SPEND SMARTER

Man­ag­ing your bud­gets badly is the fast track to a bro­ken stu­dio. Here we de­liver an es­sen­tial crash-course to man­ag­ing costs, and glean the key fi­nan­cial lessons suc­cess­ful stu­dios had to learn in or­der to turn cre­ativ­ity into cash

Computer Arts - - Contents -

Re­vealed: the key fi­nan­cial lessons that suc­cess­ful stu­dios had to learn to turn cre­ativ­ity into cash

There’s an old-fash­ioned rule of thumb in the res­tau­rant trade on how to price a dish: take the cost of the in­gre­di­ents, add tax, and times it by three. With one third of the fig­ure you’re left with cov­er­ing the cost of the in­gre­di­ents; a fur­ther third cov­er­ing op­er­at­ing ex­penses; and the fi­nal third amounts to pure, post-tax profit. All man­ner of un­con­trol­lable trad­ing con­di­tions, weather in­ci­dents, ill­nesses, ac­ci­dents and gen­eral force ma­jeure can af­fect op­er­at­ing ex­penses and the price of in­gre­di­ents, of course. Which is why the tri­an­gu­lated bud­get­ing for­mula works – be­cause it en­sures that the profit mar­gin of each dish sold is al­ways pro­tected.

The cre­ative trade, by com­par­i­son, is about as sim­ple to ‘price’ as a Jimmy Five Spice menu. Each ‘in­gre­di­ent’ in a cre­ative pro­ject is al­most im­pos­si­ble to cost tan­gi­bly, mean­ing the in­dus­try is dou­bly li­able for un­der­charg­ing for ex­per­tise, and over­charg­ing for time. The re­sult can equate to cash­flow prob­lems at best, and in worst case sce­nar­ios, trad­ing-deficit and out­right bank­ruptcy.

The ex­cuse that bud­gets and busi­ness should be left to the ac­count heads is a non­sense in to­day’s in­dus­try. The most im­pres­sive young cre­atives on the books of global agen­cies are just as likely to un­der­stand the nu­ances of trade and profit lines as they are in cre­at­ing mood boards and brand state­ments. And with good rea­son. With more than a third of the cre­ative in­dus­tries work­ing on short­term con­tracts or self-em­ployed, at some point in their ca­reers ev­ery de­signer will have to get their head around a profit and loss line: whether that’s as a busi­ness owner, sole-trader or a cre­ative head at a mega agency.

“It’s the lazi­est thing in the world to say you can’t add up; that poor old ex­cuse that you ‘don’t get num­bers’; that be­ing a de­signer [you] ‘just do the pic­tures’,” says Si­mon Manchipp, founder and ex­ec­u­tive strate­gic cre­ative di­rec­tor at Some­One.

“Se­ri­ously? When you buy a Cor­netto, you don’t check your change? That’s just lazy rub­bish. Of course you do. So don’t spout the non­sense about be­ing ‘an artist, not an ac­coun­tant’.”

What’s key to un­der­stand is that the fi­nan­cial and cre­ative sides of a busi­ness have more than a sym­bi­otic re­la­tion­ship. While one area can­not sur­vive with­out the other, the fact that the two com­ple­ment and strengthen each other to a busi­ness’ ad­van­tage means that award­win­ning cre­ative work is not just funded by smart bud­get­ing, but is wholly de­pen­dent upon it.

“This is com­mer­cial cre­ativ­ity and if you don’t get the com­merce you won’t get the most out of the cre­ativ­ity,” says Manchipp. “Ev­ery­one at Some­One un­der­stands the re­la­tion­ship. We work with it, at it and in spite of it. If you can work Pho­to­shop, you can read a profit and loss state­ment. And it’ll give you more in­sight into how to make the pro­ject rock — this time and next time.”

On a very ba­sic level, a bud­get dic­tates how much you have to in­vest in a pro­ject. The qual­ity of the cre­ative vi­sion should al­ways dic­tate the num­bers – that’s what you’ve sold the client af­ter all. How­ever, a solid bud­get en­sures you don’t over­reach, over­spend and end up run­ning out of money. For that rea­son, the very best

bud­get­ing gets the great­est value at a cre­ative level, while max­imis­ing profit mar­gins at a busi­ness level.

PITCH OR COST?

