How To Determine Your Day Rate
|© Ryan E. Walters (Stock Footage)|
Regardless of service, product, or industry, I think that all pricing strategies can be grouped into one of two categories: they are either reactive or proactive. Reactive pricing takes a look at the market, figures out where current pricing is, and then sets a price accordingly. Proactive pricing figures out how much time, energy, and resources something takes, then adds a value added cost and sets the price based off of those numbers. Reactive pricing is the quickest way to devalue your services and/or product as you race to cut costs to be the lowest game in town. The race to the bottom is the best way to ensure that you do not get the opportunity to grow and stretch your skills as an artist. Proactive pricing, on the other hand, will ensure that you are able to not only keep a roof over your head, but it will give you the ability to develop your craft so that your work stands out from the competition. So let's take a look at how to determine your day rate proactively.
Steps To Proactive Pricing:
1. Calculate The Hard Expenses.
The first thing you need to do is to itemize every singe expense that it takes to support yourself and the work that you do. The more detailed and specific you are, the better equipped you will be to set your pricing, as well as knowing where and when you can cut costs. This is not a complete list but it does show some of the items you will want to take into account:
- Rent (Office/Studio Space)
- Utilities (Phone, Water, Electricity, Internet, etc.)
- Automotive Expenses (Repairs, maintenance, gas, insurance, etc.)
- Continuing Education (Classes, books, seminars, etc.)
- Insurance (Business, Equipment, etc.)
- Professional Services (CPA's, Attorney's, etc.)
Equipment costs include not only the original purchase price, but also the the maintenance, repairs, and servicing of gear. The depreciation of the equipment is also a part of this calculation. (Talking with a CPA about that depreciation is a good way to get a grasp on these numbers). The equipment you have will be dependent on the specific work you do, and the services you provide. Some of the items you will want to consider are:
- Camera Equipment
- Lighting Equipment
- Audio Equipment
- Computer Equipment
- Transportation (Car, Van, etc.)
Figure out what you need to be paying yourself every month in order to live according to your current standard of living. Your salary should cover all of your personal costs, which will be separate from your business expenses. I would also suggest setting a target salary for yourself that you can grow into. Realistically, when you are starting out, what you are actually making will be less than what you want to be making. So it is important to set a goal for where you want your income to be. Without goals, you will lack direction, so set a goal. :)
4. Add a Contingency.
It is important to add in a small percentage as a contingency. This money will help protect your bottom line when the market shifts, an unforeseen event happens, or a line item you didn't think of comes up. If you live without any kind of financial buffer, then you are setting yourself up for difficult times when the unexpected happens, and it will happen... it is only a matter of time...
5. Add a Profit Margin.
One of the fundamentals of business is that you cannot grow if you do not make a profit. By incorporating a profit margin into your day rate, you are allowing yourself to reinvest in your skills. What you do with the profit is entirely up to you, but I would encourage you to think about using it in a way that will further your personal skills or your body of work. For example, you could use it to fund that personal project you've always wanted to do, or attend that training you've had your eye on.
6. Add Your Tax Rate.
Talk with a CPA about what this percentage needs to be. I'm nowhere near qualified to give you any advice or thoughts on this matter. The only thing I can say is that it is crucial to talk with someone who knows what they are doing, and understands your business and can help you plan accordingly.
7. Total Your Expenses.
Now that you have all of your expenses itemized you can add them together to figure out what your total monthly costs will be. This itemized list is not only helpful for knowing the total, but it can also help you figure out where you need to cut costs, or where you should invest more money as your income grows. If you do not have a good handle on your expenses, you cannot plan well or make wise choices when it comes time to trim the fat, or invest in yourself.
8. Calculate Your Average Billable Days or Hours Per Week.
This is the most difficult thing to do when you are first starting out. It can be very daunting to try and guess how much you will actually be working. Guess too high, and you will have an undervalued day rate, and guess too low and your day rate will be too high. What I can tell you is that working freelance means that you will not have 5 days or 40+ hours of billable work every week. Those kind of numbers only exist in the corporate world. A more realistic number would be somewhere in the 7-15 days a month range. But this will depend on the market you are in, what you do, and who your clients are.
