Starting your own company....

W

whizzkid

Active member
Hi everyone,

I currently relocated in Puerto Rico from the Phiippines and me and my wife decided that we're starting an independent production company - we both graduated from film. Do you guys have any tips from getting clients for the company? we want to patch in the music video industry and commercials but we don't know where to start. In music videos, should we go directly to the labels or the artists? And for commercials, should we go to their marketing department?

Much appreciated...
 
I like the "bottom up" approach, myself. I started by offering a couple of local bands I like a freebie video, did it like I was paid. I have not even considered formal advertisement yet, and I still have people seeking me out now.

God help me if I actually advertise.

But a word of caution, don't grow so fast you cannot keep up. That will burn bridges with clients. Take on only what you can deliver.
 
I like that approach, Doc. There's nothing quite as effective as putting yourself out there and SHOWING what you can do.
 
Your way of starting a production company was much like what I was trying to do with my business partner, although we never broke through in the music video industry we were targeting. Ultimately there wasn't enough money there for us. The budgets we got were not reasonable for a company to handle, more like for an individual.

I think, this is just my opinion and everyone does this differently, that the greatest solution if you have the money and time is to just get out there and make work. I feel not only does it build more confidence but it builds contacts and established your reputation. Now, I don't think this is very helpful if you're doing bad work, of course, but if you really believe you can do great work, then get out there and do it, even if you're not making money on it for a while, because the cream will rise to the top.

I'm about to start doing some commercial work for my reel because I have a good corporate and industrial reel, but no commercials. Just music videos and the other stuff. So I'm going to offer a local business for which I am a client a free commercial. Because I own the equipment and it's simple enough I can edit it myself, have the post equipment, etc., I can probably put together this project professionally for about $1,000 to $1,500. That isn't too much money to get something nice on my reel, but I also look at it like advertising. I know this guy who is a co-owner of the company fairly well, we talk and he's a neighbor of mine, so I like supporting a local business but more than that, I know he knows a TON of local business owners. If I do some great work for him, it's like advertising for my company. He'll be happy about what he got, and he will pass on the word when his friends ask who did the video work that my company did it and he can put us in contact. I'd rather spend $1,000 on that, to be honest, than to spend $1,000 on flyers or post cards and send them out randomly. Referrals just work a lot better. So for me, it's easy to justify the cost, it's not much money first of all, and second it accomplishes two different goals, one getting me something good on my reel for commercial work and two giving me a client who can pass along the word about what I do. So either way it will be quite helpful.
 
Word of mouth is POWERFUL advertising. No real need to "qualify" the client, because they want you, and not another company. I love having a "free" sales team! LOL Seriously though, if you make the right client happy (and you never know who that is) you could very well be on your way to promising and profitable career. I am coming close to a point where this will be a full-time job for me. I just need to make a few adjustments and close out a few projects for my day job.

But my clients know if they bring me business, I give them a referral discount on their next production. That way everyone's happy, walking away with something and it's my way of saying "thanks". Same with my friends, if they bring me a paying job, I automatically give them 15% of the gross at production close-out. It is a very fair percentage, and better than many salesmen make.
 
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That is a very nice percentage. I couldn't afford to do that, it's too high. I can offer 7.5% for a sales person but no more, otherwise my profits would be gone.
 
I agree it is above the market norm, but I look at it this way, they bring me business I would of otherwise missed or had to go out and find. This gives them an incentive to find work for me. And there are sometimes that I say no, I cannot give that client what they are wanting at this time. I just recently had to say no to a guy that wanted a commercial which involved HEAVY use of compositing, but could only offer 4500. I cannot do that for that little, as I would most likely have to farm the compositing out, and they would laugh me out of the FX studio even if I offered them the whole amount, leaving nothing for my work.

As to the profit margins, I have always considered the fact that I am doing what I love, and I would do it if I was paid or not. Obviously, I have to eat, pay bills, buy new equipment, etc., but showing a loss on paper actually is a good thing for upto the first five years in starting a business.
 
Well, if you lose money 3 out of 5 years, they start to say that your business is a hobby and you can lose your tax benefits.

