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Do you mark up your subcontracted services?

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Bruce Bennett in Madison, WI
Do you mark up your subcontracted services?
on Dec 18, 2006 at 1:54:34 pm

My marketing and video production business is less than a year old. I do mostly video production. I write, direct, produce and do some graphics. I subcontract out all the shooting, animation and editing. I


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JBaumchen
Re: Do you mark up your subcontracted services?
on Dec 18, 2006 at 4:42:01 pm

By all means it is ethical and you are entitled to put a markup on your subcontractor costs. There is no difference in putting a markup on the cost of rental gear or sub-contractors.

Look at it this way, the time you spend on admin time regarding the subcontractor is preproduction time spent on the client's project. In order to stay in business, you have to make a profit on not only your time, but on your costs as well.

If the sub contractor is billing you by the hour, either mark it up to what your hourly billing is or bill it out as a seperate line item at 1.5 times your cost.

Cheers.



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Mark Suszko
Re: Do you mark up your subcontracted services?
on Dec 18, 2006 at 5:42:16 pm

If your client is willing to pay what you ask of them, if it's a little or a lot, what does it matter to them how much you are paying the subs working for you? Granted, you should probably keep your markups under your hat, and not take them to a greedy excess. And if you are paying below minimum wage, shame on you. But the client is paying for an overall package. If your price to them is competitive and the work product is acceptible, and everyone is getting paid what they contracted for then what is the problem?

Just think about what you will say if/when the client finds out what something truly cost you. Will you be able to defend the amount of your markup under the umbrella of "administrative overhead" or even just normal profit margin? If so, you're fine. If not, the client may figure out you are overcharging more than necessary, may or may not be insulted, and start to shop around based on price.

The idea is that no matter how much cheaper one componnet or service alone may be obtained, it's the overall integrated and delivered PACKAGE we're talking about, and if that is giving value for money.



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Aanarav Sareen
Re: Do you mark up your subcontracted services?
on Dec 18, 2006 at 7:47:05 pm

[Bruce Bennett in Madison, WI] "What are all of your thoughts and practices on this topic?"

I ALWAYS markup any subcontracted work. There are entire businesses that do just that. I know someone who owns an IT placement firm, where they connect individuals with companies looking to fill spots(similar to a talent agencies, in a way). The markup for this particular firm ranges from 25% to 60%.

My markup range varies tremendously. For some companies it's as low as 5%, where as for other companies it is 40%.

- Aanarav

Aanarav Sareen
premiere@asvideoproductions.com

http://www.asvideoproductions.com/techtalk


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Bruce Bennett in Madison, WI
Re: Do you mark up your subcontracted services?
on Dec 19, 2006 at 2:51:31 am

So, I think this is what I gather overall...the same "Golden Rule"...
1. Find out the budget.
2. Perform all services at the highest level of quality for the budget.
3. Try to get as much of the budget as possible (with or without markups).

Agree?
Bruce

P.S. I write for video so grammar doesn' count :)



Bruce Bennett,
Bennett Marketing & Media Production, LLC - http://www.bmmp.com


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Nick Griffin
Re: Do you mark up your subcontracted services?
on Dec 19, 2006 at 5:24:25 pm

Bruce -
Let me give you a new number one. "Find out the budget" can drop to number two.

1. There is NOTHING wrong with making money.

You don't have to apologize for it or think you're ever doing something wrong or shady by having a mark-up on any goods or services which pass through you. It's called being in business.

What you DO need to do is accept this and therefore be up front about it. Our standard letter of agreement spells out that we mark-up goods and services which we purchase "on your behalf (Mr. Client)". Granted it's in the middle of a lot of other language regarding all aspects of our engagement and I don't make a practice of saying things like "You know, if you bought your own camera tapes you could save the 30% we mark them up."

Our mark-ups vary by item and, frankly by client. The standard in the advertising world is 17.65% (So that when 15% is deducted from the total, you're back at the original net cost.) But even in that world the mark-up on some items like printing can be 25%, 33%, 50%.

The important thing to remember is that wherever possible you have to add value. By providing the crew and handling the payment and by having the tapes and the props and everything you need for the shoot or the session, you are providing a service for the client -- you are making it easier for them. That's why it's OK to have a mark-up. And you know what? The convenience store a mile from where I live can charge more for a gallon of milk (have a higher mark-up) because they are providing the service of being open at midnight and being closer than the grocery store which has cheaper prices.


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Mike Cohen
Re: Do you mark up your subcontracted services?
on Dec 28, 2006 at 9:11:43 pm

If it takes me 4 hours to find a vendor for xyz service, I need to pay for some of that time. Plus after I have a contract with a vendor for say, a piece of animation, I am managing the vendor. While this is within the context of my contract with the original client, the original contract does not consider managing a subcontractor.

Pay yourself first - that's what my dad always told me! Actually he still tells me that.

If a client wants to find their own animation vendor and manage them separately and give you the final animation files to use in your project, they are free to do that without your permission - but they generally won't because managing and selecting such a vendor is not their area of expertise. But they can do it if they want to.

Hence your permission to mark up services.

Mike


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Bruce Bennett in Madison, WI
Re: Do you mark up your subcontracted services?
on Dec 29, 2006 at 4:55:23 pm

Mike,

I understand what you're saying. For your case/example of spending 4 hours on obtaining/hiring a certain subcontractor, I bill for my "project management time." For every project, I estimate and invoice "Producer/Project Coordination" hours for such things (teleconferences, client meetings, subcontractor production meetings, me sitting in the hot seat during post, etc.) and keep a log in MS Excel.

Since I am getting paid for my all of my time in all cases, does it still make good business sense to additionally mark up the subcontracted services?

Bruce


Bruce Bennett,
Bennett Marketing & Media Production, LLC - http://www.bmmp.com


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