Field Guides / Pricing

How much does my video business need to make, and can I deliver it?

Your video business needs to make what your life costs, plus the tax on it, plus what the business costs to run. Cost the life you want and divide it by twelve for your monthly net profit target, add the tax on that profit, then add your monthly running costs with your own wage included: that's the revenue the business has to bring in each month. Then multiply each package's price by how many you can deliver in a month, and if that ceiling sits below the number, no amount of marketing will close the gap.

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Why don't most video business owners know what they need to make?

Most owners set a revenue target from what sounds good or what they did last year, not from what their life costs, and they never check it against how much work they can physically deliver. Nothing in the business tells them whether the target is reachable.

Money is still an awkward subject in creative work, and the filmmaking community online rarely talks about it. When it does come up, the talk is usually turnover and headcount, sometimes from businesses making marginal profit. High turnover doesn't automatically mean high profit. Turnover is for show, profit is for dough.

Capacity is usually missing from the picture too. Every package you sell takes days, from your shooters, your editor and you. There's a limit to how many of each you can deliver in a month, and that limit sets the most the business can earn.

So is a monthly target. Without one, the month-end review comes down to "we made money" or "we didn't".

How to work out what your business needs to make: the method, step by step

The method works backwards from the life you want to a monthly profit target, adds what the business costs to run, then checks the result against your packages and capacity. Six steps, one spreadsheet.

1. Cost the life you want. Write down what you want the business to pay for: the home and where it is, the car, where you'd base the business, the holidays (how many a year, and where), your children's education, the camera and edit kit you'd use every day if money weren't the issue. Put a cost against each, add them up and divide by twelve. That figure is what the business has to generate after its expenses and after tax: your monthly net profit target. Your wage sits in the running costs in step 2 and covers what you draw to live on now; the goal sheet is what you want the profit to pay for on top of that, so put each cost in one place only. If you haven't decided what a good year looks like yet, start with Getting your weekends back; the goal sheet puts a price on it.

2. List what the business costs to run each month. Contractors, wages, advertising, software and tools, gear upgrades and maintenance, the vehicle, insurance, coaching and training, bank and payment fees, travel, and a line for everything else. Then check for the ones owners forget: electricity, rent, accountancy, annual return fees, repairs, memberships. Divide annual bills by twelve. Your own wage goes in here, the same as anyone else's.
3. Add the two together. Monthly running costs plus your monthly net profit target before tax (D on the goal sheet) is the revenue the business has to make every month. The revenue sheet below has a row for each, and multiplies them by twelve for the year.
4. List your packages and how many of each you can deliver a month. For each package, write the price and the cap: how many you can deliver in a month with the team you have now. If a job runs over two months, its cap is 0.5. Price times cap is that package's income a month, and the total across your packages is the ceiling, the most the business can earn at full capacity. Each price should come from your day rate (how to build it); the Pricing Calculator does that arithmetic for you.

5. Compare the ceiling with what you need. If the ceiling sits above the revenue you need, the job is selling: fill the capacity you already have. If it sits below, more leads won't fix it, because even a full calendar falls short; the price, the cap or the mix of packages has to change first. Change a price or a cap on the sheet and the profit line moves with it, so you can test a decision before you make it.
6. Point the marketing at the package that opens the door. The sheet tells you where to put your energy. Build the funnel around the package that's easiest to buy, the lowest-hanging fruit, and let it lead into the bigger work. Don't try to sell your top package to strangers through your marketing first.

How to track the monthly target against what actually came in

Divide the year's revenue target by twelve, write it against every month, record what actually came in, and judge the result on the quarter rather than the month.

It's not uncommon for January to be down. In the demo sheet I teach this with, the first quarter came in well under target and made no profit at all, and by August the year's profit was back up to $75,000 against a $90,000 goal. You can be behind for a quarter and start to pull it back, as long as you can see the numbers month by month.

This tracks revenue against the target. For the job-by-job margin check each month, use the monthly numbers review in Know your numbers.

A worked example: a $60,000 a month ceiling

This is the example I use in the course, in round numbers. Three packages, priced and capped:

That's $720,000 a year at full capacity. Running costs, with the wages in, come to about $39,000 a month, so full capacity leaves about $21,000 a month of profit, $252,000 a year, after the owner has been paid.

Now a month at lower volume: half a package three (it runs over two months), two of package two and three of package one. That's $10,000, $20,000 and $15,000, so $45,000 a month against the same $39,000 of costs. Profit drops to just under $6,000 a month, about $72,000 a year. Sell four of package one instead of three and profit almost doubles, because the costs don't move. Price works the same way: put a $7,500 package on the sheet and it shows the effect on the bottom line immediately.

A second example: a UK client's three products and two funnels

One of my clients in the UK (identifying details changed) had three products, and putting them on the sheet showed him the capacity and the profit behind each one.

• Hero video package: about £6,000, a one to two day shoot and two to three days of edit. Capacity: two a month.
• Video partner package: a monthly retainer at about £3,000, around a day's work each a month. Capacity: six.
• In-house video training: a day in a room with about ten marketing people. Capacity: four a month.

That's a ceiling of about £40,000 a month, just under £500,000 a year. His running costs were just under £30,000 a month (about £10,000 of that on contractors and about £10,000 on wages), leaving about £10,000 a month of profit after he'd paid himself.

The sales path came from how his clients buy. After a training day, he can usually sell that company a hero video package later on, and while he's delivering the hero package is when he sells the partner retainer. So the plan was two funnels, each with its own landing page: one for the training and one for the hero package, both fed by the same traffic sources, organic LinkedIn and a percentage from referrals and networking.

The mistakes that undo it

The sheet is only as good as the numbers in it, and these four mistakes put the wrong ones in.

• Leaving your own wage out of the costs. The profit line looks healthy because you're working for nothing underneath it.
• Setting the cap for next year's team. The cap is today's capacity. Put next year's hires in and the ceiling overstates what you can deliver.
• Trying to save your way to the number. Costs matter, but it's much easier to sell $10,000 worth of work than to save $10,000 of expenses. Check what one more sale of each package does to the profit line before you start cutting.
• Hiring staff to raise the ceiling too early. Run two tests before you hire. The first, from my early book material: avoid full-time staff until the work makes freelancers or outsourced help impossible to manage. The second, from my planning sheet example: scale the team when contractor fees exceed what a salary would cost.

The rule of thumb for what your business needs to make

Work back from the life you want to the revenue you need, and know your ceiling before you set a sales target.

The benchmark is three figures you check every month: the revenue the business needs, the ceiling, and the sales that came in.

Hold yourself accountable

Which of these have you taken on or put in place recently?

• You have a monthly net profit target worked out from a costed goal sheet.
• Your monthly running costs are on one sheet, your own wage included.
• You know your ceiling: every package priced, capped and multiplied out.
• Every month this year has a revenue target with the actual written next to it.

Your one move this week

What's the one thing you can commit to implementing this week? If you're not sure, start here.

Paste the revenue sheet into a blank spreadsheet and fill it in with last month's real costs and the packages you sold over the last year. Then type last month's actual sales in column F, beside the ceiling, and compare it with the ceiling and the revenue the business needs.

One thing executed every week creates 50 strategic moves a year.

Related tools and guides. Know your numbers (your floor and the margin per day each client leaves), How to price a video project (the day rate behind every package price), Pricing Calculator, Getting your weekends back (decide what a good year looks like before you cost it), Recurring revenue.