Most business owners say there is no simple answer because you aren’t selling a commodity and your DVDs are different from the next company’s. But this overlooks the other important factor in this equation: the client. Every client is different in the length of their stage event, the number of participants, and—more importantly—the number of DVDs you will sell at a given price.
Your goal as a business owner is to maximize profit and satisfy the client so they will hire you again the next time they produce a stage event that needs to be videotaped. A part of their satisfaction level is the cost of the production to the participants and to the studio, so finding a healthy balance between sales price and profit is paramount.
The most basic pricing structure is speculative pricing. In this structure, you set the price and retain the proceeds from the sales. The client (dance studio, school, theater company, etc.) doesn’t get a cut, but they don’t have any financial risk because they aren’t guaranteeing you a minimum. This structure is called speculative because you are speculating that you will sell enough DVDs to attain a minimum level of sales and trade off the risk of low sales versus the additional profit from higher sales.
The second structure is the flat fee structure. The client pays you a fixed amount in exchange for a fixed amount of DVDs. The client bears all the financial risk as you are guaranteed your minimum, and in the event of higher sales, you can offer a reduced rate on additional DVDs so you both share in the additional profits. This structure is useful for clients that want to control the sales price of the DVDs or want to share in the potential profits.
Regardless of the structure you select, it is important to understand the numbers behind the structure in order to decide how much to charge per DVD and how many DVDs you need for the speculative pricing structure—or, similarly, how much to charge for your flat fee and how many DVDs to include for your fixed price. At your minimum sales level, both structures should return you similar sales and the difference between the two structures becomes obvious when sales are lower or higher.
When you graph the two structures, the speculative graph would have the same upward slope at every sales level, while the flat-fee graph would be flat until the point where it hits your minimum before sloping upwards at a steady rate.
Knowing the difference between these two pricing structures is important, but selling them effectively is the real challenge. For larger dance studios or schools with a history of strong past sales, selecting a pricing structure is simply an exercise in balancing the economics of the two scenarios, but for smaller clients, it can make the difference between making modest, large, or no profit at all from the production of their stage event DVD.
The flat fee structure is designed for these smaller clients where the risk of low sales is higher and having them commit to a minimum forces them to promote sales of your DVDs to the students or they will end up with unsold DVDs they have already paid for. Despite this apparent fit, small dance studios are often reluctant to commit to your flat fee as it is a large number and they assume the entire risk. A third pricing structure addresses this psychological barrier to completing the sale when both parties know that the client will end up paying a portion of the cost of production.
A combination structure calculates a flat fee that the client pays to secure your services while the sales of the DVDs are yours to keep. The best predictor of future performance is past performance, so to calculate your flat fee you estimate your sales based on the levels attained the previous year, and figure out how many DVDs you will be short of your minimum. Multiply this amount by your DVD sales price; this is the amount you will want to set your flat fee at.
Although it is always important to establish your value-added benefits with your clients, this is especially true for clients who fall into your combination structure so they can feel justified for their contribution. Complimentary DVDs, uploading a few of their numbers to your website and allowing them to place a link from theirs, or providing them with a video feed backstage during the performance are all value-added services that will go a long way when justifying your fees.
So now you know that the answer to the question of how much your DVDs cost is found by asking the client how many DVDs they sold last year and at what price. From there you can explain to them the structure that best fits their past performance and will offer them a flat fee or price per DVD based on their volume and your sales requirements. Small business is a risk but that doesn’t mean you have to take on all the financial risk in your business dealings. By selecting the appropriate pricing structure for each of your clients in the stage event market, you are going a long way toward balancing your risk-to-reward ratio with the goal of increasing profits.
To read Parts 1-3 of this series, click here.
Shawn Lam, MPV (video at shawnlam.ca) runs Shawn Lam Video, aVancover video production studio. He specializes in stage event and corporate video production and has presented seminars at WEVA Expo 2005-7 and the 4EVER Group's Video 07. He won an Emerald Artistic Achievement Award in Stage Production at Video 08.