{"id":99178,"date":"2018-02-20T14:17:21","date_gmt":"2018-02-20T20:17:21","guid":{"rendered":"https:\/\/www.premiumbeat.com\/blog\/?p=99178"},"modified":"2018-02-27T10:35:04","modified_gmt":"2018-02-27T16:35:04","slug":"video-professionals-budget-profit-margins","status":"publish","type":"post","link":"https:\/\/www.premiumbeat.com\/blog\/video-professionals-budget-profit-margins\/","title":{"rendered":"Why Video Producers Should Budget for Profit Margins"},"content":{"rendered":"

How much time \u2014 and money \u2014 would you save if you had a budgeting\u00a0framework that guaranteed profits?<\/h2>\n

Cover image via SFIO CRACHO<\/a>.<\/em><\/p>\n

The idea of\u00a0charging what you\u2019re worth\u00a0is more controversial than you might think. Proponents say you should charge what you\u2019re worth \u2014 or don\u2019t take on the project at all. Others espouse the benefits of working for free.<\/p>\n

Most of us fall somewhere in the middle.<\/p>\n

But here\u2019s a fact: a properly crafted budget is the difference between a project that just barely breaks even and one that pays the bills, makes your contractors happy, and\u00a0lets you reinvest cash into your production company. If you could, how would you grow your business? What equipment and resources would you purchase? Who would you hire?<\/p>\n

These are the questions that separate profitable businesses from those that fail.<\/p>\n

\n

The Importance of Budgeting Properly<\/h3>\n

\"Why
\n<\/a>Image via\u00a0lOvE lOvE<\/a>.<\/em><\/p>\n

In fact,\u00a0most creative businesses do fail. If you\u2019re only breaking even \u2014 or worse, eating costs \u2014 on your productions, your freelance operation won\u2019t last long.<\/p>\n

A rock-solid budget is the key to charging what you\u2019re really worth. But more than that, knowing how to properly budget gives you the confidence that you\u2019re not leaving money on the table \u2014 money that you could (and deservedly should) be reinvesting back into your business.<\/p>\n

The first step in learning how to budget properly is honing your estimating skills. Like all worthwhile skills, mastery comes with practice and review.<\/p>\n

To account for this you should create a budget three different times for each project. Here\u2019s the breakdown:<\/p>\n

Budget 1:\u00a0The First Pass<\/h4>\n

Your first round of budgeting for a project comes immediately\u00a0after\u00a0your first contact with a potential client, but\u00a0before\u00a0your first concept meeting or initial brainstorm.<\/p>\n

This estimate is for internal use, so you usually don’t share it with the client \u2014\u00a0only the ballpark figure. The\u00a0first pass<\/em> budget\u00a0helps you think realistically about the scope of the project. Share this with your production team and colleagues for feedback.<\/p>\n

Budget 2:\u00a0The Nitty-Gritty<\/h4>\n

This is the budget that accounts for every cost that you anticipate for the project. It includes line items for all hard costs and contractor rates, and it factors in a profit margin for each (more on profit margins in the next section).<\/p>\n

This is the budget that you’ll share with a client. The quote shouldn\u2019t be a surprise to your client, as you should’ve already given them a ballpark figure based on the first pass.<\/p>\n

Budget 3:\u00a0The Follow-up<\/h4>\n

By this point, you’ve wrapped the project and have recorded actual costs against your initial estimates. You and your team should scour this to see which items came in over or under budget. Use this as a debrief, and discuss how you can improve your budgeting tactics on your next project.<\/p>\n

This is the most important budget that you\u2019ll prepare, and it’s the quickest way to hone your estimating skills.<\/p>\n

\n

Factor in a Margin for Freelancers<\/h3>\n

\"Why
\n<\/a>Image via GaudiLab<\/a>.<\/em><\/p>\n

Charging what you\u2019re worth is more than just throwing out your hourly rate. Rock-solid budgets should include all the hard costs associated with the project. Your budget should account for things like gear rentals, music licensing fees, travel costs, contractor rates, and rates for you and your team. However,\u00a0a proper budget takes things a step further by including profit margins.<\/p>\n

A profit margin is an extra amount (usually calculated as a percentage) that you factor on top of a cost or rate to ensure a profit. Without profit margins, businesses cannot expand, and they\u00a0see very little (if any) growth.<\/p>\n

One of the best ways to factor in a profit margin is by factoring it into your contractors’ fees.<\/p>\n

When you build your production team, you\u2019re\u00a0gathering professionals to help you run sound, write scripts, compose music, and ultimately pass their creative\u00a0expertise onto the finished product \u2014 and into your client\u2019s hands. On top of that, you\u2019re giving your colleagues and contractors much-appreciated business.<\/p>\n

You need to consider the work it takes to assemble that team of creatives.\u00a0You do this by factoring in a 30 percent-60 percent profit margin on top of\u00a0your contractors’ fees. Otherwise, you\u2019re giving your contractors free work.\u00a0That’s\u00a0fine of course, but you\u00a0deserve compensation\u00a0for the elbow grease it takes to\u00a0align creative professionals\u00a0with the creative vision of the project.<\/p>\n

Without these built-in margins in your budgets, you\u2019re leaving money on the table \u2014 and losing out on hard-earned work.<\/p>\n

\n

How to Ensure Profitability\u00a0and Grow Your Business<\/h3>\n

Now that you’re aware of the benefits of\u00a0profit margins and budgeting properly, it’s time to build them into your budgets.<\/p>\n

Whether you use Google Sheets, Excel, or Numbers, it’s a good idea to start using spreadsheets to create your budgets \u2014 at the very least, for your internal budgets. Using a spreadsheet\u00a0will expedite the calculations for things like contractors and\u00a0other line items.<\/p>\n

\"This<\/p>\n

Here’s the trick: it’s a simple formula that you can add to your spreadsheets (demonstrated above). For each line item (Column A), you should have four (4) additional columns:<\/p>\n