I am frequently asked a variety of questions regarding the amount you should charge for different types of projects.
Instead of reducing it to the amount you’ll have to charge per job and to, break it down to how much you’ll have to make each month and the number of hours you’ll actually have to bill for production services.
Let me explain…
To operate a sustainable (and profitable) business, you shouldn’t spend 40+ hours per week on video projects. There are many other duties that come with the business of a proprietor. To begin, you’ll need to advertise your products and attend sales meetings. You also have to make proposals, pay bills and collect payments from late customers, etc.
In my video production business, prior to hiring an editor who was full-time, I realized the maximum I could put in during the week as a producer and maintain a semblance of the life I wanted was between 20 and 25 hours. I devoted 20 hours per week to managing all not-billed (non-production) work and the rest of my time to invoiceable work.
If you assume that you’ll have 20-25 hours of billable time each week, what do your hourly rate or day rate have to be to earn the income you’ll need to support you and your family?
Here are a few breakdowns that are based on different rates…
$75/hr x 25 hour a week equals $1,875 ($1,875 50 work weeks per year = $93,750 total earnings)
I’ll presume that you’ve got around 30% of this in overhead (office loans, office support for freelancers, etc. which bring your total income to $65,625 after taxes. (This is the amount you pay yourself, as everything else is included in the 30%, or the percentage that best suits the business’s needs.)
Are you able to achieve your financial goals using this salary? If not, you’ll have to think about the possibility of charging a higher rate.
$100/hour x 25 hours per week equals $2,500 ($2,500 multiplied by 50 weeks of work a year = $125,000 income)
If your overhead remains at the same (30 percent), that means you’ll earn an income of $87,500 before taxes.
Does that suffice? If not, then let’s examine a different hourly rate structure.
$150/hr x 25 hours a week is $3,750 ($3,750 multiplied by 50 weeks of work a year = $187.500 in total earnings)
If overhead stays at 30 percent, that’s $131,250 net income (before taxation).
Hope this gives you an overview of the way that your rates influence the amount you earn. Many people might be a bit irritated by other companies that cost less than an hourly rate for services, but it is important to examine their goals before you make this kind of decision.
If they need only an annual salary of $65k, The fact that they charge less may aid in ensuring that they get the pay, but charging more could hinder their ability to sign enough contracts to fulfill their financial obligations.
However, If you’re looking to increase your income without hiring employees or hiring staff, you can try more expensive rates and decrease expenses at the same time. If you can cut your overhead expenses to 20 percent or less each year, your revenue (or salary) will grow quite a bit without the need to increase rates or schedule more projects.
Here’s the best tip I could give you.
Do not hire employees or increase your costs or any other way until you’ve learned how to make maximum value from your earnings potential working by yourself. This will allow you to understand how to effectively manage every aspect of your company prior to stepping into higher revenue possibilities.