Important: This article isn’t meant to be accounting or tax advice, nor should the calculations and methodology be used without consulting a professional in these areas. Use this article for information purposes only and don’t use it for anything practical.
In Part One we looked at one way to find the point after which it is better to buy a camera rather than rent it. In this part we’ll take this further:
- We’ll see how to estimate what you should charge for your gear, and
- Given your budget and circumstances, how much can you afford to spend on just the camera.
Let’s get to it.
Are YOU important?
If the market rental rate of a kit is $X per day, should you charge the same, or more – or less?
We’d like to charge more, and will take the best deal we can get. There are two scenarios here:
- You are just renting the gear, and not your services.
- You are getting hired along with your gear (called a wet hire).
If you’re only renting your gear, your client can go to a ‘proper’ rental house for a better deal if your rates are too high. In this mode, you are operating just like a rental house without the benefits:
- If something breaks your rental business is down in the dumps.
- You don’t have the marketing budget to match the same level of business.
- It costs you more to buy stuff; they can get discounts on larger orders.
- When people want gear, they search for a rental house with options. If they don’t have huge budgets, they can’t afford your rates either.
If you’re going to make your gear earn, you will have the best chance doing that when you use it yourself. Why so? Let’s compare this to the above four disadvantages:
- If something breaks you can rent gear and carry on, and you’re earning wages so you’ll have the money to fix your broken gear.
- You don’t need a marketing budget because you are being hired. The gear’s just tagging along on a free ride.
- You get to charge a decent rate in proportion to your business.
- If they can afford your day rates, then you can always give them a good deal on your gear.
For these reasons, I’m going to assume your rental business is part of a wet hire model. You are the most important cog in this wheel.
How much are you worth?
What you absolutely must know, before you buy any gear, is how much you should charge for your services. This is beyond the scope of this article, and varies greatly by industry, region, project, etc. How blue is the sky?
Your worth decides the gear you’ll buy. If you’re fresh out of film school, and haven’t shot a commercial project in your life, you’re not going to buy the Arri Alexa and hope someone will hire you because you own it. Remember, you are the most important cog in this wheel, not your camera. If you’re not good enough they can always rent a camera from some other place. Your camera is as much worthless bling as expensive bling is to a cockroach.
Get your day rate fixed, the amount below which it isn’t worth being in this business. If you don’t know how to do that, talk to an accountant.
The second thing you should know is how many days you’re going to work in a year. Obviously, if you’re a noob you’ll have no clue. If you’ve been around for a few years then you’ll have a better idea. If you’re a noob ask other professionals for help. The job market is wildly disproportionate based on countless factors.
E.g., based on your circumstances, if you have to earn $60,000 a year after expenses (your gear), and you fix your day rate based on your position in the market, you can divide that to know how many days you’ll have to work. E.g., if you have to earn $60,000 and your rate is $500 per day, you’ll need to work for 120 days a year, or 10 days a month. You don’t have a choice. You have to find work to make that pay grade.
Either way, you’ll end up with two important numbers:
- Your day rate.
- The number of days you’re expected to work in a year.
How much should your gear earn?
Obviously, you can’t charge, say, ten times the market rental rate, or the producer or agency hiring you will know about it (if they have any experience at all!). There is a limit to how high you can go. Also, many clients go for a wet hire because they want lower rates overall!
Let’s say your day rate is $500, and you plan on working 120 days in a year.
Now, you’re trying to get hired as a DP for a week. The production wants a Sony F55 (actually they decided this even before they decided to hire you). Let’s say a Sony F55 kit with all the bells and whistles – cards, viewfinder, batteries, external monitor, tripod, mattebox, follow focus system, lenses and even the 4K recorder – costs $3,000 a week via a well known rental company.
What if you’d bought all this yourself? You might have had to spend about $75,000 to $100,000, depending on the quality of your lenses and gear.
If we use the method outlined in Part One, we might analyze things in this way:
- Cost of gear after sale (50% because the value of the items are higher), taxes, etc. is about $ 40,000. This is over a two year period.
- At a market rate of $3,000 for 7 days (week), you’d have to work for 14 weeks (50 days a year, about 4 days a month) to break even with your gear.
- However, at your work rate (120 days a year), you can charge $1,200 for your kit and still break even.
Obviously, breaking even isn’t good enough. But now you have a bottom price which gives you a competitive edge over the rental company. First, let’s look at some good reasons for wet hiring opposed to renting:
- Rental gear goes through many hands, and might not always be in perfect condition. Your personal gear is assembled and optimized to take advantage of your skills.
- You’ll give them a better deal for a wet hire (yeah, right).
- The gear arrives and leaves with you, so nobody else has to be responsible for it.
- You can’t complain if your images are crap.
- You can’t complain if the tripod head is loose, or if the lens is slightly mis-aligned, or if the batteries perform way below par.
If someone cares about you, they won’t care how rich you are, or how well you’re dressed, and so on. Similarly, clients who want you and only you won’t care what gear you bring or charge for it. Unfortunately, most clients aren’t like that. In our industry, most clients care as much about their DPs as the general public cares who their cab driver or burger flipper is on any given day. Your mission is to be the exception.
