Inflation
A small word, but with big consequences. Inflation is a roundup of how much the things we buy have risen (or sometimes fallen) over the last year. For most countries, inflation only goes up.
This article looks at how to keep or increase your profits while keeping your customers happy.
Inflation multiplies
It’s like compound interest. An inflation rate of 2% over 5 years isn’t a 2% x5 =10% increase in prices, but 1.02^5 = 11% rise. The longer it goes on, the more the total rise in price increases.
Why does this matter to me, a music engineer?
Simply put, your costs are going up, every day, beyond your control. Unless you increase your productivity – doing more work in a given day, or put up your prices, you’re getting poorer.
We get very nervous about our rates, and it often feels like a major event to raise our prices, but everything around you just goes up. Your rent, utilities, intern minimum wages, materials, you name it, it all goes up.
For many years, we didn’t raise our prices at Crookwood because we were concerned about what our customers would say, and there is always a constant pressure in audio to drop costs, but the longer you put the problem off, the worse it gets.
Let’s take an example. You charge out at £25 an hour say. If inflation was 2%, you should increase your rates thus:
Year 1 £25.00
Year 2 £25.50
Year 3 £26.01
Year 4 £26.53
Year 5 £27.06
If you did this each year, chances are, nobody would really notice. But if you suddenly go from £25 to £27 it’s much more noticeable. More to the point, if you worked 10 hours a day, 50 weeks of the year, you’d lose £12,750 over those five years by not raising your prices each year!
But my clients won’t accept a price rise
If you feel you really can’t raise your prices, what can you do? There are two main ways out of this:
1. Try and add extras onto the base price
2. Be more efficient
Adding extras is a valid way to raise your prices. Charging a bit extra for physical delivery, offering MP3 copies of their work, offering a more intensive production, initial consultations. Anything you can think of to just get a few more pennies for not much more work. It’s not as good as just raising your prices, but it will bring in a bit more money, and for regular hourly work, it will add up.
Efficiency on the other hand, is an investment. By paying out for better gear, software and services now, you will save time and be able to produce (bill) more work in any given day. It works best with fixed charges – so much a track etc, as any time saved can be translated into extra revenue. However it also allows you to raise your hourly prices, as you can reduce the time estimate for the customer – that is they still pay the same.
To get this higher productivity, start to look at what takes up your time. Start with boring stuff like invoicing, money collection, material ordering & documentation. Keep a diary and record how long this stuff takes you. Then if it’s significant, look at software that can speed it up, or farm out the process to somebody else for a fixed fee you can pass onto your clients.
Finally you can look at the actual audio production process. Most Crookwood clients work a lot faster than others because of how efficient the setup, recall and creative processes are with our consoles. We obviously would love you to buy a Crookwood, as they are the best option, but look at what you do, and have a think about what takes the time – how long does patching take, level cal, loading up DAWs, resetting levels, A/Bing etc. What slows down your creativity, what operations you do, that add nothing to the actual music?
Once you understand this, you can work out how long an investment in better gear will take to repay and then make you more money.
How to work out what to charge
It’s often temping to charge whole pounds/euros/dollars in your rate, but there is a whole science to charging and displaying money. For a visual intro, have a look here: https://conversionsciences.com/science-pricing-infographic/
The take away is that you can actually raise your prices without being obvious, by making them look more attractive to the buyer.
How to announce a price rise
There’s only two routes, do it now, or tell clients in advance it’s going to go up. I think you should look at doing both.
Work out how many clients do regular business with you. If none, just go ahead and put your prices up, changing them everywhere you publish them – this is important, conflicting prices cause confusion. If you have regular clients however, it’s important that you tell them in advance.
The common way to do it, is to send a blanket email to all of them. I personally hate receiving these letters, they feel very impersonal. For most of us, we won’t have that many regular clients, and in this case, I suggest reaching out to them first. In this way you can ask them how things are, have a general chat, remind them that you still exist (!) and then drop in that you’ve got a small price rise coming in. See below for an idea of timing. It’s much easier to do this in the middle of a conversation, than a cold call.
You shouldn’t apologise for the rise, just state it as fact, but you can underplay it, your price rise won’t destroy your relationship, and you’re worth it, aren’t you?
For the odd client who objects, know their worth to you prior to the call. If they give you regular work, you can offer a sweetener, % discount for so many jobs a year. If they only give you occasional work, is it worth the effort to keep them? Are they good clients? Knowing who pays you what and how long you have to wait for the money is essential knowledge to make decisions.
When to do it
There is no hard and fast rule. Often 1st Jan is used, but you can change prices at and time. I think for most regular services 3 month notice is polite and gives clients enough time to adjust. Again small chances are easy for anybody to absorb.
Give it a go.
Even if you don’t feel you can do any of this, make this an opportunity to understand and list your true costs of doing business. Data rules business, ignore it at your peril!