Why Charging By The Hour Doesn’t Make Sense for Videographers

Episode Transcription

Den Lennie (0s):
In this video I’m gonna talk about why charging by the hour as a videographer really doesn’t make sense. I know a lot of people in our industry charged by the error, but I’ve found it’s actually not the best way to make the most money. In this video, I’m gonna explain why charging by the error doesn’t make the most sense and what the alternative is to maximize your profits from video production. Hey, I am Den Lennie, and if you’re new here, I have been in this game for close to 25, 30 years. What I’ve done in that time is worked with a broad range of clients from small production companies to large organizations like Sony.

Den Lennie (41s):
I’ve worked with big celebrities like Duran Duran, Christiano Ronaldo, and Robbie Williams. So I’ve got a really good breadth of experience filming across the world in how to best charge for your services. Now, this popularity of charging per hour, I think stems from the idea that clients will somehow find it easier to calculate how much it’s gonna cost them to film with you. But here’s something I want you to think about. Trades people charge per hour. Plumbers, electricians, gas fitters, builders, they charge per hour, which means if you are charging per hour for your video production services, you’re kind of devaluing what you do as a creative because people will think of you as a commodity like they will a tradesperson, and don’t get me wrong, I’m not saying there’s anything wrong with being a tradesperson, but for you to be charging per hour makes your value all about the hourly rate and not about the overall value you bring to the client and their outcomes.

Den Lennie (1m 46s):
In my opinion, you shouldn’t be charging your creativity out on an hourly rate basis. Client’s gonna say, wow, I think it’s gonna take three hours, so four $50, boom. That process doesn’t value your creative input. So how do you charge for that? Do you add an extra hour on an extra couple of hours? Do you see what I mean? By charging per hour, the client sees you as a commodity service that can just be brought in and pushed out whenever they need. Charging per hour becomes complex. When you start to factor in, when does that hour start? Is it when you arrive at the client’s office or is it when you leave your base? Because if you’re gonna prep gear and travel to location, if that takes an hour each side of the day, so how do you charge for that?

Den Lennie (2m 31s):
Does the client expect to pay for you to prep the gear and get to location or are you absorbing that? This is why charging per hour becomes tricky because it becomes muddy. It’s like what are the parameters? I believe that charging by our sets, the entirely wrong tone for a long-term relationship that involves creativity. You want to build a partnership with your clients, one that involves them looking to you as a collaborator and not someone who comes and just builds per hour and then leaves. You want to build that partnership in such a way that they rely on you. You become their trusted source, their trusted advisor for all things video. If you charge per hour, what you’re essentially doing is seeing is when we show up with a camera and a crew, we’re on the ticket.

Den Lennie (3m 17s):
Now that doesn’t allow for all of those pre-production conversations. All of those creative discussions you might have over coffee, over lunch, leading up to the project that somehow it needs to be charged for. And if you’re charging per hour, how do you do that? The fact is most people don’t actually charge for all the services they’re delivering and that’s why they’re not making more money. They just see the production part, which is the filming and the editing as the charge of items, and they either don’t know how or are embarrassed to or are just not clear on how to structure pricing for all of the other services that you deliver during a video project. If you do charge per hour, what you’re saying is, Hey, we are available to show up anywhere at any time for this hourly rate.

Den Lennie (4m 3s):
Here’s an example. I had a friend recently was approached to film something at a big tennis tournament a year in Australia. It was a major airline with the major sponsor of the event partnering to film some elements for this event. Now, they wanted only one hour on one day, one hour on the next day and one hour on the third day, and in their mind they thought that was only three hours worth of work split over three days. And so they argued that it was only really a half day split over three days, but an actual fact, by the time you got the location, major sporting event found a park managed to get your gear from the car park to the event space, which could be a kilometer or more in walking, it’s actually more like three or four or five hours each day.

Den Lennie (4m 50s):
And so in fact over the three days it would be 15 hours worth of production. But this client wanted to be billed hourly cuz that’s what they’ve been used to paying because some supply was billing them hourly. My client actually declined the project because it didn’t make financial sense. So charging by hour is actually impacting our industry in a negative way. It’s giving the wrong message to clients that you can buy video services per hour. The other problem with charging hourly is that if you predict the shoot’s gonna be five hours, let’s say, but the shoot starts to run over on location, you’ve gotta have that conversation with a client that says, you know, we quoted you for five hours, but now it’s gonna be eight and their budget starts to blow out.

Den Lennie (5m 34s):
That can actually leave a bad taste in a client’s mouth because they’re having to pay more than you predicted. And even though they know you’re being paid per hour and they know that can blow over, I think at this level of video production, it actually leaves a negative taste in someone’s mouth. Not a positive one. The way I’ve always priced is for the job, what is the outcome? What is the the finished product? What is the finished film that you’re hoping to achieve or what are the deliverables? I don’t get stuck in the minutia of how many hours each thing is going to take. What I do typically is I quote, pre-production, production, post-production, and any other expenses that might be involved in the production plus a production fee.

Den Lennie (6m 19s):
And what I’ll often do is add a 10% contingency on larger jobs, which means the client’s got an overall quote or an estimate of the worst case scenario. Now, in almost every case, we don’t use the contingency, so what happens is we deliver the project and the client’s perception is we’re 10% under the original estimate. Now there is a place for working out hourly rates and that is in your estimating stage internally in your business. So you wanna work out how many hours you think it’s going to be for pre-production production, how many hours of post you’re going to need an experience will tell you what those are roughly going to be. Now I typically add in a 25% buffer to any estimates that I’m putting together so you can work out internally what the project’s going to cost you, and then you can give a price to the client.

Den Lennie (7m 10s):
Now, I would say you want to be aiming for a 50% gross margin on your project and that will even a fat for all the hidden costs you’ve got in your business. The thing with pricing by hour, it’s a little bit like imagine going to a restaurant and being given a bill that includes the price of the carrots, the price of the meat, the price of the veggies, the price of the oil to cook. Everything in the chef’s time, the higher of the kitchen, the tableware, the plates, the washing of the dishes. It just doesn’t happen like that does it. So there is no reason to go and break everything down for a client on an hourly basis. You want to just get a price for the overall meal and the experience and the nice the restaurant.

Den Lennie (7m 52s):
The more experience the chef has, the more likely you are to pay more for that experience and the more exclusive that becomes. And generally speaking, really nice. Restaurants are always booked out months in advance. That’s a little bit like being niched as a video business owner. You don’t wanna be charging clients by the hour. You don’t be charging them for the experience of working with you and you want them to feel like they’re really lucky to be working with you. What I recommend is you break down the pre-production, the production, the post and a production fee, and give the client a number for the finished work.

You’ve been listening to the Video Business Accelerator podcast with your host, Den Lennie. If you are a video business owner who is tired of going it alone and would benefit from mentorship, support and weekly accountability, then mouseover to www.videobusinessaccelerator.com to learn more about how the accelerator program can help you today. Don’t forget to subscribe and rate the show over on iTunes and we’d really appreciate you taking a few minutes to leave a review.