Anyway, back to our analysis. You have an upper ceiling ($3,000) and a floor price ($1,200). Anything in between will mean your gear is earning money. All that’s left is to figure out where you should be between the two extremes.
First thing you should understand is, you don’t have to charge the market rate to be on equal terms with the rental company. The business necessities of a rental house are totally different to your own. For one, they might be paying taxes that don’t apply to you. They’ll be paying for staff, overhead, maintenance, insurance, marketing and a million other things that are far higher in value to those of a freelancer or small business owner.
Remember, profit = income – expenses. Their expenses are higher, so their income must necessarily be high enough to get them profits. Your expenses are lower, so you don’t necessarily have to charge as much to maintain the same profit level. Isn’t it strange that you get to charge lower than a rental company and at the end of the day you both still keep the same amount?
Don’t forget, you get to charge less only because you are in demand as a professional. If you’re only renting, you will be trounced by the rental company who is better equipped. Also, your clients expect you to charge lower than the market rate for your gear.
Is there a perfect formula for finding the right rental value? No. You should charge as much as you can, as long as it is below the market rental rate. If you become a celebrity professional with clients nail-bitingly waiting on your six-month waiting list, then you can even charge more than the market rate. At that point, your clients only see the total amount, and don’t care what goes where. You only have to touch a camera and it doubles in price.
Okay, back to planet Earth. I can only offer you a few pointers on charging as much as you can for maximum profit, while still giving the impression of a good deal to your client. A win-win deal means repeat business and goodwill – both critical factors in any business. Here they are:
If the amount you paid for your gear was deposited in a bank or invested in a conservative mutual fund over the same two-year period, how much would it earn?
E.g., I think in an average year, with an average investment plan, you could earn somewhere between 10-20%. If you want your gear to earn, you need to earn more than that. I’d say 30% is a good place to start. What does that do to our example? Our low ceiling ($1,200, reserved only for super-special friends or rare cases), changes to $1,500.
If you charged less than this, you’re actually losing money that you would have earned had it been invested.
Can your gear share your overages?
Let’s say you spend 10% more than budgeted over the course of a year. Your gear could take responsibility for some of it, say 5%. That raises the price even further.
Your gear’s liability
Your gear has liability that you might not have considered:
- How much would it cost you to replace your gear if stolen, destroyed or whatever?
- How much would it cost you to buy the ‘next big thing’ when it comes out two years from now?
- What additional items will you have to purchase to take your business to the next level?
Why not make your gear earn for the time when it will no longer be with you? Let it cover for your upgrades. You can’t go overboard here because then you’ll be charging more than the market rate! These costs should already be part of your business plan. Think of it in this way. If you hire a new employee, that employee should help your company earn his or her salary and add to your profits, so you can hire more employees and scale up. But you can’t expect the employee to earn as much as you do, or he or she can get into the business themselves!
All said and done, you might discover that your gear should earn its expense plus a profit of say, 40-50% every year. You could still charge higher, but this will allow you to charge lower and be competitive. That’s what business is all about, isn’t it?
A 50% increase in our Sony F55 kit means about $1,800 per day, still well below the $3,000 mark but now it’s an employee that’s making you money without eating into your competitive edge.
Which camera should you buy?
If you are totally new, and want to know how much you can afford to spend on your camera, you can use the principles I’ve outlined above to come to that figure. I’ll illustrate with an example.
Your day rate is $350, not more.
You know, based on your market, that you can’t work for more than 100 days a year.
You want to earn $60,000 per year to start with, and you’re in a major city. Don’t forget to consider taxes, expenses, etc.
Based on your day rate, if you work for 100 days, you’ll only earn $35,000 a year. The other $25,000 must come from your gear. But there’s a flip side, if you can’t work for 100 days, then the cost of your gear goes up! E.g., if you can only work for 50 days at $350, you’ll only earn $17,500. The remaining $42,500 should come from your camera kit.
Let’s assume you really are working 100 days a year. This means, your gear must earn at least $250 per day.
If you’re charging as per the method I’ve outlined above (say 50% profit), that means the price of your gear is only worth about $167 per day.
Over a two year period, this works out to be $33,000. A quarter of that (your camera’s place in your kit) is $8,333. However, you can sell your camera off in two years for 1/3rd the price, so you can actually afford to spend $10,833 on your camera. Your total kit is about $35,500. Question is, can you afford to spend that money now, or can you get financing for it?
If not, then you can’t meet your yearly target in this business. Buying a cheaper camera won’t help, because the rental rate for it is lower than your needs. Catch 22.
What if you can only afford $10,000? Then you can spend only about $3,250 on your camera. If the rental rate you charge is just $65 a day, your gear will only earn $6,500 per year, and you have to charge $535 per day for your services to make up for it.
You can work backwards (from what you can afford) or forwards (what you can charge) until you find the middle point. My calculations are overly simplistic. You have to factor in many things related to your business and personal needs. My intention is to only show you the kinds of the calculations involved – the ones that you must do prior to getting into this business or buying any gear.
The point is to bring to your attention the fact that buying gear is not that simple if you must make it earn. Too many filmmakers get into the ‘let’s buy it’ craze without thinking about the money they’re wasting or where the revenue is going to come from. If this article can help you slow down and think this through more thoroughly, my job is done.