A cre­ative bud­get is gen­er­ally ar­rived upon in one of two ways: a reg­u­lar client tells its ros­tered agency of a busi­ness ob­jec­tive and gives them an ap­prox­i­mate sum to de­liver it, or, a brief is put out to ten­der, to which an agency or stu­dio sells a cre­ative vi­sion for a set price. The suc­cess of a pitch rests on read­ing the brief and re­spond­ing with a vi­sion that de­liv­ers what is asked. The suc­cess of the pro­ject, by com­par­i­son, rests on de­liv­er­ing this for the widest pos­si­ble bud­get sur­plus.

“Some­times at pitch stage clients just want to know ball­park fig­ures,” says The Part­ners’ Greg Quin­ton. “Some­times we have to flesh out ev­ery de­tail, ev­ery per­son, ev­ery hour and ev­ery penny. Our pref­er­ence is al­ways to talk about the work first, and look at bud­gets af­ter. But we don’t go into that sit­u­a­tion blind, we try and iden­tify how se­ri­ous they are.”

The com­mon fear is that by op­ti­misti­cally pric­ing your work, you will be less com­pet­i­tive in the ten­der. But this is far from true. What’s much more dam­ag­ing is not be­ing able to price your pitch re­al­is­ti­cally. By un­der­pric­ing your pro­posal you run the very real risk of not only gain­ing lit­tle profit, but by over­spend­ing to the detri­ment of your busi­ness’s bot­tom line. For­tu­nately there are some ex­cel­lent re­sources avail­able online on how to com­pet­i­tively price a pitch, in­clud­ing this guide from The Cul­tural En­ter­prises Of­fice: http://bit.ly/CEOBud­getGuide.

Last year’s De­sign In­dus­try UK Busi­ness Ser­vices Re­view dis­cov­ered that of di­rect fee-pay­ing clients (that is, those who put out open ten­ders), only 18 per cent of new busi­nesses went to the low­est priced pitch. Cre­ative vi­sion is what wins busi­ness. Yet de­liv­er­ing that vi­sion on a bud­get that max­imises cre­ative im­pact while pro­tect­ing your profit mar­gin is a del­i­cate bal­ance. How do you ar­rive on a sen­si­ble per­cent­age of the client fee to spend? It’s a dark art, and one that dif­fers from agency to agency:

“It’s re­ally dull,” says Manchipp. “We’ve tried to make it more fun. More of a gam­ble. More am­bi­tious. And more linked to the out­come and the fi­nan­cial goals of the pro­ject. None of them work [for us]. So we es­ti­mate how long it’ll take, how many peo­ple will be in­volved, what our over­heads are and what the hourly rates at­tached to the peo­ple are, and bingo: an es­ti­mate.”

A typ­i­cally ‘healthy’ busi­ness in the UK will aim to run at be­tween a 25 and 35 per cent profit mar­gin,

ac­cord­ing to the Depart­ment of Trade and In­dus­try. With a pro­ject bud­get cov­er­ing di­rect costs such as ma­te­ri­als, equip­ment, lo­ca­tion hires, per­haps spe­cial­ist pho­tog­ra­phers or il­lus­tra­tors; and over­head costs in­clud­ing per­ma­nent staff and other op­er­a­tional el­e­ments, it’s im­por­tant to have a firm grasp of what ex­pen­di­ture the pro­ject is likely to have. Not nec­es­sar­ily to the bean, but cer­tainly as re­al­is­ti­cally fore­casted as you can man­age. Be­ing cau­tious is key, as is plan­ning in a con­tin­gency sum of around 5-10 per cent of the pro­ject bud­get to pay for any un­ex­pected costs with­out hit­ting your sur­plus.

A WORK­ING BUD­GET

The as­sump­tion that a bud­get is rigid is one that hob­nails even the best busi­ness brains. Suc­cess­ful bud­get­ing is about con­stant man­age­ment, and not ea­gle-eyed ex­pense watch­ing. Each one of the agen­cies and stu­dios we spoke to for this ar­ti­cle re­in­forced the no­tion that in or­der to get the most out of a bud­get, you have to put in a great deal of time, energy and ex­per­tise. For ex­am­ple, par­ti­tion­ing off cre­ative spend at the be­gin­ning of a pro­ject and re­ly­ing on a con­tin­gency fund should any of the in­di­vid­ual ar­eas run over re­sults in what’s called ‘silo’ think­ing. What bet­ter than to pool re­sources or use hired fa­cil­i­ties for mul­ti­ple projects, or of­fer more work to a di­rec­tor or devel­oper al­ready work­ing on an ex­ist­ing pro­ject? This is where stu­dio man­agers and pro­duc­tion heads earn their crust, and un­der­lines the crit­i­cal re­la­tion­ship be­tween ac­count team and cre­ative man­age­ment.

