Wednesday, July 25, 2007

Artist and Gallery: the risk/reward equation

Dahlias #1
9" x 12", pen and pigment black ink on Arches Hot Press

copyright Katherine Tyrrell

Robert Genn recently wrote about the use of 'rent a wall' galleries and the Agora Gallery in New York in particular. He discussed the option of being hung in a standard gallery which takes work on consignment and has no up front fees as opposed to one in which you rent the wall space and/or do pay an up front fee - in galleries like the Agora. His Painters Keys site has the clickback which presents (1) his original letter and (2) readers responses. It makes interesting reading.

Jackie Simmonds is one of those who commented. She highlighted one aspect of the nature of the financial equation between gallery and artist.
I recently spoke to an artist who had a successful show. He told me he had sold approximately $100,000 worth of paintings. Terrific, I said, you must have filled the coffers a little. He laughed. He said that in fact, he earned less than 50% (because there is also VAT tax to pay here). Then, he had a massive framing bill. He had to pay a large sum towards the cost of the invitations. He had to offset the cost of the trips he took to gather reference material for the paintings. In the end, his net profit was in the region of about $25,000 - and it had taken him a year to paint those works. The gallery earned $50,000 FOR ONE WEEK'S WORK.
(Jackie Simmonds, Robert Genn "Throw it in water")
Here's the other side of the fence and another (long run) perspective - an art dealer who sets out how a reputable and hard-working galleries invest their time and money. Thanks to Marion at painting.com for alerting me to The Logic behind the 50/50 split on Edward Winkelman's blog. It's a long read (and I recommend reading the comments as well) but it certainly sets down some markers for why a gallery might be justified in expecting the risk/reward equation to remunerate them in an adequate way.

Now I'm no expert on the risk/reward equation for both artists and galleries. However I find it's always interesting to look at selling art in the context of commodity retail sales generally - which mostly seem to divide into one of two categories - with characteristics broadly as set out below:

High volume/low price (eg food) sale between manufacturer and end-user transacted by third party - the shop
  • stock: dealer buys in all stock at their own risk; decisions related to purchasing and pricing wholesale stock are critical to the profit margin realised (eg turnover/stock price paid/stock price sold); no returns;
  • pricing: influenced by
    • dealer bears all the costs of trading base and factors this this into sale prices
    • risk - dealer has to discount and/or dispose of all unsold stock at or above cost price or bear a loss.
    • reward - all profits go to the dealer.
  • trader 'mark-up' and profit margin influenced by:
    • very low margins on staple goods where competition exists; higher margins only where supply or competition is more limited.
    • dealer tends to gets repeat buys and builds custom by offering people what they want (or aspire to) at a price they can afford - hence knowing what the customer wants (or might want) is critical
    • Profitability can also be influenced by the general state of the economy. Staple goods tend to have fewer fluctuations in demand compared to those which are only purchased when buyers are feeling 'well off'.
Low volume/high price (eg houses) sale between owner and buyer transacted with aid of a third party - the dealer/auction house
  • stock: owner places commodity with a dealer service (eg estate agent; auction houses) who is typically remunerated for achieving a sale by way of fee (as a percentage of the sale value) - no sale/no fee or commission. Dealer at no stage owns the commodity
  • owner's selling costs:
    • agreed dealer fee / commission
    • plus owner may reimburse dealer for upfront and one-off costs particular to sale processes (eg advertising) irrespective of whether a sale if achieved;
  • owner's sale price:
    • set by owner - advised by dealer
    • may be open to negotiation or subject to auction;
    • cash from sale price agreed - less fees - goes to seller
  • Trader 'mark-up' and profit margin: exact percentage fee based on value dictated by
    • what sort of commodity/market the seller is operating in (eg is there a prevailing fixed fee percentage?)
    • and/or how much competition there is to provide a dealer/auction service
    • and/or how hard the dealer works to sell the commodity
    • and/or how good the reputation of the dealer is for being able to achieve a sale
    • hence dealer profts tend to be realised by increasing sales or reducing costs (and dealers are vulnerable to lack of sales)
  • Dealer's profitability influenced by:
    • word of mouth - can influence the extent of repeat business (ie did the dealer get the seller the sale price they wanted at the time they wanted?)
    • macro-economic conditions - both nationally and locally )ie factors which are very difficult for dealers to influence or change)
Artists and Art Galleries

Contrast the above with the situation for artists in relation to different kinds of art galleries.

