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Business Issues - Finances

How Much Should I charge?

Introduction

It is often difficult to determine what a fair and competitive price for your laser services should be.  There are no hard and fast rules and no recommended pricing guides in the laser industry.  Here are some practical ways to gauge what to charge for your show services.

 

Consider Your Equipment

You will have invested a considerable sum of money into your equipment.  Most governments will give you 4 to 5 years to depreciate equipment that is used for rental/hire.  Lasers and projectors, when well maintained, will last more then 5 years but the technology needs to be updated regularly and laser tubes have to be replaced which can be an expensive undertaking.
A more reasonable lifespan, taking tube life and technological updates into account, would be 2.5 years.  You have to make the money you have invest in the system back over 2.5 years [not including the cost of overhead and day-to-day business operation].  Thus if you have spent $50,000.00 on your laser system, a not unreasonable sum for a fully featured colour system, you must be able to generate $20,000.00 per year out of the laser for the system to pay for itself.
At a minimum you would be doing at least 1 show per monthly for 12 shows per year.  Based on one show-day per month, you would have to charge $1,667.00/show-day for the laser just to break even - not accounting for the other costs of running your business [the example numbers are rounded up for simplicity].
If you are a hobbyist, then one show-day a month is a reasonable expectation and on top of that, you probably paid a lot less for your system than a professional system and are not concerned that it should earn you a living.  This article will focus more on professional laserists rather than hobbyists but the same ideas on pricing shows can be used by all laserists.
As a professional laserist, you should be aiming at an average of 2.5 show days per month [20 shows a year] and preferably you should be doing at least one show a week on average [52 shows a year].  At 20 shows a year for the above example, your laser equipment needs to earn $1,000.00 per show-day on average.  At 52 shows a year, your equipment needs to earn $386.00 per show-day but your operation and maintenance costs will be higher.  You also need to factor in multiple day shows as the rate billed for the second and each additional day in the same location is generally 50% of the first day's rate thus a 2 day show only counts as 1.5 show-days of revenue.

 

Consider your overhead

The cost of purchasing and maintaining the laser system is not your only cost of doing business and naturally you expect to make a profit.  You will have space rental, utilities, telephone, insurance, vehicle expenses, promotion and advertising, taxes, and labour amongst other things to consider - this is your overhead.  You will need to do an accounting of these expenses and also divide them by the number of shows you expect to perform in a year.
Taking as an example a cost of $2,000.00 per month for the cost of operations based on a modest studio space outside of the high rent district [$24,000/year].  At 20 shows per year, your cost per show on your overhead is $1,200.00 per show.  Added to the example cost of the laser given above of $1,000.00 per show, you would have to charge $ 2,200.00 per show before profits in order to break even.  In the example of 52 shows per year, you would have to charge $ 1,423.00 per show to break even.  This is a good example of how keeping your average at 3+ show-days per month is the best way to become profitable.

 

Consider your profit margin

Everybody wants to get rich, but the laser show business is not the place to do that.  If you are getting involved with lasers to get rich, quit now while you are ahead and pursue a more profitable occupation!  Most laserists are involved due to a love of the art form and the creative possibilities but you should expect to make a reasonable living out of your endeavors.
Looking at other retail industries that sell direct to consumers, we see that custom computer builders generally operate on a profit margin of 20-30% while high-end audio sales companies operate at around 25-33% profit.  Profit margins in large chain retailers are much lower but they do not offer the level of service and support which is why we don't look to them as a comparison.
A reasonable profit margin for laser shows would this be in the 20-30% range so we will take 25% for the sake of this discussion.  While this is a desirable margin, it may not be possible for a variety of reasons and may have to be adjusted to suit your circumstances.
Adding in the 25% profit margin to the figures given above by way of example, at 20 shows per year you would have to charge $2,750.00 per show-day, and at 52 shows a year you would have to charge $ 1,778.00 per show-day to make a profit.  The reality is that you should budget for the minimal number of shows which allows you to make a better margin if you do more shows, as well as accounting for the higher cost of maintenance and operations involved in doing more shows per year.

 

Consider the market

The discussion so far has been theoretical and has not introduced market factors into determining a fair price for your laser show services.  It is very important that one consider the potential market(s) that you plan to serve.
Obviously if the market is large and well funded, they would be better able to afford your services than small or poorly financed markets.  A corporation hiring your laser show services will pay more for them than say a wedding reception.  Naturally the corporate client will expect a higher level of services and there is the possibility to have a bigger billing through additional services such as custom programming.  At the other ended of the sale, small dance type shows have very little budget and there is often no opportunity to bill for additional services.  The up side to the smaller markets is that they don't expect all the "bells and whistles" so the cost of performing the show may be lower.

 

Consider the competition

In determining the price for your show, you also have to factor in the competition.  If you do have a competitor serving the same market(s), you need to find out what their rates for shows are.  Clients will often contact all the laser companies in the area to get quotes on their needs.
If your competition will perform a show for $ 2,000.00, you will have a hard time justifying a price of $3,000.00 for that same show unless you have marked technological superiority over the competition or can offer the clients additional services or equipment that the competition can not provide.
You can not always rely on clients hiring you just because your show is 10-20% cheaper then the competition unless it exactly fulfils their needs.  In fact, it is often easier to sell your services at a higher price than the competition if you can demonstrate to the client that there are tangible benefits to hiring you.
Remember that in such situations is not advisable to "slam" the competition, but rather to explain to the client the benefits that accrue to them by hiring you with your superior technology and skills.  Speak positively about your show services and if you have to mention the competition at all, always do so in neutral terms.

 

How the client sees the price

Depending on the type of show and the type of client, they do not always see the price of the show the way you do.  If you market only laser services, then the price is up-front as the client is well aware of your quote and is obtaining sound, lights, staging and other items from different vendors.  If you are a sound and lighting or special effects company where the laser is part of your services, then the client does not see usually see the show as a distinct item as it is part of a package of equipment and services you are providing.
This has some advantages as you can use the laser show as a "lever" to sell additional services that may be more profitable, in effect subsidizing the laser, or using the laser as a marketing tool, thus adding to your overall profitability.  Some companies actually provide laser services at lower than market rates [if they were billed separately] since that allows them to get a foot in the door to sell a bigger package with a higher billing.  Some laser companies have the production experience and contacts to subcontract out the staging, lights and sound thus adding an additional profit to their services without the investment and overhead in that type of equipment.

 

Reality check

Having considered all of the above, you can now set reasonable and fair prices for your show.  By first looking at what you should be making to cover your investment in equipment and your overhead, then considering your profit margin, you can come to a baseline price that you would like to charge.  Then you have to factor in the market and what it can afford, and then the competition and what they charge for similar shows.
This will give you a good idea of what you should be charging for your laser services, but this will have to be tempered by market conditions.

 

DISCLAIMER: Some of the information in the Backstage area is provided by the persons or companies named on the relevant page(s). Laser F/X does NOT endorse or recommend any products/services and is NOT responsible for the technical accuracy of the information provided.  We provide this information as a service to laserists using the Backstage area.

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