Production Services Markup/Profit Margins

[Mark Suszko]

I would ask myself: if the client ever found out how much the markup was, would you be terribly embarrassed at the amount and could you instantly justify it? A markup is expected: you are at least charging for your time and trouble to make the arrangements and locate and pre-screen the guy working for you on the project, and all that costs *something*. Same reason your breakfast cereal box costs more at the 7-11 at 3in the morning, than it does at your regular discount grocery you visit once a month.

[Bruce Bennett]

Mike,

I recently posted a similar question in this same forum. After 14 years of

[Brendan Coots]

Here’s a very general approach to figuring up your rates:

1 – You should charge as much as you can and still get a good level of business in the door. I do not personally subscribe to the notion that you should attempt to “bro down” your clients and keep rates rock bottom based on what “seems” fair. They will not respect you more just because you have rock bottom rates. In fact, they will walk all over you every time.

2 – I disagree that you should consider how your client might feel if they knew your markup. Unless your client is an expert in studio operations, and therefore understands your operating costs, It’s a bit irrelevant what they would think. If they feel your product is worth what you are charging, nothing else matters.

3 – The quality you offer will limit how much you can charge vs. your competitors. Try to find out the rates they charge, do some comparisons, and judge accordingly.

4 – carefully figure up your actual costs including the “hidden” ones. For example, for your editing rate you need to account for things such as the depreciation on your editing station, electricity costs of running the machine, costs of stock media if you’re using any, etc. Leave no stone unturned when looking for these types of associated costs so that you aren’t losing money to these things every month and wondering where the money is going.

5 – Consider your general overhead. If your studio has $3,000 per month in overhead expenses such as rent, bills and marketing, you need to spread that cost across your billable hours.

6 – Consider your profit. More importantly, consider that you will not be able to purchase new equipment, advertise, expand your facility etc. without a healthy profit margin. No one can tell you what a good margin is, it purely depends on your needs and what your clients are willing to pay.

7 – Last but definitely not least, CONSIDER YOUR TAXES. As a sole prop/partner, you will be paying self employment taxes, as well as paying the state and federal taxes on every penny earned by your studio. You should definitely build these taxes into your rate or you are asking for some real financial trouble.

According to a report I recently read, the average production markup in the ad agency world is 2.5 to 4 times cost. If you pay an editor $50/hr., $150-$250/hr. rate is considered normal. I would advise against using formulas like this except for rough comparison purposes. Your rates should be based on real world numbers so that, if your costs rise, you know exactly how much you will need to raise your rates.

Brendan Coots
Splitvision Digital
http://www.splitvisiondigital.com

[Steve Wargo]

Just a few comments

If we only make a phone call – 15%
If we have to manage the person 25 to 40%
If I have to pay the person and bill the client – 50%
If I know that I can get away with it and it’s a good deal for everyone – 100%

Clients don’t want to pay more than 50%

Clients are usually pretty reasonable.

Whos insurance is covering the hired help?

Steve Wargo
Tempe, Arizona
It’s a dry heat!

Sony HDCAM F-900 & HDW-2000/1 deck
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