If I get a $10,000 budget I'm probably going to spend $7,500 of it on the actual project, so that leaves me with $2,500, if someone got 15% of the $10,000 they are making more than me, yet I'm using $100,000 of equipment, my expertise, and my time. No way does the guy who did nothing and just found the project make more than me, haha.
 
I have experienced that the word of mouth referrals are the most effective tool. But I guess that will invest a lot of time and a number of probono works. I appreciate all your help!

Another question is who do you think is the person who decides to which advertising company they wanna work for? Ultimately it's going to be the owner right? You think the person in charge of their marketing is someone you also want to talk to?

I just met up with a prospect client today and he's opening up a record label, he's starting from the ground up and I started to build a relationship with him - I offered making music videos, EPKs, commercials etc... So, I hope that all the seeds that I plant will grow into a tree you know...
 
That is something I was really looking to find, Whizz, a new record label that I could help out doing some low-budget music video work and help them grow, etc. But I haven't found that type of arrangement yet.
 
JonathanLB said:
If I get a $10,000 budget I'm probably going to spend $7,500 of it on the actual project, so that leaves me with $2,500, if someone got 15% of the $10,000 they are making more than me, yet I'm using $100,000 of equipment, my expertise, and my time. No way does the guy who did nothing and just found the project make more than me, haha.
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But how motivated will that person be the next time he/she has an opportunity to bring you business? You have to make sure your sales team/person is happy, if you want to keep them.

If my "salesforce" knows I am going to make things right by them, and pay them handsomely in the process, not only do I get loyalty, I am able to motivate them to find bigger and higher paying jobs. The more money they bring me, the more they make.

I cannot do everything by myself, and I have to depend on my salesforce to do their jobs. If they do, they have more than earned that 15% of gross, in my book. Again, just my opinion, but it's how I do things. Only time will tell if I have chosen a successful business model or not. If not, I will have had fun in the process. I will let you know more, when I have the time.
 
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Well

Well

I'm not disagreeing with your principles, I'm disagreeing with the math at least for my business. To say that the sales person, who owns no equipment and has no real expertise, should be making more than the CEO and owner of the company who has $100,000 in equipment and does all of the actual work, pulls the all-nighters, etc. is absolutely absurd. Now 20% of the profit, that's different, I'd be ok with that arrangement. But I'm not going to sit there making less money than some sales agent is even though I'm doing all of the work. I'd rather have no work at all and sit home, work on my scripts, do my own projects. Screw that crap.

I think 4-5% is a generous commission of a gross, and 7-8% is very generous. If my profit margins were higher, I would be able to afford more, but they won't ever be higher. If it's a $1,000,000 project I'm still going to spend that on the project, I mean yeah I might get $200,000 profit, but I'm not going to be making more than 20% of the total as profit most likely. The rest is expected to go into the budget. If I didn't do that, I wouldn't be giving the client a fair shake.
 
If I get a $10,000 budget I'm probably going to spend $7,500 of it on the actual project
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Assuming that the $2,500 is what you'd be paying yourself, I'd say you're definitely under paying yourself for a project of that budget. Whenever you hire a professional whether it be a doctor, lawyer, heck even a mechanic or a plumber I'd say at least 50% or more of what you are paying is going to the person, paying for their skills, expertise, and time and video professionals should be no different. Depending on the nature of that $10,000 project I'd say it should almost be the other way around, pay yourself $7,500 and use the $2,500 on the project's hard costs (unless its under special circumstances or that particular project would pay off to go the extra mile and spend a little more and earn a little less, which in turn could lead to clients expecting high budget productions for lower costs). If you spent 3 full weeks of work on the project (3x40hrs) planning, scripting, casting, scouting, arranging equipment, shooting, editing, outputting, etc. you'd only be making a little over $60 an hour. Where I'm at right now I'd love to make $60 an hour for 3 weeks, but compared to the doctor, lawyer, etc. $60 is alot closer to what the plumber is making.

but I'm not going to be making more than 20% of the total as profit most likely. The rest is expected to go into the budget. If I didn't do that, I wouldn't be giving the client a fair shake.
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If you're selling yourself short, in the long run you won't be giving other video professionals a fair shake because clients will expect a production with a million dollars of equipment on a budget of a million dollars.
 
