Question about Mark Up/Profit/Fee as Separate Line Item on Estimates & Bids

[Tom Sefton]

For the last 5 years we’ve been putting “project management” onto the final line of a quote.

[Todd Terry]

Maybe I’m in the minority, but I personally would never put my “markup” as an actual line item… our profit is built into the various other things that we charge our clients for.

Now, I’m speaking as a production company. Maybe it would be different if I was personally hired just as a producer… which the client would see as a single warm body hired to gather together all the bits and pieces and people needed to create what they want and expects me to charge them a flat (or percentage) producing fee and bill everything else at cost…, but I sure wouldn’t want to have to do it that way.

To me, it should be irrelevant to a client what a particular item costs me, the real (and only) issue is what I charge them for that service… which is not only the actual cost but also my time, trouble and effort to make that happen.

Case in point… a recent commercial campaign used several actors we had to bring in. We offered (and paid) a dayrate of $1K to each of our actors. But we charged the client more than that thousand bucks each, obviously. Our invoice to them just reflected what we were charging the client for that talent… it made no mention of what we were paying the talent ourselves plus what we tacked on top of that as our “markup.” What the talent cost us is irrelevant, and frankly none of their business. And it’s not like we’re pulling a fast one… the client is well aware that we are not a charity or a not-for-profit (although sometimes it does feel that way) and expects us to make money when working for them.

I bought a box of wood screws at Home Depot today. The price on the box just said $5.50. I have no clue what Home Depot paid for that box, but I’m sure it wasn’t $5.50. They don’t tell me, and I don’t expect them to. The only number I need to know is what they are charging me.

T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com

[Simon Roughan]

What Todd said.
Here in Germany its exactly the same. What I pay for a dolly rental, and what I charge the customer for that dolly are 2 separate things. They (the customer) never see the bill I get from the hire company, and don’t expect to. I would mark up some things 70-100% to cover my time and effort. I always TRY to get a good profit margin on a production, although we make most of our money in on-air charges. But if I have a production budget of say 10000, I would try to keep my real costs (cash out) at no more than 5000-6000.
Add your mark up in the line total, and not as a separate line item. Your idea of whats fair could be massively different from what they consider fair. As long as they are happy with the bottom line.

mfg
Simon

You know I’m born to lose, and gambling is for fools, but that’s the way I like it, baby. I don’t want to live forever!

[Tom Sefton]

Sorry – I meant to say that we never pass on costs without a margin. On some goods/services this is high, others not so.

For instance – talent is difficult to mark up, because most people know roughly what a camera op/sound op charges. For purchasing/hiring stock, hiring premises or other things that require our knowledge, research and management, this will be higher.

[Sareesh Sudhakaran]

“Or, should I just juice everything up 15% (or whatever) and avoid the last line item mentioning a fee/profit? My theory is that they feel this way because they are former agency people, and agencies have a different way of doing bid mark ups, correct?”

You have way more experience than me, but for what it’s worth – today I’m in your shoes, but I’ve sat on the other side, and have run an agency, so here’s my take:

1. An agency explicitly mentions a markup on media buy (around the 15% mark, but can vary from 5% to 25%). On creative services, they don’t.
2. Having received thousands of proposals and estimates from different parts of the world, I can say I have never seen a single estimate which mentions a markup as a separate line item.
3. My limited understanding of business is that every business must make a profit (markup) if it has to grow, so if a businessman or client doesn’t understand this…I don’t know.

Hope this helps.

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[Mark Suszko]

I agree with Todd and Sareesh: bury the markup in the overall cost of the bid.

Also, don’t itemize everything under the sun to the client: this is part of your “secret sauce”, and to give away this kind of proprietary info to the wrong people does two things: gives away all your costs to your competitors making it easier to under-bid you, plus it invites some un-informed jerk in an accounting back-office to second-guess your every decision and start trying to re-negotiate based on reducing each item any way they can, regardless of it’s effect on the quality of the work. Why would I want to give up that much control over my work, my vision, my authority and responsibility, to a non-pro?

[Bill Davis]

Not to be the contrarian, but for more than 25 years, I’ve been doing EXACTLY the opposite of the advice given here.

I put my Production Fee on the FIRST line of my estimates.

In bold.

At the first meeting I always say something like…

“Line one is the fee you’ll be paying me to make your video. It covers the work I’ll be doing to bring your project to successful completion – done properly, on time and on budget.”

Then I move on to the rest of the line items.

Interestingly, I’ve NEVER even once had a client directly ask me to cut my production fee. It’s as if that doing so is implying that I’m not worth that.

We often have spirited discussions of line items, but virtually never the production fee. (the “virtually never” is because on some pro bono charity work, they might push back on the production fee before I have a chance to tell them I’m waiving it or donating it back to the organization – but NEVER on my for profit work)

I calculate the fee by an estimate of how much hassle the project will be to produce and I check it mathematically to see what percentage it represents compared to the overall project budget.

But I consider it sacrosanct.

If anyone asks why I do it that way, I remind them that if I were to pay myself based on line-item markups – there would be a hidden INCENTIVE or me to increase the budget for their production.

This approach has worked for me this way for 25+ years.

YMMV.

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[Todd Terry]

[Bill Davis] ” I were to pay myself based on line-item markups – there would be a hidden INCENTIVE or me to increase the budget for their production. “

That’s not the case here. There are no hidden incentives. I think the incentives are pretty blatant, we don’t try to hide them at all…ha. I believe most of our clients know we make a lot more profit on a $35,000 job than a $3,500 job and the bigger a production we can talk them into then the more profit we make, and they’re ok with that. That’s certainly not unique to our type of biz.

But if that works for Bill, certainly keep doing it that way.

I think in the end it’s all the same. Surely Bill is charging more for his producer’s fee on a gig that has a huge budget and 100 different line items than on a simple low-budget job with only a couple of items… because that big one is far more trouble and requires a lot more of his time and talent. He’s just separating it out differently.

It’s all just how you present it on paper… although I have to say I’ve never (until now) seen nor heard of it done the way Bill and Ned do. But the fact that they do do it just proves the point that someone is doing it that way.

Whatever works.

T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com

[Ned Miller]

Tom, I like that term and will appropriate it.

Best regards,

Ned

Ned Miller
Chicago Videographer
http://www.nedmiller.com
www,bizvideo.com

[Mike Cohen]

I won’t repeat the great advice already given. But yeah, never tell a client your cost. If you are only charging cost you will always break even. A Fortune 10,000 company understands the need for any business to make a profit. You need not spell it out.
Don’t use the word “juice” as that implies greed or malicious scheming. Make your numbers reflect the three slices of your business pie (cost of goods, overhead and profit). To use the box of nails example:

Cost of raw materials and labor to make 1 pound of nails $1.50
Cost to ship from Korea to Cleveland via boat, train and truck $1.00
Profit for manufacturer $0.50
Profit for distributor $0.50
Cost to Home Center $3.50
Sale price $5.50 leaves Home Center $2.00 to cover $.75 wages, $.75 overhead (electricity, uniforms, orange paint etc) and $.50 profit.

Figure the same breakdown for your services and give the client the selling price ($5.50 for the nails) and the rest is your secret sauce.

Mike Cohen