Standard galleries: The sale between artist and buyer is transacted with the help of gallery acting as a third party. T
he gallery's customer is the buyer - but the gallery also recognises the importance of keeping artists who sell well happy
  • stock:
    • gallery takes stock on consignment ie "sale or return" basis, no money exchanges hands between artist and gallery
    • in areas of low sales, a gallery may reduce risk/increase reward by mixing art with other types of stock (eg frameshop / prints / antiques / gifts)
  • price of art:
    • artist can set an "artist's price" (ie gallery can determine actual marked sale price but must pay artist the artist's price)
    • gallery may advise on sale price
  • gallery mark-up/profit margin:
    • typically gallery charges around 50% commission on all sales plus any costs associated with marketing and sale may also be borne by the artist (varies between galleries) and pays balance to the artist;
    • failure to sell means no income to offset a gallery's fixed costs
  • dealer's profitability influenced by:
    • prevailing macro-sconomic conditions (art is NOT a staple good!)
    • the ratio of fixed and variable costs to turnover (ie how vulnerable is a gallery to a drop in sales or an artist whose work doesn't sell straight away)
    • product mix (eg if they sell more than just art)
    • decisions (ie which artists to show) are critical to generating sales
    • galleries like artists who can help a gallery generate good sales/income due to:
      • a good track record of previous sales (value)
      • an extensive mailing list - which the gallery can use for private views etc
      • resources to put into effective marketing on their own account
Galleries for rent: The sale between artist and buyer transacted with the aid of a third party providing wall space or acting as a representative - for an upfront fee. It can be very unclear where the gallery's real customer base actually lies.
  • stock:
    • artist's works is not taken on consignment
    • stock could be viewed as the number of artists on the books as it is their upfront fee which helps pay the rent!
  • price of art: determined by the artist
  • gallery profitability: determined by
    • price paid to rent wall space or up-front payment for representation
    • no. of people who want representation/wall space
    • (optional) percentage commission taken on sales
    • the ratio of fixed costs (eg building) and variable costs (eg marketing) relative to income derived from artists' fees
  • such galleries like artists who want an exhibition and are willing to pay.
Logic suggests that a gallery will always want artists with a dedicated following to justify upfront investment in marketing and make a good contribution towards their overheads. Artists need galleries with good reputations to get in front of audiences who are used to investing in art. Profitable galleries can afford to 'take a punt' on new artists but will tend to cut their losses and limit their imvestment quickly if no sales emerge.

So - is the situation black and white if you are an artist (or a gallery) - or are there lots of shades of grey? Do galleries really earn their commission - or is it far too high? In a commercial situation, who can afford to ignore what sells and where the real profit lies?

________________________________________________

Note "Dahlias #1": My drawing of Dahlias was done using the Blackadder technique of deciding where to place a flower on the page one at a time. I discovered that the best way of doing this was to have a dahlia stem inserted into a wine bottle which was placed just next to my drawing block of Arches HP and below - so that the flower was at about the same eye level as the drawing block. I could then twizzle it around to get different profiles. The interesting part then came in choosing placements and working out overlaps - and the fact that you can draw the same flower or bud from different angles. There is no particular focal point - it's just a pattern of lines in pen and ink which resolve into dahlia blooms and buds.

12 comments:

Elio said...

As always wonderful post.

Being in 13 galleries (not in New York) I feel like I have some information to offer in this discussion.

What I have heard from gallery owners who have worked and work in the New York market.

1. Standard split 70/30…70 for the gallery but consider that your prices are marked considerably higher then a normal market. Actually most of the artists I have spoken to claim they actually net more in New York Shows.

2. A large portion of the show is presold before it is ever hung. One gallery owner told me a really good gallery in a good market may have a mailing list of say 10,000 people. A good gallery in New York has a mailing list of 250,000.

3. They pay for everything. Promotional, ads, fliers…you name it they cover it under their 70%.

By New York standards then I guess the justification is they ARE taking a lower commission 50/50 while making the artist pay for all the promotional material and wall space. What’s shocking is he didn’t sell a single piece.

