Field Guides / Pricing

Why knowing your numbers lets you price with confidence

Owners who price with confidence know three numbers: the floor a day has to earn to cover their overheads, the margin on each job built from a real cost base (crew at day rates plus direct costs), and the margin per day each client leaves in the business. Revenue isn't profit, and every job has a cost base, so the invoice on its own tells you almost nothing. When you know your floor and your margin, you can explain the number when a client pushes on it instead of dropping it.

Why does pricing feel like a confidence problem?

Pricing feels like a confidence problem because you're holding a number you can't check. In most cases the confidence problem is a numbers problem, and it goes away once the numbers are built.

I see the same split across the owners I coach. The ones who hold a price have sat with their real margin, their overheads and what the business has to pay them. They can hold the number because it's a fact. The ones who avoid the numbers price from hope, and drop the price as soon as a client pushes.

Two things have to land before any of this works, and most owners in their early years have never sat with either. One: revenue isn't profit. The invoice isn't the earning. What you keep is the invoice less what it cost to deliver the work, and that gap is usually far bigger than people expect. Two: every job has a cost base. Crew at real day rates, plus gear, travel and expendables, is the cost of supplying the work. Profit is what sits on top of that cost base, and it's the only part you take home.

Owners who skip this rank clients by revenue, call a busy month a good month, and quote the next job from the same guess as the last one. The arithmetic isn't hard. It has just never been done.

The three numbers every video business owner has to know

The three numbers are your floor per day, your margin on each job, and your margin per day by client. Each one answers a different question, and you need all three.

1. Your floor per day. Your annual fixed operating costs (insurance, software, phone, rent, marketing, the vehicle, and what your gear costs to replace each year) divided by the production days you can realistically bill. That's the margin a day has to clear just to keep the doors open. The same overheads-over-days arithmetic builds your day rate on the quote side, and that's in How to price a video project.
2. Your margin on each job. What the client paid, less what the job cost to deliver: crew at real day rates plus direct costs. This answers "was the job worth doing".
3. Your margin per day by client. The margin a client leaves in the business, divided by the days of capacity that client consumed. This answers "was it worth the time it took", and it's the number that ranks your clients. It's almost never the order revenue puts them in.

The second number is where most owners come unstuck, because they guess it. So that's where the method starts.

How to work out the margin on a job: the method, step by step

The method builds the margin up from what the job cost, so nothing is guessed. Six steps, done on every job once it's delivered, and quick once the crew rates are set.

1. Set a real day rate for every role, including yours. The rate you'd pay to bring that person in: director, DP, sound, producer, PA, editor. Cost your own days at a real rate too, or every job will look profitable and none of them will tell you anything. Done looks like a short rate card you reuse on every job.
2. List every role that worked on the job, with days. Days times rate, per role, then add them up. That's the crew cost.
3. Add the direct costs. Gear hire, travel, expendables, drives and media, any outsourced edit. Crew cost plus direct costs is what the job cost.
4. Subtract the cost from what the client paid. That's your margin. It answers "was the job worth doing".
5. Count the days the job tied up. Not just shoot days: prep, travel, edit and client management, for example. This is the denominator, and it's what you're really rationing.
6. Divide margin by days. That's margin per day. Then put your floor under it. A job that clears the floor is paying its way. A job below it is being carried by the others.

An illustrative rate card, so you can see the shape: producer $500, PA $275, DP $800, sound $400, director $1,000, editor $400. Set your own from what you actually pay.

The Client Profitability Calculator does this arithmetic for a year of jobs and ranks the clients for you. Nothing leaves your browser.

A worked example

The example below is the teaching case from the VBA 12 month audit, in round numbers, so the method reads at a glance. Three clients across a year.

Rank by revenue and KLM wins, ABC is second, and XYZ is the one you'd think about dropping. Look at ABC on its own and the logic seems obvious: eight more clients like that would add $200,000. That's the trap.

Now bring in the two things revenue hides: the margin on the work, built from crew rates and direct costs, and the days it took.

The ranking inverts. KLM is still the best, fine. But ABC, the second biggest by revenue, is the worst by a wide margin, and XYZ, the client you were ready to drop, beats it.

The 50 day test. You don't have unlimited days. Say you have 50 days of production capacity to give. Same 50 days: ABC returns $12,500, XYZ returns $16,667, KLM returns $33,333. To earn from ABC what KLM earns in 50 days, you'd work 133 days.

The floor under it. Say your fixed costs, including gear replacement, come to $36,000 a year and you can bill 120 production days (round numbers again). Your floor is $300 a day. ABC at $250 sits below it, which means the other two are subsidising ABC. That's a reprice, a restructure of how the work is delivered, or a goodbye. It isn't a client to find eight more of.

How to make the monthly numbers review a habit

Every VBA member commits to reviewing their financials every month, because the performance of the business depends on it. The review is the same short list every time, in a recurring calendar note, so it happens whether or not you feel like it.

Looking at the numbers every month is what turns them from something you avoid into something you know. The accounts side can come straight off your Profit and Loss (in Xero: Accounting, Reports, Profit and Loss, set the period, export). The one thing a P and L will never show you is what your owned gear costs to replace, so that goes in by hand.

The mistakes that undo it

The numbers go soft in five predictable ways, and every one of them makes a bad client look good.

• Guessing the margin. You know the invoice, you don't know what the job cost, so the number is soft and the ranking is soft with it. Build it up from crew rates and direct costs.
• Not costing your own days. If you work for free inside your own jobs, every job looks profitable and none of them tell you anything. Think like an owner running a team, even when the team is just you.
• Ranking clients by revenue. A $25,000 client at $250 a day is worth less of your year than a $12,000 client at $333. Rank by margin per day instead.
• Treating gear you own as free. A camera you paid cash for three years ago still has to be replaced. Replacement cost divided by useful life goes into your overheads, or your floor sits too low.
• Looking at the numbers once. A review done once in January tells you nothing about June. The commitment is monthly, and the performance of the business depends on it.

The rule of thumb for knowing your numbers

Revenue isn't profit: build the margin on every job from a real cost base, rank your clients by margin per day, and check both against your floor every month. The benchmark is the floor itself: annual fixed costs, including gear replacement, divided by the production days you can bill. Any client under it is being subsidised by the ones above.

Hold yourself accountable

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

• You have a written day rate for every role, including your own.
• You can say, from the worksheet, the margin and the margin per day on your last three jobs.
• Your clients are ranked by margin per day, not revenue, and you know which ones sit under your floor.
• Your monthly numbers review is in the calendar as a recurring note, and last month's happened.

Your one move this week

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

Take your last three jobs and run each one through the per-job margin worksheet: crew at real day rates, direct costs, margin, days, margin per day. Put your floor under them. If you can't say which of the three was worth the time it took, that gap is exactly why quoting feels like a guess.

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

Related tools and guides. Client Profitability Calculator (enter a year of jobs and it ranks your clients by margin per day), How to price a video project (the day rate and the four-section quote), Pricing Calculator, Anatomy of a Profitable Quote, Charging for the invisible work, When one big client owns your video business.