Join Richard Harrington for an in-depth discussion in this video Determining rates for services, part of Budgeting Video Projects.
Once you know what it is you're selling, you need to assign some rates so you can actually charge for those things. Now determining your rates often involves little bit of soul-searching. There is a lot of thought. How do you want to be perceived? How much money do you need to make? What type of life do you want to live? In the old days, we used to be able to charge a lot more than we could today for video. Now that non-linear editing systems cost less than $1000 and you don't have years leases to deal with, and more and more people are coming out of schools trained how to do video, it's a much more competitive marketplace.
So, make sure you give a lot of thought to your rates and how you price things. Here's what you need to consider. With your rates for services, the first thing I want you to realize is there are three things those rates are covering. If you're a freelancer, you may not have thought about this as much because you're used to just getting paid for your time, and people often provide the equipment that you're using. So, remember the money that you bring into your company needs to cover three different components. First off, the people.
This includes yourself and any staff, as well as freelance talent that you hire. You also have equipment and these days equipment wears out faster or becomes obsolete that much quicker. You need to make sure that you have a strategic plan of a certain amount of money being set aside to handle repairs as well as upgrades to your equipment to remain competitively relevant. And lastly, your facility. Do you have an office? Are you working out of your house? Do you need anything to make that comfortable? Making sure that you upgrade your facility and cover the related costs there are important.
The next thing that your rates need to cover are covering your assumptions. There is a lot of work you do that you may not actually get paid for unless you remember to build it into your rates. For example, the act of creative design. You need to charge for the creative design; this is the actual act of coming up with the big ideas. What's the concept for that spot, designing the storyboards. This should be a bigger rate than what you're getting paid for to actually just push buttons. And remember, you're doing creative design all hours of the day. You thinking about it over breakfast or in the shower? Make sure you budget for the time it actually takes to come up with the big ideas and remember that you're working sometimes when you're not even in the office.
Other things people forget are shipping. Do you have to physically deliver things to customers? Is it a hard drive or a disk that has to be sent around the country? Make sure you also investigate other options like electronic delivery to save money here. And of course storage and archiving. Remember, HD video these days is pretty big, and you're going to increasingly burn through more and more drives and storage. Have a clear plan of how long you store data and what sort of things you're backing up, and remember to build those charges into your projects.
If your clients expect you to keep a copy of everything forever, make sure you're charging them for that. Otherwise there are a lot of assumptions and a lot of potential pain. Other things to think about with your rates for services is a competitive analysis of what's going on in your market. Take a look at what others are able to get. Look at their websites, and if you can't find information for your competition, look at similar industries. For example, the print industry and the web industry often publish salary surveys and other information.
The difference between editing video and building a website these days is not that different. You use the same types of equipment and computers, you often have the same level of training for people. So you can look at other creative industries for guidance as to what they charge when setting rates. And lastly is the financial need. Remember, that only about 40% to 60% of the time are you and your employees doing billable work. You've got cleaning to do. You've got backups and archive, packing for a trip.
You've got the act of actually putting together business proposals and meeting with customers for business development. While you may be working all of the time, not everyone is going to pay you for that time you're working. So make sure you build in some pad and set your rates high enough to cover the cost of doing business. Couple of those other costs to also think about are general overhead, rent, utilities, and all of these things that you need to accommodate for. Make sure you take an accurate look at your average costs for a year, including things like fuel, transportation; communications. And any savings, because throughout the year business will go up and down and you need to build up a pad so you don't feel like you're on a roller coaster.
So remember, if you were ever a freelancer or getting a staff salary somewhere else, you were only looking at one small part of the rate problem. You were looking at the person cost, but now you've got a facility as well as equipment that you have to think about and there are lots of factors to consider when putting together rates. People are a big part of the quality of the work but they're only a small part of the actual cost of doing business.
- Evaluating outsourcing and partnering options
- Setting rates for services
- Incorporating material costs
- Determining the scope of the project
- Estimating production time for the budget
- Creating a quote or proposal
- Setting payment terms
- Creating an invoice with Word or Pages
- Performing billing and collections