“Like any re­la­tion­ship, you have to work to­gether, on the big stuff and the tiny de­tails,” says Quin­ton. “As much as you’d like them to go like clockwork, projects rarely, or never, go ex­actly to plan be­cause they in­volve one im­por­tant vari­able – and that’s peo­ple. ‘En­forc­ing bud­gets’ as a term is too black and white. Clients and peo­ple in gen­eral re­quire flex­i­bil­ity and un­der­stand­ing. Bud­gets are more like a plethora of greys.”

The age-old as­sump­tion that a feud ex­ists be­tween ac­counts and cre­atives has long been dis­pelled. Client re­la­tion­ships don’t hang by a spread­sheet, and bud­gets can be rene­go­ti­ated. But it’s cash­flow that re­mains king. Your pro­ject might have a num­ber of up­front costs which the pay­ment sched­ule doesn’t take into ac­count, or ma­te­rial costs might only oc­cur in the first few stages of a pro­ject. In these in­stances it’s key to map your cre­ative pro­duc­tion plan against the pro­ject bud­get and cash­flow.

“Re­mem­ber when you are look­ing at your bud­get, don’t just go through all the in­come, costs and

con­tin­gency – also [ask your­self] ‘am I go­ing to run out of money at any point?’,” states Kath­leen Ben­ham, founder of Ben­ham Con­way & Co Char­tered Ac­coun­tants, whose ex­cel­lent re­source, Un­der­stand­ing Pro­ject Bud­gets, is avail­able for free on the Cul­tural En­ter­prise Of­fice site. “It might be that you have a sur­plus at the end of the pro­ject but part way through you have a deficit. If you can iden­tify that this will hap­pen in ad­vance, you can say, ‘We’ve done the cash­flow for this pro­ject and in­stead of giv­ing us 40 per cent, 40 per cent and 20 per cent, can you give us 60 per cent, 20 per cent and 20 per cent?’ Your fun­der would much rather your pro­ject works. So look­ing at cash­flow is im­por­tant and some­thing a bud­get of­ten omits.”

MAK­ING BUD­GETS WORK HARDER

Get­ting the most cre­ative clout from a pro­ject bud­get is what the world’s best cre­ative di­rec­tors are cel­e­brated (and paid) for. Yet most of us are un­likely to be deal­ing with the kinds of six fig­ure ex­pen­di­tures big agen­cies play with. There are ways to make a bud­get go fur­ther with­out cut­ting corners, though, whether work­ing on a megabrand or a lo­cal res­tau­rant logo.

Op­er­a­tional costs tend to be fixed, but bought-in tal­ent and other ma­te­rial costs can be ne­go­ti­ated and made to work harder. All too of­ten agen­cies look to a fur­ther ser­vice to sup­ply cre­ative tal­ent – usu­ally an agency work­ing on be­half of a model, di­rec­tor, il­lus­tra­tor or pho­tog­ra­pher. Agen­cies vary wildly in their com­mis­sion fees, but will re­ward re­peat book­ings and are of­ten open to ne­go­ti­a­tion for those on their books who may be less in de­mand. Mak­ing good con­tacts at key agen­cies means that you will of­ten get a heads-up on up-and-com­ing tal­ent that doesn’t carry the heftier rate of more es­tab­lished names.

The in­dus­try is de­pen­dent upon new tal­ent, though, and all of the cre­atives we spoke to ad­vo­cated an aware­ness of de­gree shows and new de­sign tal­ent awards. The likes of WPP, McCann and BBH of­fer hotly con­tested in­tern­ships and grad­u­ate place­ments. Why? Well mag­nan­i­mous­ness and al­tru­ism aside, one rea­son is be­cause (while ar­guably it shouldn’t), young tal­ent costs less. New De­sign­ers, the D&AD New Blood fes­ti­val and count­less grad­u­ate shows should all be an­nual fix­tures in your di­ary, not be­cause they are cat­tle mar­kets for cheap tal­ent, but be­cause they are ex­hi­bi­tions of young cre­atives who, if you in­vest in them, have the po­ten­tial to de­liver as­ton­ish­ing cre­ative work as well as man­age a bud­get.

