Questions about my market
 

I'm looking to enter the video/audio/web production business with several colleagues. Each of us are fairly good at what we do. (that's speaking relatively though) (Some specifically in video, some specifically great at audio, and others dedicated to graphic design/webdesign)

I read and searched the forum and discovered how much a min I/we should charge. How can I determine what the current price is for the area? No one of course lists their prices on the internet, so market research is going slow. (needed for the marketing plan section of our business plan)

To get a quote from any company usually requires meeting face to face or a phone call describing projects in detail (and of course lying about it)

I want to do this properly and not become another fly by night video company that comes and goes in this town.

Metro Area: Tampa Bay

Any advice is welcome!

If you're even thinking of pricing by the finished minute then you need to examine some basic video business models. Charge by hour, half day, day. Make bids based on time and resources needed.

Cost of living in your market is a good place to start. Figure out all your living and business expenses. You need to make that and more on a 20-25 hour paid work week (expecting to do lots of unpaid business work such as marketing, accounting, gear maintenance, learning and improving your skills.

Using those calculations, we'd need to charge a base rate of $39 per hour give or take.

What I'm trying to find out is what the current competitors charge so I don't under charge to devalue our services nor overcharge for what our skills currently our in our career.

Do you suggest just rolling with our base rate and expanding on that depending on the project?

$39 x 25 hours per week = $975 per week

I don't think that's a good target gross at all.

You'll need to buy/rent/upgrade gear, buy insurance, hire assistants, pay for advertising (business cards, websites, etcetera), buy gas, and a million other little things that add up like paper, batteries, tape, ink, pens, appropriate attire, dry cleaning bills... Also, there are slow weeks. It takes money to jump into this world full time, and that means you'll need a steady flow of business immediately. On top of that, you'll still need health insurance and enough left over to sock away and invest for retirement...and don't forget to keep enough to pay your taxes at the end of the year.

Here's my two cents...ease into it and grow your business while you keep some kind of regular job. As your video business increases, keep careful account of your yearly net income and hourly profit. If at some point you do well enough that it warrants leaving your regular job and going full time with video, it will become apparent in the numbers.

I wish you the best and hope you succeed with minimal risk.

Alec Moreno
http://www.1Day1ShotProductions.com

But how does one 'ease' into it. As we all know, video equipment starts out at the 1000's of dollars (typically 5k for a decent camera and support gear.)

The reason I came to the base of $39/hr is for editing purposes and other tasks we can accomplish from home. On location filming would be 1.25 times as much, and with lighting it would be 1.5times as much. We don't have a building / studio rent, so our overall overhead is low.

Right now all of my team holds down full time jobs so until we start get an consistent flow of clients, we're keeping this as a part time gig.

Thanks again for the insight!

Sean I think you have the right idea. One can't attest to the number you arrived at but do include EVERYTHING Alec mentions. ALL personal and business expenses need to be included.

It's hard to ease into it unless one has another part time job with flexible hours. You have to accommodate clients who want to book at specific times and you either accommodate them or lose that work. Each client may be a potential repeat client (and those are the best kind because the minimize marketing time/expense over the long haul) and once you can't accommodate, they go elsewhere.

HOLD to your base rate. Only parts to the "profit margin" is negotiable.

It's very hard to make rate comparisons between companies even in the same area. Keep in mind though you're all living in the same market with similar base expenses but a company paying for office space may have higher overhead than someone working from home office for example. You do not know if someone else has a sound business plan and their rates may be too low. They may have other situations that may increase or decrease their rate that may not be obvious to you. You need YOUR plan based on YOUR expenses. You can't even judge on comparable quality because even if one believes it to be comparable there may be less obvious areas of expertise and niche client base influencing that rate.

In regards to my personal / business expenses... knock on wood, my expenses are kept pretty low, but I'll keep re-evaluating my expenses on a quarterly basis to make sure I'm not undercutting myself.

Luckily, my current full time job is overnights, so that allows me most days to do anything I need 7 days a week.

Thank you again Craig for providing me some more input.

So you're home is not a building or studio space?

Keep in mind the area in your home used exclusively for video work is "office" as well as the portion of utilities you use. While your housing costs don't change you can certainly see an increase in your utility bills. You should consider to what extent you want to make your place suitable for clients to come for meetings, supervised editing and even a small shoot area (even if it's just a corner with a nice cloth backdrop and a small light kit).

Sean, as you can tell there is not right answer to this question.

The only problem I have with expensing your rates down to weekly needs is that a video/photo business is not 9-5 like normal businesses. It just is not that steady.

Saying you need $1,000 week is one thing, getting $1,000 a week, every week is another.

If you have a slow week does that mean you need to charge $2,000 the next week to make up? I just don't think of it that way.

I/we don't know your equipment or expertise to give you any numbers for your situation.

