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Business
Issues - Finances
How Much Should I
charge?
Introduction
It is often
difficult to determine what a fair and competitive price for
your laser services should be. There are no hard and
fast rules and no recommended pricing guides in the laser
industry. Here are some practical
ways to gauge what to charge for your show services.
Consider
Your Equipment
You will have invested a considerable sum of
money into your equipment. Most governments will give you
4 to 5 years to depreciate equipment that is used for
rental/hire. Lasers and projectors, when well maintained,
will last more then 5 years but the technology needs to be
updated regularly and laser tubes have to be replaced which can
be an expensive undertaking.
A more reasonable lifespan, taking tube life and technological
updates into account, would be 2.5 years. You have to make
the money you have invest in the system back over 2.5 years [not
including the cost of overhead and day-to-day business
operation]. Thus if you have spent $50,000.00 on your
laser system, a not unreasonable sum for a fully featured colour
system, you must be able to generate $20,000.00 per year out of
the laser for the system to pay for itself.
At a minimum you would be doing at least 1 show per monthly for
12 shows per year. Based on one show-day per month, you
would have to charge $1,667.00/show-day for the laser just to
break even - not accounting for the other costs of running your
business [the example numbers are rounded up for simplicity].
If you are a hobbyist, then one show-day a month is a reasonable
expectation and on top of that, you probably paid a lot less for
your system than a professional system and are not concerned
that it should earn you a living. This article will focus
more on professional laserists rather than hobbyists but the
same ideas on pricing shows can be used by all laserists.
As a professional laserist, you should be aiming at an average
of 2.5 show days per month [20 shows a year] and preferably you
should be doing at least one show a week on average [52 shows a
year]. At 20 shows a year for the above example, your
laser equipment needs to earn $1,000.00 per show-day on
average. At 52 shows a year, your equipment needs to earn
$386.00 per show-day but your operation and maintenance costs
will be higher. You also need to factor in multiple day
shows as the rate billed for the second and each additional day
in the same location is generally 50% of the first day's rate
thus a 2 day show only counts as 1.5 show-days of revenue.
Consider
your overhead
The cost of purchasing and maintaining the laser
system is not your only cost of doing business and naturally you
expect to make a profit. You will have space rental,
utilities, telephone, insurance, vehicle expenses, promotion and
advertising, taxes, and labour amongst other things to consider
- this is your overhead. You will need to do an accounting
of these expenses and also divide them by the number of shows
you expect to perform in a year.
Taking as an example a cost of $2,000.00 per month for the cost
of operations based on a modest studio space outside of the high
rent district [$24,000/year]. At 20 shows per year, your
cost per show on your overhead is $1,200.00 per show.
Added to the example cost of the laser given above of $1,000.00
per show, you would have to charge $ 2,200.00 per show before
profits in order to break even. In the example of 52 shows
per year, you would have to charge $ 1,423.00 per show to break
even. This is a good example of how keeping your average
at 3+ show-days per month is the best way to become profitable.
Consider
your profit margin
Everybody wants to get rich, but the laser show
business is not the place to do that. If you are getting
involved with lasers to get rich, quit now while you are ahead
and pursue a more profitable occupation! Most laserists
are involved due to a love of the art form and the creative possibilities
but you should expect to make a reasonable living out of your endeavors.
Looking at other retail industries that sell direct to
consumers, we see that custom computer builders generally
operate on a profit margin of 20-30% while high-end audio sales
companies operate at around 25-33% profit. Profit margins
in large chain retailers are much lower but they do not offer
the level of service and support which is why we don't look to
them as a comparison.
A reasonable profit margin for laser shows would this be in the
20-30% range so we will take 25% for the sake of this
discussion. While this is a desirable margin, it may not
be possible for a variety of reasons and may have to be adjusted
to suit your circumstances.
Adding in the 25% profit margin to the figures given above by
way of example, at 20 shows per year you would have to charge
$2,750.00 per show-day, and at 52 shows a year you would have to
charge $ 1,778.00 per show-day to make a profit. The
reality is that you should budget for the minimal number of
shows which allows you to make a better margin if you do more
shows, as well as accounting for the higher cost of maintenance
and operations involved in doing more shows per year.
Consider
the market
The discussion so far has been theoretical and
has not introduced market factors into determining a fair price
for your laser show services. It is very important that
one consider the potential market(s) that you plan to serve.
Obviously if the market is large and well funded, they would be
better able to afford your services than small or poorly
financed markets. A corporation hiring your laser show
services will pay more for them than say a wedding reception.
Naturally the corporate client will expect a higher level of
services and there is the possibility to have a bigger billing
through additional services such as custom programming. At
the other ended of the sale, small dance type shows have very little
budget and there is often no opportunity to bill for additional
services. The up side to the smaller markets is that they
don't expect all the "bells and whistles" so the cost
of performing the show may be lower.
Consider
the competition
In determining the price for your show, you also
have to factor in the competition. If you do have a competitor
serving the same market(s), you need to find out what their
rates for shows are. Clients will often contact all the
laser companies in the area to get quotes on their needs.
If your competition will perform a show for $ 2,000.00, you will
have a hard time justifying a price of $3,000.00 for that same
show unless you have marked technological superiority over the
competition or can offer the clients additional services or
equipment that the competition can not provide.
You can not always rely on clients hiring you just because your
show is 10-20% cheaper then the competition unless it exactly
fulfils their needs. In fact, it is often easier to sell
your services at a higher price than the competition if you can
demonstrate to the client that there are tangible benefits to
hiring you.
Remember that in such situations is not
advisable to "slam" the competition, but rather to explain
to the client the benefits that accrue to them by hiring you
with your superior technology and skills. Speak positively
about your show services and if you have to mention the competition
at all, always do so in neutral terms.
How
the client sees the price
Depending on the type of show and the type of
client, they do not always see the price of the show the way you
do. If you market only laser services, then the price is
up-front as the client is well aware of your quote and is
obtaining sound, lights, staging and other items from different
vendors. If you are a sound and lighting or special
effects company where the laser is part of your services, then
the client does not see usually see the show as a distinct item
as it is part of a package of equipment and services you are
providing.
This has some advantages as you can use the laser show as a
"lever" to sell additional services that may be more
profitable, in effect subsidizing the laser, or using the laser
as a marketing tool, thus adding to your overall
profitability. Some companies actually provide laser
services at lower than market rates [if they were billed separately]
since that allows them to get a foot in the door to sell a
bigger package with a higher billing. Some laser companies
have the production experience and contacts to subcontract out
the staging, lights and sound thus adding an additional profit
to their services without the investment and overhead in that
type of equipment.
Reality
check
Having considered all of the above, you can now
set reasonable and fair prices for your show. By first
looking at what you should be making to cover your investment in
equipment and your overhead, then considering your profit
margin, you can come to a baseline price that you would like to
charge. Then you have to factor in the market and what it
can afford, and then the competition and what they charge for
similar shows.
This will give you a good idea of what you should be charging
for your laser services, but this will have to be tempered by
market conditions.
DISCLAIMER:
Some of the information in the Backstage area is provided by the persons or
companies named on the relevant page(s). Laser F/X does NOT endorse or
recommend any products/services and is NOT responsible for the technical
accuracy of the information provided. We provide this information as a
service to laserists using the Backstage area.
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