Tuesday, March 27, 2018

Figuring The Income From An Illustration Business

The income stream of an illustration business is the amount of money received for work produced. However this does not necessarily translate into personal income. Personal income is based on the profit the business will generate.
© 2013 Don Arday.
Profit (or loss) is based on the juxtaposition of the operating expenses of the business to the income the business generates through the work it provides. Put in the simplest terms, if a business has $20,000 per year in operating costs, and the income earned from illustration commissions adds up to $30,000, then the business has made $10,000 in profit. The personal income generated by the business is whatever profit is achieved, in this case $10,000. This may or may not be what is required or desired by the owner, especially if a thorough financial model was lacking at the outset of doing business.

Studio Operating Expenses

The operating expenses model below has been provided to serve as a practical example of typical operating expenses for an illustration studio. In this case, the model is based upon an in-home studio, so certain expenses, such as rent, utilities, and liability insurance, are shared expenses with the household, and are prorated accordingly.

For a complete definition of each of the expense categories refer to The Informed Illustrator article at: http://www.theinformedillustrator.com/2016/10/figuring-cost-of-starting-illustration.html

Studio Operating Expenses Model


Expense Category
Cost Basis/Monthly or %
Yearly Amount



Office/Studio Rent
$350/25% of $1400 Mortgage
$4200
Utilities
$65/25% of  $260 Home Utility
$780
Phone
$40/50% business usage
$960
Internet
$30/100% usage
$360
Advertising/Promotion
$750
$750
Equipment
$4200
$4200
Business Supplies
$55/month
$660
Resale Supplies
$45/month
$540
Dues/Subscriptions
$15/month
$180
Postage/Delivery
$67
$67
Transportation
2000 miles/54.5 cents per mile
$1090
Professional Services
$440
$440
Health Insurance
$255/month
$3060
Liability Insurance
$21.25/25% of  $85 Home Ins.
$255



Total Amount

$17,542
Note 1: The transportation cost figure is based on the 2018 Internal Revenue Service Mileage Reimbursement calculation. The health insurance cost figure is based on data provided by E Health Insurance. The liability insurance figure is based on average homeowners insurance rates provided by Home Insurance Co.
Note 2: This operating expense model does not take associated expenses into consideration such as student loans.

Determining Income

Using the cost figures from the above model the first and easiest thing will be to figure what the studio owner/illustrator must do to break even. This is also known as the cost of doing business (CODB). The illustrator must receive at least $17,542 to equal the CODB. Now this is where it gets interesting. The illustrator can complete 17 + $1000 editorial commissions, or 7+ varied market illustration commissions of $2500, or any combination of streams of illustration income. In terns of hourly effort, at a rate of $30 per hour, the illustrator must work 585+ billable hours to reach the $17,542. Now this may appear to be quite frightening, but it only equates to working 12+ hours a week for 48 weeks, leaving 4 weeks for vacation.

Now lets say that the illustrator/studio owner wants a salary/profit of $40,000 at $30 per hour, which includes the $17,542 in operating expenses. That would require them to work a 40-hour work week for 48 weeks. So, if they could guarantee a steady flow of work, they could achieve their salary goal. This example could be an acceptable income for a young illustrator.

With that said, there are many illustrators that run their business with operating expenses between $20,000 and $30,000. Most use a fixed price structure for their commissions, rather than one that is hourly based. However, by using an hourly rate basis to calculate earnings, rather than a fixed price one, an illustrator can tell how many hours per week are needed for them to meet their goal. Just for the sake of expanding upon the above examples, here are some other financial projections based on a variety of possibilities and situations.

Income Projection Table


Income Basis/Variable
Business Costs
Yearly Earnings


Minus Costs
Hourly Basis


$40 hourly rate/35 hour week/48 weeks
$17,542
$49,658
$40 hourly rate/40 hour week/48 weeks
$17,542
$59,258
$50 hourly rate/35 hour week/48 weeks
$17,542
$66,548
$50 hourly rate/40 hour week/48 weeks
$17,542
$78,458
$40 hourly rate/40 hour week/48 weeks
$31,313
$45,487
$40 hourly rate/35 hour week/48 weeks
$12,121
$55,079
Fixed Job Price Basis


3 commissions per month/$1500 average
$17,542
$36,458
4 commissions per month/$1200 average
$17,542
$40,058
4 commissions per month/$1500 average
$17,542
$54,458
4 commissions per month/$2000 average
$17,542
$78,745
6 commissions per month/$750 average
$12,121
$41,879
4 commissions per month/$500 average
$4,121
$19,879
Disclaimer: The above table is for the purposes of illustrating income potential. It represents a very limited number of possibilities. Depending on the nature of an illustration business, some of the income examples will be more pertinent, while others will not.

Income Tax

Now enters the IRS. A hard pill to swallow, and something no one accept accountants like to think about, taxes should be considered when taking a comprehensive look at income. Taxes are paid based on net income, i.e., the income that is left after operating expenses is accounted for. For the sake of again providing a simple example, if $30,000 was earned, and $20,000 went to expenses, this would leave $10,000 in profit. The $30,000 is the “gross” income, and the $10,000 is the net income. So for a single filing self-employed person, taxes would be paid based on the net income as follows: $10,000 @15% income tax and $10,000 @ 12.4% social security tax. In real dollars this would translate to true after tax income of $7260.