Somebody who owns a RED camera setup is most often going to charge more than sombody who owns a VX-2000. Same goes with experience (I hope!).

The only words I can offer would be to price your services so you do not get hurt and go from there building clients, equipment and experience.

Only you know what you are willing to work for and what it will take to look people into the eye and give a price.

When I say look them in the eye I mean if you are not 100% behind a price/rate you won't sell it as stong.

It is your business practice and for all intensive purposes, opinions from the internet while often worthwhile, are just opinions. You have to live with the situation.

Tim, the 20-25 hour a week formula is pretty standard business model. The mistake is to base it on a 40 hour week. Even a newbie wedding video person can book 2 weddings a month and given a wedding can typically take a full week (40-50 hours) to edit that averages to 20-25 hours a week. Some weeks more, some weeks less.

Of course no one can predict for certain but that's what doing a business plan and a model is all about. It's coming up with an estimate and one may revise as time progresses. As I've noted GEAR is part of the model as it's a business expense to purchase, maintain, accessorize, update. Talent is a big parent in determining profit margin. Generally as one gains skills and talent you can charge more. A fundamental in any business model must include survival of the business which means meeting the expenses (including your own food, housing, etc . . . you can't work very well if you're hungry and homeless).

The typical way to estimate this in a business plan is weekly. Certainly one can do it monthly as well but the numbers are easier to grasp when people view what a typical work week may be. One often becomes aware more quickly if you're off target in your plan using a week as a model. One may well experience an arch in which one may be below target in the early stages growing into meeting or even exceeding that target, but one must have a target to measure against and one must have some method to calculate how one is doing relative to the target.

Craig,

I never said your method was wrong. It makes a lot of sense.

From my point of view, the business is job to job and they vary wildly.

Once you set your rates (and using your model is a fine method) its off to the races to dig up enough work to stay in business.

Just thought the idea of a certain amount needed each week is from a wishful point of view rather than a reality.

We all want a lot of money each week but the reality is we get what we procure and that is based upon what we are worth to clients.

Using your 2 weddings in a month analogy, that new person would have to charge $2,000 per wedding to meet the terms of the business model using the numbers mentioned in this thread (which were thought to be low).

There is a high probability that people are not going to use this new wedding person without much experience because the price it too high.

The amount of work coming in is an important variable in this scenario although it is unknown.

Just my opinion from a lifelong freelancer, no offense intended nor disagreement desired.

Thank you all for your input.

At this moment in time, I don't think we could justify charging more till (A) We have (more) better equipment (B) We have some paid experience under my belt. I believe once my team starts generating some word of mouth, we'll be able to increase our rates appropriately.

We've used portion of our home bills to be included in our business expenses so I believe that we're being honest with ourselves at this current point in time.

One last question, does anyone have a job estimator sheet / app they can recommend?

Job estimates can be configured in some accounting software programs like Quickbooks, but I do mine by hand. I usually end up providing a low number and a high number and explain that the final price will fall somewhere in between depending on what the client wants.

I will say right now that $39/hr as a base rate is like shooting both feet off at the same time. With a very large cannon. Some of the biggest lessons I've learned about this business just over the past year and a half include the power of Word of Mouth. When word gets out that you charge a mere $39 per hour, rest assured that you'll have an incredibly difficult time raising your rates. Could you do it anyway? Sure, but the clients you attract at $39 are vastly different than the clients you attract $200 per hour. It puts you in a difficult spot- because the old clients won't want to pay more, and you'll most likely lose them. The higher end clients will remember your business as being extremely low in price, and to a degree, price is related to quality. In short, do not sell yourself short, especially if you and your team are producing top quality work. By charging super low rates, you're hurting everyone else in the industry because you drive down the value of the work you do. Also, you're hurting yourself- both in the short term by barely getting by, and in the long term by curtailing your business's potential.

If you're looking into how much you should charge, cost of living is a great place to start. Next on the list would be to look at what your competitors are charging. There's a really great calculator here: FreelanceSwitch Hourly Rate Calculator

Simply plug in accurate numbers to the corresponding fields, and it gives you one number that hits your goals, and another number that's your break-even rate. Another thing to remember are TAXES. Say you bring in 2 weddings per month at $2000 each. That's $48,000 per year- which sounds like a nice starting salary. Until the tax man gets to it! So, that $39 per hour will be more like $25 per hour- OR LESS, depending on federal, state, and local taxes that need to be deducted from that. Still, that $25/hr might sound so much better than what you're making now, but you always need to be looking toward the future. A couple other posts here talk about that already, but its very important you pay attention to that if you want to not just succeed, but grow.

There's also many Cost of Living calculators on the net. Most have to do with relocation and there make city to city comparisons.

