Production & Accounting For Freelancers & Studio Managers

Published: 30 May 2019

By Ali Ismail

Introduction

When starting out in freelancing, I worked mostly on intuition with a rough guideline of how I should price things, but as I got more work and later had a small studio to manage, working on “intuition” really does not cut it. At the end of every month I had salaries and bills to pay and I really needed to be certain of my numbers and to avoid any confusion when making bids; by knowing that the price I set is based on accurate numbers. And to also have accurate ways to measure performance.

I notice quite often that lots of freelancers and sometimes even small studio managers miss out on the importance of proper tracking, measuring, analytics, how to have an hourly/daily rate, and even the difference between profit and revenue. And I even see that some artists working in bigger studios do not really understand why there is a producer following up with them and their daily activities. And how truly important is a software like Shotgun for the bigger facilities.

This will be a short article to clear my understanding on the matter and share what I do to have proper analytics for my work which helps me in making proper bids and to know if one line of work is profitable or not and to have a better idea on staff performance.

Maybe later on I will record a quick video with excel sheets showing how to go about it, but here I will just layout the absolute basics in texts with no graphs or illustrations.

Tracking

Tracking what you do is the most important step for production, and everything else is dependent on it. Even if you are working alone, it is very prudent to keep track of what you are doing. Tracking includes activities and finance accounting.

Tracking in a simple sense is storing what you or your staff have worked on everyday and it should also include storing any work related expenditures you make, it can be detailed or can be as broad as mentioning the project you have worked on, but you need to at least write down something. I know it can be tedious sometimes, but it must be done!

"If you can't measure it, you can't improve it." Peter Drucker

Tracking is essential for many reasons:

  • Gives you accurate data to base your time estimates and bids on. Having a track record of the past, makes it easier to predict the future. If you have tracked how many days it took to finish that car animation. The next time a client asks for another similar car animation; you can say with confidence how long you expect it to take.

  • Calculating cost and knowing if you made a profit or not, tracked history can be easily translated into cost, knowing how many days you or your staff worked on something. means that you can multiply those days by the daily rate and know how much it cost you to make something, which in addition to bidding prices, helps you find out if you made a profit or not on past activity.

    Also, storing any work related expenditures such as software or hardware for a freelancer, makes is easier to calculate and add that cost to your daily rates, and I believe there is no need to explain how important for a manager to keep accurate and detailed accounts of any expenditures or salaries.

  • Measuring performance, you can also use it to know if one team member is slower or faster than another. Or if there is an issue you can tackle to speed up things. Just knowing that someone is following up and storing this kind of data will make team members or yourself work more efficiently.

  • It helps you to focus on results and avoid wasting time. I see quite a lot of freelancers wasting their time working on projects, which to be honest are not good for anything, starting things and never finishing them, wasting time jumping from software to software without achieving any tangible results. If you track what you are doing, and you end up with 2 months which were actually spent learning things or tools you do not need, and starting 4 or 5 different projects and never finishing anything. You will start to be more careful on how you choose to spend your time. But if you don’t make a record of that data, you might never realize how much time have you wasted.

  • For taking days off. I imagine I can hardly find a manager who forgets to keep a record of days taken off by his/her staff. But if you are a freelancer working on your own, you probably tend to forget to take note that you have been working 12 months straight without any vacation. Vacations are refreshing and could make you more productive and have a new outlook on things. If you keep track of the days you are working on, You can take a vacation just the same as you were an employee, without feeling guilty about it. But if you don’t track your activity, you might have very long undifferentiated days not knowing if you have been working hard or not.

If you can’t be bothered with doing any accounting or analytics, please do at least record what you are doing on a day to day basis, you will find that your productivity have improved significantly after you have started tracking what you do. And when you have time or if in the future you change your mind, you can always use tracked data to do analytics or find the cost of what you have been doing previously.

And if you are a studio manager you probably understand that you shouldn’t just track your staff work activities but also any expenditures such as salaries, bills, rent etc.. so that you can always go back to them if you needed to and to have an idea on how you are spending your money and make informed decisions.

Daily Rates & Bidding

When we get into accounting, things can get complicated quickly, but what I will explain here, will be only some simple rough guidelines, which should be at least better than nothing if you are new to this. If you have a bigger studio you probably want to consult an accountant or hire someone who is experienced with these things.

To avoid confusion and guess work every time someone asks you for a project quote; you must know your hourly or daily rates. After that, giving prices or cost estimates, is only a matter of knowing how much time a project will take, which is a lot easier to find out if you have been already tracking your previous projects as we mentioned earlier. This of course applies to working alone as a freelancer or to a studio with team members, although in the case of a studio, your artist or studio rates might be slightly more complicated to calculate.