My history with galleries…

I believe galleries earn every bit of their split simply because they assume all the risk…

1. If a gallery takes 20 of your paintings and uses 20% of their wall space that’s 20% of their real estate. If you don’t sell they need to make it up somewhere else.

2. If they can’t pay the rent then you get your paintings back while they lose everything.

3. Galleries normally pay for all advertising unless a split is agreed upon ahead of time.

4. They assume all responsibility if the work is stolen or damaged.

5. If a painting is purchased and the check bounces the artist still gets paid.

6. The gallery pays for the return shipping on all unsold pieces.

Lastly, the split is not written in stone. Normally if you are starting out the split is 50/50 because the gallery assumes you are not going to sell well. As you become well known and you have sales history then splits can easily be renegotiated. Some very well known artists I know whose works sell for very high prices have negotiated 80/20 splits with galleries because the galleries KNOW the work will sell.

Hope this helps.

Katherine said...

Thanks Elio - very helpful indeed!

Robyn said...

Dahlias are beautiful, Katherine. They have terrific dimension and lots of interesting negative space. I'm hoping since this is #1, to see more Dahlias. I'm also impatient for the arrival of my Blackadder Master Class book.

Belinda Del Pesco said...

Great post, as always, and wonderful ink drawing. The dahlias are waltzing on the paper, and your description of the single bud in a bottle was great inspiration to try this with a number of things. I agree with Robyn, I hope you do a whole series of dahlias. Looking forward to the next post...

Martin said...

There is no justification of a 30/70 split in favour for the gallery no matter how long the mailing list or how expensive their location is. Also public places are charging artists for exhibiting, whereas in the "old days" galleries, private and public, would pay an exhibition fee.
Very sound market research in the UK has found out that collectors by far prefer to buy directly from the artist, on second place are public exhibits and only then with a lot of distance private galleries follow. The least preference has internet yet, but the combination of the last and first is the area where artists may find their way in future.

Martin

Katherine said...

Martin - Can you quote the source for the research in the UK so we can read more about this?

Martin said...

Hi Katherine,
believe it or not I found the url:
on newaudiences.org.uk
On the right side of the page you can download the chapters.

Katherine said...

Great stuff - thanks Martin - I'm off to have a read! It's looking rather like I'll be blogging about this judging by the Table of contents

Elio said...

I may go into detail more on this in a later post but for now my two cents. I think many artists miss the big picture with what galleries can offer. Galleries are no different then movie studios, record labels, and other. They all get their cut. It is not about that ONE show and losing 70%. It is about the exposure that one show will bring you.
Sure any collector would prefer to buy direct because he believes that he is getting a better deal. But what price do you pay as an artist. The only resource an artist cannot get back is TIME. Having dinner, lunch, and delivering paintings to collectors takes time. Time you could be creating and/or getting better.
Here is an excerpt from the Pollack movie I thought was interesting.
-Peggy will give you a stipend of $ a month.

-"If at year's end the artist does not sell equivalent to the advance...
-plus one-third commission, he will make up the difference in paintings."

-In other words, my dears...if you don't sell $ worth, Peggy owns all the -work. So sell.

Now I don’t know if Pollock was actually in this situation but here is an example of how important a gallery can be. The gallery paid his expenses till the show and receives an additional one-third commission of what sold.

Many artists might balk at the idea that if the paintings don’t sell they now belong to the gallery owner for her expenses.

Another way to look at it is for X period of time you can be alone to paint. The single greatest benefit of an artist/gallery relationship is that the artist can paint. For this, I would gladly give them their share.

Katherine said...

With that sort of arrangement, another way of looking at it is that if you don't generate sales which are equivalent to the advance then at least you don't have to
(1) repay the finance as money - as happens to musicians would have to do re record contracts advances
(2) or make life very difficult for yourself in terms of getting a second book deal as would happen to authors

Elio said...

It is a risk but sometimes you need to take great risks to achieve greater gains.

Choosing the right path to success is always a dimly lit path with many choices and crossroads.

In the end, we all choose what makes us comfortable.

As always Katherine I enjoy reading your blog and thanks for allowing me to share my thoughts.

Katherine said...

Thanks Elio for some very thought-provoking and helpful comments.

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