I used this one since it breaks down a lot of details.
Cost of Living comparison calculator

Tampa is about 47% less expensive than Brooklyn (me) and about 24% less expensive than Anchorage (Shawn).

So Sean is charging close to $75/hr Brooklyn, NY dollars and about $60/hr Anchorage dollars. Of course if you go by craigslist people in NYC should be able to survive on $20/hr.

Unless of course you had significant writeoffs in terms of capital asset purchases or operating costs to help lower your taxable income. Which is a double edged sword: my best years of production had VERY significant writeoffs, lowering my taxable income greatly. However, now when I go looking for credit, my "ability to pay" is looked at worse than if I had claimed it ALL as income. You need to be careful to look at the BIG picture. Contact (and retain) a good accountant that understands businesses like video production that CAN have large capital asset and labour/external cost outlays. A GOOD accountant pays for themselves multi-fold.

Of course the more you write off may mean you can save more and need to borrow less. I guess that's the double edge. Actually the reason the gov't has write offs is that those expenses are investments in your business.

Yep, and my investments in my business have historically outperformed the equities market, or at least the Indices.

Further to my above dissertation: I'm changing markets and may be looking at buying a condo in a much more expensive market so my accountant has indicated we may need to start "showing" more income for a couple of years (which basically means just being less aggressive with writeoffs - still completely legal, it's just different ways of "accounting" for where your money goes).

That does make sense if you're moving to a more expensive market. They'll see tax returns and may assume your business expenses are too high to give you income to pay back the loan . . . which would likely be deducted from your taxes. Seems like flawed analysis on their part but it's what you must play to.

Thank you all for your feedback. I have used the freelance calculator to estimate our hourly rate for 'in house' work. (I searched for the calculator a few days before posting this thread)

I know we're not charging as much as 'industry' standard, but as a freelance team just trying to break into the market (while in a recession), we need some customer incentives. Price is one of those incentives till our quality word of mouth starts moving. At the beginning of each year, we plan to increase our rates by a certain percentage, which can be justified by additional experience as well as equipment upgrades.

I know it may be difficult to make those changes each year, but nothing with any business I've EVER dealt with was simple and easy. (unfortunately)

Luckily, my uncle (who lives within 30 min of me) is an experience CPA who has owned his business for nearly 30 years.

Sean: the other thing that MAY work, rather than starting with LOW prices is to offer a "startup incentive" where you charge a normal and reasonable amount for a number of hours and "donate as part of the incentive" a number of hours in order to bring projects in at the same rate as just charging less. This of course is a limited time offer and you reserve the right to pick and choose projects based on a number of criteria INCLUDING the ability to use the video you create for promotional purposes.

One way to make this clear is to list your standard rate and the percentage discount/final rate up front so they know they're getting a deal.

Again I can't speak directly to whether Sean's rate is too low. I can only assume that he's done the calculation and KNOWS he can stay in business at that rate while he gains experience and gear. One MUST be able to stay in business at that base rate other wise the "scramble" to increase income can spiral a business under within the first year.

Keep in mind that word of mouth is probably the most important part of marketing. Each happy client may either come back or recommend another. The result is that you may have a boat load of clients and still tank your business. Leaving you with a boat load of clients who will never come back if you resurrect your business.

Warning:
Giving a higher price to recommended clients may mean you wont land them and both they and the recommending client may be offended (and lost). Giving the recommended client the same low price will mean you'll lose money on each job. It means they will take up time even when you have the opportunity to get completely new clients at a higher rate.

Set a rate your business can survive with. Set a policy on rate increases (leaving that for a future discussion). If you ever discount make it CLEAR in both the discussion and on the paper work what that is (list both your rate and the discount "ON PAPER"). I've actually been asked by potential new clients if I can give them a discount (often that's followed by the empty promise of more work). My response is I may work out a bulk discount if they commit to a bulk job order in contractually or pay in advance. If you offer discounted "trials" that's generally the only thing you'll sell in this business.

Sean,

It doesn't appear as though you've stated exactly what kind of partnership the group is considering getting into. A loose association of individual free-lancers, as opposed to an arrangement of strict equal partnership, is preferred, imho. In the later circumstance, it is inevitable that one or more parties will consistently pull their weight more than the others, yet the laggards will be compensated equally. Inevitably, resentment rules the roost and kills the business.

And now for some more unasked for advice.

Do not go into debt buying equipment. Start small and allow your profits to pay for what you need as you grow. Not sure how that will work at your stated hourly rate, though, unless you are extremely busy.

And about hourly rates. It seems as though everything is moving toward a teaser rate that is loaded with all kinds of extras before the day is done (oh, you want a review copy of the footage?$). I prefer (call me old school) to charge an hourly rate that compensates adequately without having to resort to nickel and diming the customer. Probably missing a golden opportunity to fleece my clients, but I'm in this for the long haul (and have been for a long time).