The same should be ap­plied to ex­port­ing work. This is es­pe­cially true of devel­oper and coder ‘farms’

where costs (and even re­sults) might be at­trac­tive, but sup­port and li­cens­ing is­sues are widely re­ported. There are many ex­cel­lent ex­am­ples of in­ter­na­tional cre­ative ser­vices if you re­search prop­erly, and some in-depth guides avail­able from re­sources such as the De­sign Busi­ness As­so­ci­a­tion (www.dba.org.uk) are a solid start­ing point for the ex­port im­pli­ca­tions to your busi­ness. Find­ing and com­mis­sion­ing in­di­vid­ual in­ter­na­tional il­lus­tra­tors, pho­tog­ra­phers and other cre­atives is straight­for­ward. Out­sourc­ing art­work pro­duc­tion and cod­ing to over­seas com­pa­nies car­ries in­creased li­a­bil­i­ties.

KEEP GOOD CLIENTS HAPPY

When­ever the work is pro­duced, re­peat busi­ness is fa­mously more prof­itable than new busi­ness, so keep your most prof­itable clients the hap­pi­est. With cash­flow in mind, some agen­cies re­view their client ros­ter as of­ten as each month. Do­ing so en­ables them to forecast your cash­flow ef­fec­tively and drop or refuse non-or-low profit work. There’s lit­tle point tak­ing on a pro­ject which dents the bot­tom line. With­out good rea­son, any­way…

In­deed, some­times it is worth low­er­ing your rates, whether as a loss-leader in an­tic­i­pa­tion of more reg­u­lar busi­ness, or as a pro-bono ges­ture to a char­ity or other cause. In these in­stances tim­ing is cru­cial. Free or dis­count pay­ing clients won’t mind wait­ing un­til your cash­flow is in a stronger po­si­tion be­fore you un­der­take the work.

If you’re one of the 5.2mil­lion SMB’s in the UK, you might want to con­sider in­ves­ti­gat­ing skills swaps. Net­work­ing events and cre­ative in­dus­try sites in your area will in­tro­duce you to po­ten­tial col­lab­o­ra­tors. Per­haps you need an app de­vel­op­ing, which you could ex­change for a logo and brand­ing re­design. Con­sider what your low­est in-house costs are and of­fer those out to other lo­cal busi­nesses which may need some­thing in re­turn.

Bud­get­ing is one of the less glam­orous ar­eas of ex­per­tise in the cre­ative trade, but ul­ti­mately it is one which stu­dios have an el­e­ment of con­trol over: “The pitch process dic­tates all,” ex­plains Quin­ton, un­der­lin­ing that the cre­ative con­cept must al­ways come be­fore a cost­ing. “Any­one who cares about the work wants to avoid pitch de­ci­sions be­ing made on bud­get alone.” Man­ag­ing that bud­get and get­ting the most out of it is what com­mer­cial cre­ativ­ity is re­ally all about.

Some­One was tasked to make the process of buy­ing online not only more en­joy­able, but also a more el­e­gant, cu­rated ex­pe­ri­ence for peo­ple to re­flect the qual­ity and ser­vice of the brand; to take it be­yond the purely trans­ac­tional. An en­tirely new strate­gic vis­ual brand iden­tity was de­vel­oped for Glasses Di­rect to be de­ployed across mul­ti­ple chan­nels — both dig­i­tally re­spon­sive over many de­vices — but also through the pack­ag­ing and en­tire cus­tomer jour­ney.

Never Let Go makes per­for­mance safety gear with an aim to make hard­work­ing peo­ple do what they do best, with­out com­pro­mise. Hey Days helped the com­pany es­tab­lish a for­ward-driven po­si­tion for its prod­uct of­fer­ing. A fresh pal­ette of colours, a bold pat­tern and a logo with dy­namic pos­si­bil­i­ties help NLG stand out from its com­peti­tors

DeviantArt, the world’s largest online so­cial net­work for art, ap­proached Mov­ing Brands to un­der­take a mas­sive re­brand­ing, as well as the de­sign of a new app. To guide these changes, MB ar­tic­u­lated its core story: ‘Bleed and Breed Art’. A unique brand pat­tern was made from the new logo sym­bol: both as­pects re­flect a de­sire to turn the art world up­side down

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