and will continue to throw off income for as long as possible. We do not manufacture a product that, once sold, needs to be replenished in order to produce further income. We produce a body of work that -- in its entirety â€“ continues to throw off income for years to come, as many years as possible. Does the income from older images diminish over time? Of course. The point is that, in the aggregate, the entire body of material works together to produce an ever-increasing income for the photographer.
I am repeatedly asked what is the longevity of an image, and have always had difficulty giving a straight, simple answer to this question. Reason is, I still have many, many images with Comstock that were produced over twenty years ago that continue to sell briskly â€“ many of them even out-selling new production. That said, there is no doubt, particularly in the internet age, that image sales deteriorate over time. To accommodate the factor into my long term financial royalty planning, this past year I developed a new theory of image longevity, which I call, â€œimage half-lifeâ€.
Image half-life is the period of time it takes an image to fall to a position where it is producing half of its original RPI. One reason I adopted this theory is because most images do not die a sudden death. Many live to a ripe old age (a la my Comstock images already mentioned), which is the ultimate goal of a good stock shooter.
Let me give an example of my theory in action: I have one agency where the images I have with them are earning half of their original RPI after seven years. That means these photos have a seven year half-life. Presumably I could expect their financial return to halve itself again in another seven years, and so on. Let us say, hypothetically, that an image I put with this agency today will earn $10 per month ($120 per year) for the first few years and then drop off to half that amount within seven years. Applying half-life calculation allows me to predict future income from this source. In point of fact, this is really a method of taking several RPIâ€™s into consideration at the same time and averaging them out for an overall picture.
For instance, we have the current RPI. That is $120. We have the half-life RPI. That is $60. We know exactly how many images (call it 2000 per year) we are producing for that agency. We can now calculate how much we will make, using our current rate of production, over a fixed period of time. This allows us to plan for the future and for retirement â€“ NOT for just the present (a mistake made by many stock photographers). That is, if we ceased production after seven years at 14,000 images (at 2000 per year) with an average RPI of $90 (current RPI averaged with half-life RPI) that agency will throw off $1.26million per year diminishing to half that amount in seven years afterwards. This is important planning information for any stock shooter. It tells us quite accurately what income we can expect from that source. It also tells us how many images we would need to produce per year (about 375) just to keep the current annual income steady.
(Keep in mind that numbers used here are hypothetical, although quite practical in my experience.)
Bottom line is that RPI is one of the most important indicators a stock shooter can use in judging success. RPI does vary over time; it does vary from agency to agency; it does vary from photographer to photographer. In other words, it is hugely subjective, but that is the whole point and what makes it so valuable. When used properly and knowledgably, it is the single most important financial planning tool available to a stock photographer.