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. The 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?

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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.