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Standard salesperson commission is 10%. Are you saying that you would be willing to pay someone you depend on to bring business to you less than the average?

As a business owner, assuming that is the case, you are going to experience a high turnover in sales personnel. They will use you for experience and move on to someone that will at least pay industry standard, (and honestly, if they could sell a 8-10K job for you and only receive $640 when I offer them $1200 for the exactly the amount of work, how long will they stay with you?) Your clients will have a new face to deal with every time they turn around. That makes clients uncomfortable.

As a business owner, your personnel should come first. Yes, we have the investment in equipment and the pains of experience, but as an owner, that is the risk we take and accept. Don't penalize your employees for your choices.

I would rather take on 10 clients at 350.00 a day than 1 at $3500 just based on the math. My company gets 10 times the exposure and based off of the "7 degrees of separation" theory, I actually get more advertising/exposure than just one client, high paying or not.

But that is what makes this industry interesting. Many different personalities and theories on how to conduct business. You have clients that want to pay a higher rate, I have clients that want to pay a lower rate. We both make money on what we love to do and we both satisfy a need in the market.

But FWIW, I did take umbrage to the "amateur" comment. I am a consummate professional (expecting the same out of my employees) and run my company as such and give my clients only professional service. We may have different clientele, but my rates or your rates do not define amateur or professional by any stretch of imagination. I could charge $30,000 for a production, does that make me more of a professional? Rates are subjective and based only on what the market will bear. The higher your rates, the fewer clients you have that can afford those rates.
 
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Not really

Not really

Not responding to you for now Doc... just a second first.

If you get a $10,000 budget, you can't put $2,500 into the project and keep $7,500 or you wouldn't be able to do anything. On my last music video, the location cost $2,250. I paid the crew something like $4,500, I'd have to look exactly, rentals were another $1,800. I brought my own cameras, jib, dolly, and some lighting equipment as well, besides also a pro reference monitor and laptop for capturing on set. Food was about $700. The actual cost of the project ended up totaling $9,400 roughly. That would mean that if I was to make the margins you are suggesting, I guess I'd charge, what, $40,000 or so?

I have a feeling a lot of people here aren't really familiar with the way actual production companies work. I don't blame you, I spent a lot of time learning this crap, and was disappointed by some of the numbers myself. But with any record label with which you work, I mean a record label that is established and has video commissioners, there is a standard way that rates are charged and that is non-negotiable. Director receivers a 10% mark-up on the below-the-line costs, production company receives a 15% markup, and producer receives a 5% markup or in some cases a flat-fee, it depends. That means if the cost of a video, like in my case, was $9,400, the director, me, would get $940. As I also did other tasks on set and off, perhaps I could squeeze another $500 to $800 from those positions. My equipment rentals to the shoot would have made me some cash as well, as I'd have offered them for better rates than any competing rental companies. The production company would make a markup of 15% on the final costs. Of course, I said $940 for the director, that would have been higher but I'm just citing an example. Since equipment costs and other paid positions that I performed would have been under "costs," the 10% would have been based on a higher number than $9,400. The point is, though, I made a professional wrap book for the video, about 200 pages of documents, contracts, receipts, everything that is industry-standard, and the final cost would have been about $15,500 to the record label, not $40,000. That's just how it works.

Now, of course it's a lousy deal to get a 10% markup on a small budget, so their system works a lot better if the cost is $100,000, and you're getting $10,000 to direct. But I'm just telling you what's industry standard for that market. For ad agencies working with production companies, I don't know, I'm not in that business yet so I can't say what the rules of engagement are.

The point is, I couldn't make you anything for $2,500, so if I was to get $10,000 of your money and spend only $2,500 of it on the project, then the rest went to me, I would make you very very poor work and you'd really not be getting anything for your $10,000. The irony here is you might say, "Don't sell yourself short," but most of you guys on DVX User actually undercut me and that's exactly why it's tough to sell bands on pro videos. Same with Craigslist. People say, "Well I saw a dude on Craigslist, he'll make us a video for $500. Why should I pay you $8,000?" Well, because that dude will shoot you in your house, edit the video, and it will be terrible. I will hire an all-pro crew, come up with a real concept, and make you a real music video. But that's tough to explain to starving musicians, haha.

