The Cost of Doing Business
I recently had the opportunity to share with about 150 filmmakers about the business side of filmmaking. (More on that in a future blog about getting over the fear of public speaking) Over the past decade, one of the aspects of production that I've absolutely fallen in love with is Producing. While this can involve many different types of "producing", ill just say that I love the "business end" of production.
I hadn't always though. I've had a very love-hate relationship with the business side of production. For example, I didn't know I had to pay taxes on myself as an employee when I paid myself. Yeah. Thankfully, the IRS was so kind enough to explain that to me. Unlucky for me, I didn't have a ton in savings.
I also wasn't aware that I needed important things like contracts when working with my friends. I just thought "hey... I know them. They're one of my good friends. We'd never have a disagreement, and they'd definitely pay me on time." Lesson learned.
Most importantly however, I didn't know the very basic thing I needed to know to keep my business afloat. The four little individually unimportant letters, but when put in a certain order could spell success or disaster for me...
Your Cost of Doing Business is the amount you need to make every day you work in order to stay profitable, otherwise you'll be operating at a loss. It's a really really simple formula.
BUSINESS EXPENSES + YOUR SALARY ÷ DAYS WORKED = DAILY CODB.
Why is this important to know? Suppose someone approaches you to shoot a video for them for $1000. You may jump at the idea of an extra grand in your bank account, but lets break down what that really will cost you.
Regardless of the ridiculously small budget, you'll still need to send emails and make phone calls with your client as you flesh out exactly what needs to be done, and there may be some time needed to generate your formal proposal & contract. I use Proposify to do this, because its easy to use, and ill break down why I love that so much in a future blog. For now, let's assume that'll take me 3 days of "pre production".
Based on the creative, I'm going to need a solid 3 days of production to execute this idea, so now I'm at 6 days worked, and we haven't even gotten to post yet. I would add another 4 days for post and now we're at 10 days, and thats without extra days of revisions beyond scope... which let's face it. A client wanting a video for $1k will always want revisions. :)
For me, my daily CODB is $688. So that means, I should have billed $6880 for the job. I didn't, and I only billed $1000 because it sounded awesome and I could buy that new lens I was looking at, but now I'm taking a $5880 LOSS in what I need to make to clear my year. Not to mention the jobs I had to say no to, in order to spend 2 weeks on this one $1000 dollar project.
SO do yourselves a solid and head over to my shop and download my free CODB calculator. Put ALL of your costs down, including your cell phone, insurance, computer purchases, lens purchases, camera purchases, etc. Basically, anything that you pay for on a monthly recurring basis that year out of your business account needs to go in here, plus whatever you want to take as a salary.
Everyone has different operating costs, therefore everyone will have a different number. But once you have your number, save it. Write it down. Memorize it. Use it to accurately bid jobs so you know whether or not they're worth taking, or whether or not they're going to cost your company a lot of money.
Hopefully this helps you as much as it did me when that light bulb finally clicked in my head!
As always, feel free to email me any questions you've got, or comment below so we can all learn together!
*Also, be sure to check out my Commercial Production Master Budget for a simplified Production Budget to help you even more accurately bid jobs now that you know your CODB!