Estimating the cost of a video for a client is a tricky but necessary part of doing business. Here’s how to do it right.
Let’s have a show of hands. How many of you have had this conversation with a client?
Client: I want a video.
You: No problem.
Client: I only have a vague notion of what needs to be in the video.
You: No problem.
Client: I will probably change my mind several times about the specifics of the video as we go along.
You: No problem.
Client: What is it going to cost?
You: Now, we have a problem.
What’s the problem? Creating a budget for a video is tricky under the best circumstances, but when the client doesn’t know what he or she wants, it’s worse. If you guess wrong and your budget is too low, you lose money. If you guess wrong and your budget is too high, the client may think you are a greedy so-and-so and look for another video producer.
Part of the problem is that clients are accustomed to going to stores and buying products. These products each have a price tag on them and the customer can decide whether the product appears to be worth the price displayed. When you buy a piece of video gear, you know in advance what it will cost. Consider if the supplier said, "I’ll bill you for that camcorder after you get it and you’ll find out what it costs at that time." Would that give you a warm, fuzzy feeling? Probably not.
But video producers are not in the business of building widgets. Each project is unique and has one-of-a-kind challenges. Many clients will want you to create a video on a subject that has never been done before. You won’t be able to say, "Oh, you want the Model A Video Production. That one costs $2,000. If you want the Model B, it’s a thousand dollars more." Actually, you could, but what would it mean?
To tell the client what a video will cost, you have to create an estimate. This takes some thinking and it takes some information. This information is inside the client’s head.
Play 20 Questions
To create an intelligent estimate, you must ask the client questions to establish what sort of video the client wants. Such as:
- Who will be watching the video? Is the target audience children or CEOs of major corporations? Will the client magnify the video and show it at a rock concert, or is it for people with nervous disorders? The audience will be a major factor in how you create a video.
- What is the client’s essential message? Will the video sell something to the audience? Is it trying to persuade them to do something? What is it communicating?
- Where will the video be shown? Will you need broadcast-quality equipment or can you shoot and edit it on VHS?
Get an idea of what the client expects. If he or she is looking for "the same kind of show that I see on TV", then you should point out that these major programs cost about a million dollars an episode. Consider the anecdote of a video producer who once talked to a potential client for an hour before the subject of money came up. The potential client was aghast when the producer told him what video production costs were. If the potential client had asked earlier (or been told earlier), they both would have wasted less time.
Learn all you can about the video that the client sees in his or her head. Then tell the client you will call back with an estimate of what it will cost to produce this video.
Watch Out for Dancing Elephants
Another reason to be careful with an estimate is that the client will want to hold you to it once you say what it is. What if you say you can do a video for a thousand dollars and then the client says, "Great, where will you get the dancing elephants?" And you say, "What dancing elephants? I didn’t budget for dancing elephants." And the client gets upset and says, "Well, I didn’t mention it because I thought it was obvious."
You can’t think of everything and clients don’t always tell you everything, but if you come up with a budget that covers a specific list of things that will be included in the video, you may be able to convince clients that dancing elephants are not automatically part of the price of every video.
Spread it Out on Paper
If you have a spreadsheet program, you can create an estimator like the one in figure 1.
The first column lists the different products and services that you offer your client.
The second column lists what it costs you to provide the products and services (in this estimator, you buy production from an outside vendor and mark it up).
The next column shows your markup factor. (Remember, if you want to make a 20% profit, you have to mark up your cost by 25%. For example, let’s say your cost for a product or service is $100. You mark this up by 25%, or $25. That comes to a total of $125 that you charge your client. Notice that the added $25 is 20% of the $125 total.)
The next column shows the marked-up cost to your client. In the next column, you estimate how many units (days, tape cassettes, cuts of music, etc.) that you think the job will take.
The last column multiplies the number of units by the client charge (in MS Excel, the formula is =(E4xF4) for this particular array).
You can also set up the spreadsheet to add all the numbers in the last column and give you a total at the bottom.
Figure 1: Video production estimator
Estimated number of units
Consultation and pre-planning; Location scouting and shot selection (per hour)
Script editing (per hour)
Video production if shot on DV (per day)
Video production if shot on DV (per 1/2 day)
Video production if shot on Hi8 or S-VHS (per day)
Video production if shot on Hi8 or S-VHS (per 1/2 day)
Raw tape cost
Concept and storyboards
Burn-in dub for final off-line edit (each)
Editing rough cut (off-line) per hour
Editing final version per hour
Electronic graphics creation and translation per hour
Music cuts from library (each)
Voice over talent
Materials and mastering
VHS dub for client viewing and approval (each)
This is a good way to get a quick "what if" estimate of the job, but as you can see it still takes a good deal of guesswork. How many days are you going to shoot? You won’t really know until a script is written and you can break it down into shots and locations. How long will it take to edit the production? Again, without a script it’s hard to tell. But with the estimator you can create a high and a low estimate. Then you can ask your gut what it thinks. (Your gut might answer, "This client is going to take a long time because he doesn’t know what the heck he wants.") In response to this instinct, adjust the price accordingly (in this case, higher).
Factor the Overhead
Another way you can look at pricing a job is by using these three elements:
- Labor and materials costs
Let’s look at them individually.
- Labor costs are the wages of anyone you hire to work on a production, and the cost of your own time. If your workers are on your payroll, add 10% to cover taxes, workers comp, etc. Estimate the number of hours that the job will take to complete. Let’s say a certain job takes 10 hours of shooting by you and one worker, and another five hours of editing by yourself. Calculate labor and materials costs as follows:
Hours Rate Cost
10(worker) $8 $80
10(you) $20 $200
5(you) $20 $100
Total labor cost $380
Supplies (tape stock, etc.) $100
Total labor and materials $480
- You calculate overhead by adding up all the indirect expenses that it takes to operate your business. These are expenses like insurance premiums, legal and accounting fees, telephone, advertising, vehicle maintenance, equipment depreciation, office supplies, dues and memberships, etc.
Total all of your expenses for one year, excluding labor and materials. Divide this number by the total cost of labor and materials to get your overhead rate.
- Overhead expenses= $ 100,000
- Labor and materials cost =$ 170,000
- Overhead rate ($100,000 / $170,000)=58%
- Now you can figure what it will take to break even on the job we started above.
- Labor and materials= $480
- Overhead (58% of $480 )=$278.40
- Operating costs=$758.40
- Of course you want to make some profit on the job. If you want to net 20 percent profit on your gross sales, then you have to multiply the costs by 25%. So now we have:
- Operating costs= $758.40
- Profit (25% of $758.40)=$189.60
- Price you quote your customer = $948.00
Forgetting to include overhead in your job costs is a good way to cut your real profit dangerously thin. Even if you don’t use this method to actually estimate your jobs, it is useful to see how much money you are really making.
Estimating what a job will cost from the meager information supplied by many clients is a challenge. So make sure the client knows what the price you’re quoting covers. As anyone can tell you, dancing elephants are not included.