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Ale Capo

Profits breakdown of a production company

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Hi guys,

I am interested in knowing the structure of a production company in terms of managing budget (expenses , and profits) and I wanted to ask more about it.

How does small/medium production company calculate its profit?

Assuming that the client's budget for a commercial is 50k. 

The production Company takes a percentage of this budget (let's say 20%) plus a margin profit (let's say 50%) from every expenses they have.

So: from 50k , the 20% percent goes to the production company : (10k)

From the remaining 40k (expenses) the company takes a margin profit of 50% (20k).

 

And therefore the remaining actual budget to make the commercial would be 20k. 

 

is that correct?

I guess profit margin will change basing of various factors and more factors (like percentage for director etc.) would need to be included. However , is that how they breakdown?

 

thanks,

 

Alessandro Capomolla

 

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It really depends on the prod co and the job and the kind of overheads.

Normally you'd cost the job, add extra to cover overheads (e.g office rent, insurance, internet, marketing etc..) then the profit margin is a per cent on top. Probably closer to 10 or 15% then 50%. Or there may be no profit on some jobs, which is still fine if everyone gets paid and it generates turn over.

Profit might not be expressed in the budget as a percent on top, since thats the first thing the client would haggle on. But normally each line item is padded. For instance I could hire a crew member for £350 per day, the client would be charged £500 per day for the same crew member. That padding would be to cover the additional costs of hiring (insurance, admin etc) and some profit. 

Profit is simply whats left over, so if your billing the client £50k and it costs you £40k then your profit is £10k. However if you've fully accounted for your costs against the budget a job my be worthwhile with little or no profit. Since profit is the money you make on top of your fee's, you still make money on a job that breaks even (e.g everyones salery, overheads and expenses is covered) . You might opt for less profit on jobs that give you a good showreel etc.. Also some companies have more overheads then others so would have to either charge more or spend less on each production. 

Profit is separate to fee's and salaries. E.g your director wouldn't normally get any profits. They would just get an agreed fee for the shoot. So would everyone, including the producer. The company owners would decide whats done with the profit, either reinvest it in the company or pay it out as dividends to the owners/shareholders.  

Profit is useful for expanding and mandatory if you have shareholders. But a small to mid size company has to be flexible.

I once went to a business seminar with the MD's of Framestore (Oscar winning VFX firm). Although they turn over 10's of million a year. They work on a very tight profit margin of about 5%. 

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