The dilemma, which I'm sure Doc has understood quite well and this is exactly why I'm sure he has adapted to what he is doing, is that these unsigned bands, well, 99 out of 100, do not have the money to spend on a really pro video. They have maybe $500 to $2,000 (if you're lucky) most of the time. I've spoken with about ten bands in the last year, and gotten all kinds of offers, but they were all in the range of $550 (which was funny, $550? lol) to $2,000. Now, the $2,000 one was absurd, because while you may say, "Hey that's pretty good money, you could get two of your buddies together and make them a video and make some cash!" Uhh, no it wasn't like that. First, another director brought this project to my production company and asked if we would produce it, and she had come up with this concept that involved bullet-time, like from The Matrix, yes, a child actor, five locations, a vintage car, a stunt where the rest of the band would be driving the car full speed at the lead singer and veer off at the end (I don't even want to think about what the insurance would be for that), a bunch of props and some spiffy production design, I mean this video no joke was a $50,000 video concept. There was CG elements in there, everything. You wouldn't believe it. We told her that we liked her concept, but there's no shot you could make this thing for $2,000 let alone do it for a profit. She was like, "Oh... well I thought you guys just wanted to produce something for experience and put something on your company reel." First, a company doesn't really have a reel. Not if you're doing things right, anyway. A company is a shell, it is an entity that has value only insofar as value is bestowed upon it. A company can hire directors who have talent and it then has the talent. If the directors leave, it loses the talent. Just like producers don't have reels, they gather reels from DPs and directors to attach to a project, neither does a company have a reel. So the idea was silly that we'd spend our own money making a video where neither of us would even get to direct it, but we'd just finance it. I thought, ok, great, who benefits? The artist, and the director. It was ridiculous.

If I want my company to have an amazing reel it's a really simple process -- I just ask directors to send me their reels, and their reels ARE my reels, because I can hire any of those directors I want, without exception, as long as the client provides the cash. Want Steven Spielberg to direct your commercial? I'm sure for the right price it can happen. Yeah, sure, it may cost you $30 million, but that's not my problem. That's how a company works. I couldn't believe this lady, it was hilarious. In this industry money talks. There's no great equalizer quite like money. If Bill Gates gave anyone here $250 million just for the fun of it, or he was your dad or something and gifted you the cash, you could easily be a major Hollywood player overnight. It's pretty simple when it comes down to it, it's only difficult for us guys at the bottom who may have some cash but we don't have REAL cash. If I had $100 million to finance a feature, I can go find a script I like that's floating around, I can option the script, once I do that I can attach talent because I have the cash to pay the talent, and when I put together this project on paper I can easily secure advanced distribution agreements with Fox or Paramount or anyone I choose, because my movie is going to be financed entirely out of pocket with my $100 million, and it will star major A-list actors, and those studios damn well won't want to miss out on the chance to distribute Brad Pitt's next feature, so I just became their newest best friend. That's all it takes, really, it's not a matter of talent if you have enough cash. The point is, a company is just a vessel, it's only as successful as its funding and its talent. Other than that, in film, it doesn't have much value inherently.