If you are alone and are not paying staff monthly, and are not paying for office rent or any governmental fees related to operating a business. Then the process of finding your daily rate should be relatively easy:

it starts with finding your base salary, if you are working for a company, what do you expect your monthly salary to be? for example if you expect to be making 40,000$/year if you are working in a game development company, add to that any benefits you expect to typically get when working as an employee like medical insurance then add to that any yearly software or hardware cost. For example If you buy a computer once every 3 years, then divide that cost by 3 and add it to the yearly cost. And If you are using a yearly subscription software then add that to your yearly expenses.

So the 40K$/year you started with might end up 50K$/year after you’ve added any benefits or software and hardware costs. And once you have that number you can find your daily rate like this: (Please note that these numbers can differ a lot from country to country and all the numbers I used are only demonstrative.):


Daily Rate = (Yearly Salary X Freelance Rate) / 230


So what is the free lance rate and the 230 number?

  • 230 represent the working days of the year

The year has 52 weeks, each week has 5 days, which gives us 260 working days a year, that’s without public holidays, vacations and sick leaves, after you deduct the number of days that typically go to holidays, you will end up with 230. Please feel free to use the number of working days per year that best suits your situation.

52 Week X 5 Working Days a Week = 260 Working Days a Year Without Holidays

260 Working Days a Year - 30 Vacations & Sicks Leaves = 230

  • The Freelance Rate

It depends on the service you provide, but when freelancing or running your own business; you will almost never be able to have a complete year with one project finishing and another coming right afterwards all year round. You are going to have many weeks without client work.

You might have as much as half of the year with no projects at all, you will also need to spend time marketing your services, and maybe some time to agree on contracts, follow up with payments, additional project requests that were not accounted for, hardware or software issues, etc.. If you charge as much as you are making when you are a salaried employee you will end up making a lot less when freelancing and wish that you have kept your old steady job!

I recommend using a Freelance rate of at least 2, you could go higher or lower, it’s up to you. It also depends on how long is the project, if a project is a big one and will take you 6 months to complete for example, maybe you can lower your rates, but know what you are doing and have a general idea on accounting. And how much you are making and spending in general.

Numbers

So if we take our previous example of 40,000 $/year which after additional benefits and cost became 50,000$/year your daily rate will be the following:

(50,000$ X 2) / 230 = 435 $/day

Which is about 54$ per hour.

Now I understand many freelancers in the Los Angeles or Vancouver will charge a more, and others in countries without a strong VFX studios presence will charge way less, I find that it’s a lot harder to charge numbers close to these if working for a client remotely. And you will be faced with conditions that make it harder to charge high rates.

But the whole idea of this process is to know how to calculate your cost, if you decide to use a freelance rate of 1.5 for example, or to lower or raise your base salary to know what effect it should have. And to understand how does that compare to working as an employee.

So if you can’t charge 40$/ hour, you might be better off trying to get that 35K job a year. And if you accept 15$/hour rates you should know that you cannot sustain that for long unless you live in a place with very low living expenses.

If you have staff it gets a bit more complicated because you will have employees for example who could be supporting other team members and not doing any actual work, like a secretary or a producer, and you will need to account for their cost and divide it up for your team members, and same goes to a manager or supervisor. But I believe if someone understands how to calculate cost and make bids when there is a single person involved (i.e. a freelancer) they will be able to use common sense to come up with pretty accurate cost and production estimates for a bigger crew, of course again, if you have a really large team you will need to get more specialized knowledge and be more accurate with your estimates because small margins of error at a bigger team could make a big difference while for a small crew it can be neglected.

Scheduling

It goes without saying, that you of course need to have proper schedules for yourself or any staff working with you, this is made easier if you have had a record of how long things took previously. And the experience and detailed knowledge of your craft and what tasks depends on what other tasks so you schedule properly.

Analytics and Projections

Tracking, knowing your daily rate and finances are super important not only to make bids but it helps you big time in making decisions, informed ones that is, and not just guess work. These numbers will also help you:

  • Make better projections on how much money you expect to have by the end of the year if you didn’t get any project or if you got a couple of projects with X$ earnings for example. Which should translate into deciding if your current line of work is sustainable, if you need to make changes, cut costs or find ways to increase your income.

  • Know if you are spending too much on hardware, software, rent or salaries and have cool looking pie charts that are a lot easier to read than numbers.

  • Are you making profit or losing money with every quarter, are things getting better or worse and why.

  • Which artist or staff member is performing better especially compared to cost. Tracking those days spent on the same task then multiplying it by the daily rate of each artist will give you a pretty accurate number how much it one cost to make the same task. You should of course take all factors into consideration such as team work and attitude etc.. But these tracked number help give you an unbiased criteria.

  • Are that type of projects making you more money than another, should you invest more or less in marketing a certain category.

  • Are your product sales (such as games, software or assets) increasing or decreasing, which ones are the best performers?

Translating the data you kept track of into charts and diagrams really help you analyze that data clearly and see the whole picture.

I know this has been somewhat a dry article with no pictures and little bit on the verbose side of things, which a quick Youtube video would explain better and a lot faster, but maybe later! For now thank you reading and if you have managed to reach this far!