A good way to get a more realistic idea of how many days you'll be working is to network with other people who are at your skill and experience level and get a feel for how much they are working. That should give you a better sense of the amount of work that is out there. As you are talking with others in your field, I would also suggest that you ask about the regularity of the work. Is the work year round, or is it affected by the seasons? Here in the Northwest, I have noticed that work slows down during the winter months, so I may have a couple of months with little to no billable days. Conversely, in the spring and summer, I will have to turn down projects due to schedule conflicts. So that means that I have to budget, and plan accordingly. If I spend all the cash I make when I'm busy, I'll be hurting when the winter months come.
You may be thinking to yourself, I can't wait to only work 7-15 days a month! Sounds like a dream job! Not so fast... Billable hours are different from working hours. If you want to be excelling at your craft, then you are going to need to be continually educating, experimenting, developing, and refining your skills. That means that during the rest of the time that you cannot bill for, you need to put in the hours doing whatever it takes to further your skill set and knowledge base. If you rest on your laurels, you will get passed by someone like me, who is always looking for ways to grow and improve their work. (The day I die will be the day that I stop learning and growing, until then you can bet I'll be pushing and stretching myself as much as I can).
9. Divide Your Expenses by Your Billable Day's/Hours.
Now that you know what it takes to do the work that you love, and the number of days you can expect to be working, you can proactively calculate what your day rate or hourly rate should be. By using this approach you will be ensuring that you will still be able to do what you love in the coming years. If you instead choose to base your pricing off of only beating the other guy down the street, you will not be setting yourself up for long-term success or sustainability. Walmart can stay afloat because they sell a lot of widgets, you are not a widget, so don't price yourself like one.
Back in 2001, DV Magazine Published a handy Excel spreadsheet that does a lot of the math for you. Unfortunately, I can no longer find it available on the internet. However, thanks to my uber-Type A personality, I have been able to pull that document from my archives, and you can download it here. (I'd prefer to give credit and links to DV Mag, but since it doesn't exist, this will have to do...). This spreadsheet is being provided free of charge, so you are getting what you have paid for. I'm not guaranteeing anything; I am only providing a tool that may be of use to you. :)
|© Ryan E. Walters (Stock Footage)|
How Do I Know What The Industry Standard Practices Are?
If you are in the U.S., a good place to start is by contacting your local film office to see if they have a listing of any industry standard practices, or if they can point you to one of the local union reps. If you are outside the U.S., hopefully there is a union, or a central film office that can assist you in finding out what the industry standards are in your area. Where I am located, there is an organization called OMPA, and they have published a set of standards that holds true for a lot of productions. (They do not match the IATSE standards perfectly, but they are not far off either). Do as much research as you can to get familiar with how things are done in your area. Also do your best to figure out if there are any standard rates for the role or service you are offering. Typically, the lower the position the less flexible, and the more set the rates will be, while the higher and more "creative" the position, the more flexible and the more negotiable the rates will be. (Doing your research may include making phone calls, networking, and talking with people in your field if you can't find the information online).
How Do I Get Work?
Working in the film industry is tough. There is no way around it. Unfortunately, getting hired is a catch 22 as people want to see what you've done before they hire you. So how do you get work to prove you can work without having any work to show? Volunteer or Intern. It is how we all got into this business. When I first started out, I interned at a local production company. That meant that I worked the front office, answered phones, ran mundane errands, got coffee, and even went on set every now and again. It was through those relationships that I began to develop my network of contacts and my referral system in the industry. The majority of the work that I get is all word of mouth. Someone knows someone who has a need for a quality cinematographer, and they pass along my information. You never know where a referral may come from. I have had referrals come from PA's, Camera Assistants, and Editors. It is all about relationships in this business. :)
Today, with the power of the internet, connecting with people in your area is a lot easier than when I began. You can use Google to search out local groups, you can search user forums to find people in your area, and you can even scour Craigs List to find other like-minded people. As you build your network and foster those relationships be sure to get out and practice the craft you are interested in. These initial projects will most likely be free/passion projects, but they will give you a place to start from and offer you hands on, real world experience. Once you have something to show, you can use that work to further your career and bolster the paid work you do.
What Type of Projects Should I Take?