Income Tax Rates

Single Filing Status 2018 Rates
10% on taxable income from $0 to $9,525
12% on taxable income over $9,525 to $38,700
22% on taxable income over $38,700 to $82,500
24% on taxable income over $82,500 to $157,500
32% on taxable income over $157,500to $200,000
35% on taxable income over $200,000 to $500,000
37% on taxable income over $500,000.

Married Filing Jointly Status 2018 Rates
10% on taxable income from $0 to $19,050, plus
12% on taxable income over $19,050 to $77,400
22% on taxable income over $77,400 to $165,000
24% on taxable income over $165,000 to $315,000
32% on taxable income over $315,000 to $400,000
35% on taxable income over $400,000 to $600,000
337% on taxable income over $600,000

Social Security Tax Rates

Self-Employed Persons 
12.4% of net self-employment income, up to $128,700.
The Social Security tax rate had been temporarily reduced for the years 2011 and 2012, in what was referred to as a payroll tax holiday. For these two years, the self-employed persons also received the same reduction from 12.4% to 10.4%.

Employed Persons
6.2% of wage earnings, employees portion, up to the maximum wage base of $113,700. The employer then matches the 6.2% employee contribution of wage earnings, up to the maximum wage base of $113,700. This equates to a 12.4% total Social Security contribution.




Thursday, November 30, 2017

The Stigma of Style

Perhaps the biggest debate in the illustration field is over the importance of having a style. Strangely enough, the real question doesn’t concern whether an illustrator has a style or not, but whether an illustrator has an individual style. That all illustrators have a style is without a doubt. Even whether they have their own individual style is also without question. After all, every illustrator is an individual artist. However, the questions are: Is one illustrator’s individual style like other illustrator’s individual style? And, what exactly constitutes a “style”?

Lets explore the latter question first. The following is an abridged amalgamation of definitions according to several dictionaries for style and several synonyms. It is abridged for the purpose of sticking to those aspects that relate to illustration and the visual arts as the word has a number of definitions that pertain to a variety of uses since style is both a noun and a transitive verb.

Definitions

Style
1. The combination of distinctive features of artistic expression, execution, or performance as characterizing a particular person, group, school, or era.
2. A quality of imagination and individuality expressed in one's actions and tastes.
3. A particular mode or technique by which something is done, created, performed or expressed.
4. A fashion of the moment.
5. A distinctive quality, form, or type of something.

Mode
1. A particular form or variety of something.
2. A possible, customary, or preferred way of doing something.
3. Form, arrangement, or condition.
4. A particular form or manifestation of an underlying structure or substance.
5. A distinctive or peculiar and often habitual manner or way.

Manner
1. Method of artistic execution or presentation.
2. A body of skills or techniques.
3. A kind or sort.

Method                                                                                 
1. Way, technique, or process of or for doing something.
2. A body of skills or techniques.
3. The quality of being well organized and systematic in thought or action.

Form  
1. The visible shape or configuration of something.
2. Established method of expression.
3. Manner of coordinating elements of an artistic production.
4. Arrangement in an artistic work as distinct from its content.

Modifying Terms
Fashion, buzz, chic, craze, dernier cri, enthusiasm, fad, flavor, rage, sensation, trend, vogue.

As you have read the definitions above of style and those of its derivative words, I’m sure you reflected upon those aspects that might align with the opinion you have regarding your own illustration. If you did, you might have overlooked the fact that the majority of the definitions apply both to an individual as well as a group. It is indeed possible for a group to have an individual indivisible style. In the art world this is called a “school” e.g., the Pre-Raphaelite school of painting, even though it isn’t a school of instruction. In the illustration field a school is more of a way of looking at a variety of illustrated works that share a common trait. And sometimes that school is summed up under the identity of a single prominent illustrator, e.g., for Maxfield Parrish it’s the Magic Realism school or for Shepard Fairey, the Guerrilla Pop school. These designations were determined after the fact, i.e., after the work was created and disseminated. It was most likely not the intention of either artist to deliberately invent a style. And in both cases it came about by way of a volume of work executed over an extended period of time.

It takes a while to achieve or be recognized for a style. Many young illustrators who feel they don’t have one, are tormented by the stigma of having their work quickly reveal a unique style. For those that are at the beginning of their career, this can come down to having to formalize a style in the first 20 illustrations they’ve ever been assigned. The important thing is for an illustrator to just do what they do, like Maxfield Parrish and Shepard Fairey.

Magic Realism School


Illustration by Maxfield Parrish.
Illustration by Christiaan Bos.
Illustration by Hernan Valdovinos.
Illustration by Arlene Graston.
Illustration by Michael Park.
Illustration by Tomek Setowski.

Guerrilla Pop School


Illustration by Shepard Fairey.
Illustration by Joey Machete.
Illustration by Rigel Stuhmiller.
Illustration by Greg Bunbury.
Illustration by Tyler Stout.


Conclusion



Simply put, illustration, like any other commercial enterprise, boils down to economics and marketing. In fact, it’s basic marketing 101. As illustrators, we either produce a product, or provide a service. And, in order for our product or service to be distributed, we must market it, or in the case of providing a service, market ourselves. Illustrators must produce a product or offer a service, make the market aware of it, have it be identifiable, create a desire for it, deliver it, and meet the expectations of the customer/client. In other words apply marketing theory. Style, although it can be important, is only one among several other traits needed to achieve economic success as a professional illustrator.