I also always wonder, not saying I don't want to make tons of money, but why does everyone here assume that what we do is such rocket science and so difficult that we deserve $75, $100 per hour? I really don't think that's a fair assumption. I think I deserve $25 per hour for what I do, at minimum, but I don't see how I've earned the right yet to ask for more than that. If I make $25 per hour for my time, and I rent my equipment to my shoots for additional cash, I'm still going to be making a pretty nice bit of cash, nobody I know my age makes that kind of money, many of them are still in school (med school, law school, film school, etc.). So what makes everyone think that your local employee of Starbucks who makes $10 per hour is so much stupider and less valuable that you deserve 6-10 times what they make per hour? I just don't really see that. This industry isn't rocket science. There is if anything a massive oversupply of talent. It's not like there are 20,000 film projects that need to be done each year and only a few good people who can do them, so they are all super coveted. No, there are more like 2 million people fighting over those projects and only a few are top paid, the rest of us are expendable so far. We aren't bankable or marketable, our services can be replaced by competing companies easily. It's just not reasonable to say that in an industry with such absolutely massive oversupply, something like 7,000+ film students graduating yearly that aren't needed in the industry, that we are all entitled to make what a doctor or a lawyer makes. You have to fight your way up to that. If you can prove that you make clearly superior work to 99% of your peers, and when people hire you, you always come in on time, on budget, with the best product, then you're going to get the big bucks eventually. But if you're just doing a competent, solid job like many other pros, I can't really see that you're going to be able to ask for so much money. Not when there are many filmmakers out there looking for clients who would gladly take $25/hr just to be working.
 
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I am going to go one further. I challenge you to work with a band, cold, no practice and film a live set. Capture the band dynamics/energy and anticipate all the changes and highlights in one take.

Remember there is no calling "cut" in the middle of a live performance, you miss it, it's gone, opportunity missed. But, I am an amateur, based on your definition.

You don't set up right, client doesn't like what they see on playback, something not just right? That equals loss, in client, reputation and finances.

Yet, I am doing well as an "amateur". I must be doing something right.
 
Doc I am not calling you an amateur, let's get that out of the way, haha. What you do is different than what I do, that's it. I don't shoot and I don't edit. I'm a producer / director, and you don't even need a producer / director for really small work, like on some projects I might as well just call myself additional crew because there's not much to 'direct' or 'produce.' What I'm saying is that kind of work doesn't interest me personally, not that it's invalid work.

We don't yell cut during our music videos, lol, I've never had that happen. You film the entire runthrough and you're going to get some good stuff, some bad stuff, and some ok stuff. You just have to film the takes over and over again to get a killer video. That's how it's done with pro videos. Not to say you are doing amateur work, only that with an MTV-quality video that has a story and has complicated setups and work, you're going to be doing a lot of takes. That's just how it's done.
 
So what makes everyone think that your local employee of Starbucks who makes $10 per hour is so much stupider and less valuable that you deserve 6-10 times what they make per hour? I just don't really see that. This industry isn't rocket science
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Starbucks employee: high school diploma (free), ability to speak english (free), 1 day paid training = $10 an hour + great health insurance

Video producer: college diploma (10k-120k) and/or 1-5yrs experience working your way up from non-paid PA with no health insurance, production insurance (500-20k per year), company formation and legal fees ($500-10k), video equipment (name your price), marketing (name your price), office rental/lease (name your price) etc. etc. you can see where I'm going here.


There's alot of risk both financially and personally in being a video producer, where as Starbucks you can quit anytime you want with no risk or commitment involved. If all you want to do is direct music videos, then yes your strategy could very well be the best one out there. I'd say its almost the same as wanting to direct short films and feature films for a living. You do it because you love it and that's what you want to do with your life no matter what, even if it means being poor and just hoping that some day 5, 10, 40 years down the road you can be so good at it that you can make great money doing it.

On the other hand, if you're wanting to be a video producer to pay the bills and then do music videos, short films, feature films on the side until one day you're lucky enough to do them full time, you've got to look at this like any other job or business. There are lots of expenses and risks that you need to cover and $25 an hour isn't going to cut it.

Also, when I say pay yourself the $7,500, I'm not implying that you just "keep" that money and do nothing for it. Until I'm working on very big budgets I'd rather pay myself to do all the pre-production, directing/producing, editing, and all post production that I have the skills for so I can maximize my take home pay so I can afford to keep doing video production and so I can continue to learn and hone my skills, increasing my value and ability to make an even better video next time.

but why does everyone here assume that what we do is such rocket science and so difficult that we deserve $75, $100 per hour?
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I don't think that when the dentist cleans my teeth for a normal check-up that what he is doing is rocket science, but I have no problem paying him $75 for 25 minutes of his time. Or paying the doctor $100 for 2 minutes for him to have me open my mouth and say "ahhh", confirm I have strep throat and write me a prescription. I could go on and on.
 
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