When you are first starting out the reality is that you will be trying to make ends meet and get as much experience as you can. Pragmatically, that means it is best to take any and all projects that come your way. While It would be great to be able to only take the projects that you care about and really allow yourself to be creative, the truth is that you have to prove yourself before you have enough clout to be more picky with the projects you take. This doesn't mean you should take everything that comes your way, just that in the beginning you will be saying yes more often then no. As your experience level, skill, and the demand for your work grows, that is the time to start to be more choosey about the projects you work on.
Your past work will shape and determine your future work. If you find yourself with a portfolio of low quality, non-creative work that will most likely be the kind of work you will continue to get. So you need to start filling your portfolio with the kind of work you want to be doing. If you cannot land the type of projects that you want to be doing based off of your portfolio, then you may have to step out and create the project yourself. Passion projects, where you go out and create the work you want to be doing, are a great way to push yourself, as well as add the kind of work you want to be doing to your portfolio.
Then when you have the experience, skill, a portfolio you are proud of, and the demand for your work, that is when you can be very selective about the projects you take on. As you grow, it is best if you start to weed out the projects and the people that you do not prefer to work with. It is these projects and people who will hold you back and not allow you to push yourself and grow, showing others what it is that you can really do. I have found it to be a cyclical cycle- your work, and the people you work with will feed more similar work, and you will work with similar types of people. So start feeding this cycle as early as possible, even when you are first starting out and you cannot be as selective as you may want to be. :)
How To Be Competitive When You Are Starting Out:
Lets be completely honest here - when you are first starting out and you have little to nothing to show people other than your excitement and enthusiasm, you are going to be competing solely on price. This doesn't mean that you should price yourself reactively. Instead it means that you need to be even MORE proactive in determining your day rate. Figure out what you can live without, and get your cost of living down to the bare minimums. Someone who lives in the best part of town, has a gazillion cable channels, and drives a Hummer everyday, has more overhead (which means a higher day rate) than someone who lives in a less desirable part of town, checks out movies using the public library system, and knows how to use the public transportation system. Every additional line item you have in your budget is more work that you HAVE to do in order to sustain yourself, giving you less financial flexibility. If your expenses are continually more than the amount of work you are pulling in, then you will have to get a part-time job. Having a part-time job is not a bad thing; most of us have done it. (I worked at a bank part-time when I was first getting into this business). However, the drawback to the part-time job is that it limits your schedule and availability. The more you have to turn down work due to schedule conflicts, the less likely it will be that you will get called for the next project. This business is all about building relationships, so you want to be as available as you possibly can when you are first starting out in order to build that referral system.
As your skill and experience level grow, you can stop competing on price alone and move on to showcasing your skills and abilities as an artist. And believe me, you do not want to be stuck competing only on price. Someone, somewhere, at sometime, will undercut you. It is then that you want to be able to differentiate yourself and rise above the large group of people who will continue to race to the bottom in reactive pricing. It is you, your vision, and your style that sets you apart. You are the only person that can offer that - so take advantage of that asset, no one else in the world has it. :)
Should I Charge Hourly? What About Half Days?
The type of work that you do will determine if you should charge hourly or not. Typically, in the film industry an editor or colorist charges hourly. Those roles allow for that flexibility as multiple projects and clients can all be worked on in one day and scheduled accordingly. However, on the production side of the business, standard practice is to bill at a daily rate that includes a set number of hours. Once that is exceeded, the additional hours are charged at an hourly rate.
If you are billing using a day rate, the question that then arises is- should you bill less for a half day's work? The answer to this is not a one size fits all solution. You have to figure out what works for you, and what typical practice is in your area. When I started out, I did offer a half day rate as a way to be more flexible with my pricing. However, as the years have progressed, I have moved away from that system and I charge at a full day's rate regardless of how short a production may be. The reason is that there are no real half day's of work. I cannot book two half day's of work on the same day. If the first shoot runs over schedule, they will not be happy if I take off partway through to make my next appointment. Nor would a production be happy if I arrived on set 2 hours late because schedules overlapped. Furthermore, I have yet to work on a production that is interested in scheduling the entire shoot around my personal schedule. Practically speaking, it means I have to set aside the whole day for that production. It is not financially viable to turn down a whole day's pay for a half day rate. (Which I had to do a number of times back when I had that structure in place). In the end, I want to be fully committed to the project I am on, and I want to give it my full attention. And charging for a full day allows me to be fully present, and not distracted by having to turn down better paying work on another project.
The length of the project also factors in to my personal choice of whether or not I'll charge at a half day's rate. If a project is hiring me for 7 days of work in a row, and they need an 8th day, but funds are tight, and it really is only a half day's work, then I'll do a discounted rate for that day. It would be rather foolish to turn down the entire project over one half day in the hopes of scheduling one full day on another production.
What About Short Term & Long Term Work?
Generally speaking, short term work is more demanding, and pays better then longer term work. A one day commercial will pay better, and have less room for error then a 30 day indie feature where if you miss a shot, you may be able to tack it on elsewhere in the schedule. When you are starting out, do not expect the rates to be as high for feature work as they are for commercial work. That is a trade off that most of us make with longer term projects. This is where proactive pricing can come in very useful, as it will give you the concrete numbers you need to have to know if that rate that feature is offering you is sustainable. Having 30 days of straight work will not be very helpful to you if half way through the shoot you are facing an eviction notice.
How Do Equipment Rentals Factor In To It?
Equipment rentals can be a nice source of additional revenue. Often times I'll rent the equipment I own to the production I'm working on, or at other times it will go out to other productions, which means it's earning me income even while I'm "not working." If you are going to pursue owning and renting equipment, the most important recommendation I can make to you is to buy all of your equipment in cash. (And be sure to follow the three principles I outline for buying cameras). If you can't pay in cash, you do not need it. Having a large credit card bill to pay every month will mean that you are forcing yourself to bring in more income, giving you less financial flexibility. Being forced into a part-time job to cover your equipment expenses is not the way to further your career in this line of work.
Once you do have gear to rent out, you will want to figure out what a fair rental price is for each item. A good rule of thumb is to divide the cost of the item by 20. While it doesn't work for everything, it will at least give you a good starting place. You can also compare your rental prices to what the rental houses in town are charging. However, keep in mind that the rental shops are going to be able to offer additional services that you cannot offer. (Like people who know how to repair & service the equipment, and they will have backups in case something goes wrong with an item ...). Equipment is typically rented out at a full day's rate, as it is impossible to rent gear out to two productions on the same day for two half days. However, there will be discounts for weekly or monthly rentals. An industry standard practice here in Portland is that the weekly rate is 3-4 times the daily rate, which equates to 1-2 days of "free" rental.
Can I Fire Clients?
It is important to recognize that when you are first starting out that due to the fact that you will be competing on price, you will run into your fair share of people who are interested in taking advantage of others, or who do not treat you and others professionally. As you grow and develop your craft, you do not want to let these people hold you back, or pull you down to their level. However, because this business is based on relationships and networking, usually it is best to avoid a straight confrontational firing of these kinds of productions and clients. (Unless they are really out of line). I have found that a much more effective way to "fire" these kinds of clients is to continue to raise your rates. As your skills, and the demand for your skills, raise your rates should raise accordingly. In addition to raising your income, the added benefit I have found is that it naturally filters out a lot of these kinds of people. Unfortunately, it doesn't do it completely, as these people exist at every level.
How Do I Stay Competitive?
At the end of the day, what you are really selling, is YOU. Your vision, your perspective, your work ethic, your skills. The only way that I have found to remain competitive is to develop yourself and your vision. The more you refine who your are, and what it is that you do, the more you will set yourself apart from everyone else, and the more valuable you will become. While in contrast, the more you conform to how everyone else does things, and the more you are a glorified button pusher, the less valuable you will become. And the more likely it will be that you will be replaced with technology. So if you want to remain competitive in any creative field, develop your style and set yourself apart.
|© Ryan E. Walters (Stock Footage)|
In the end, determining your day rate is about placing a monetary value on your skills and abilities. But before you can do that, you need to VALUE your skills and abilities. If you do not personally value your contribution, really own it, and take pride in what you do, you cannot expect anyone else to do it for you. As you approach every project you work on- large or small -follow through on everything and put your whole heart into it. If you value your work first, others will see it, your work will reflect it, and they will be glad to pay your day rate. Then when you collect your paycheck, you'll be glad that you were proactive in your pricing rather than continuing in the reactive fight to the bottom of the barrel.
Do you have any tips that you can share in how you determine your day rate? What have you found to be effective or not effective?
Until Next Time - Get Out There And Shoot!
Ryan E. Walters, Cinematographer