In the first century BC, the now-famous economist Publilius Syrus wrote, “Something is only worth what someone is willing to pay for it”. An interesting thought that prompts a question that hits closer to home, what is the worth of video production? Mr Syrus would argue that its worth is only whatever somebody is willing to pay for it, and he would be right. However, economists would also agree that the price somebody is willing to pay for something is not the same for everybody, but rather depends on the value they believe it will bring to their business. So, how do you determine the value video production will bring to your business?
How Things Get Sold
Before we answer that question directly, let’s talk about economics for just bit longer. Since we’ve already determined that nothing has an objective worth, how is anything ever sold? It comes down to perception of worth by both the buyer and the seller.
The seller (the video production co.) determines what it perceives something is worth based on some semi-concrete numbers. How much time will go into making the thing? How difficult is it to make the thing? What are the raw expenses? Etc.
The buyer will also determine what value the video holds for their business through semi-conrete numbers. How much revenue could it generate? How long will it be relevant? How much use will I get out of it? What the return on investment? Etc.
It’s only when the buyer’s perceived value exceeds that of the seller’s perceived value that something is sold.
Video Production Value: The Seller
How do we determine the value of our video production? It’s not really all that complicated and falls in line with how every business sets their prices.
First, we determine fair hourly rate for each task that the members of our team perform. Each hourly rate is determined by the difficulty of the task and the scarcity/demand of talent capable of completing the task. We’ll call this the (talent/hr) rate.
Second, we determine the amount of money we spend to run a business that’s capable of producing video. This amount includes things like rent for our studio space, project manager salaries, computers, and more. We then split that total amount across the team members whose work we bill. It’s easy to see overhead as just a bunch of unnecessary costs, but that’s simply not true. While a project manager’s time is not directly billed, it would be impossible to complete a project without a project manager. Same goes for computers — try making a motion design film without a computer. We’ll call this (overhead/hr).
Third, profit. Every business has to make a profit, it lets you grow, hire more talent, and is the primary purpose of every business. We’ll call this (profit/hr).
Finally, based on information we’ve gathered in previous projects, we determine the number of hours that will be required to produce a specific type of film. For instance, a high-quality two-minute motion design film with character animation requires ten weeks of combined work. That works out to four hundred hours required to complete a project at a normal 40-hour week pace (and the actual hours worked per week normally exceeds that).
So, when it comes to video production, here’s the formula for determining the value of any film.
(Talent/hr) + (Overhead/hr) + (Profit/hr) x (Hours worked) = Value
There’s definitely more than one way to determine the value of your product or service, but this is the basics of how we determine ours.
Video Production Value: The Buyer
Similar to how there are many ways for the seller to determine value, there are multiple way for a buyer to determine value. How you determine value is a very individual-specific process for each business and depends a great deal on your goals, strategy, and methods of marketing.
When is comes to video production, there are two very different uses, sales-focused and impression-focused. Each type of video requires a different method for determining value, because each has a different short-term goal.
A sales-focused video is designed to increase short-term revenue. It’s sole purpose is to generate leads and/or close deals. A good sales-focused video has a definable and trackable outcome — or ROI.
On the other hand, an impression-focused video has more abstract goals that are very difficult to tie directly to revenue. It’s primary goal is to connect with your audience and provide an experience that they enjoy — it makes an impression on them. However, they’re not going to go buy your product right that second. It’s the same reason Coca-Cola constantly runs video ads — they’re not looking for you to run out and buy Coke right then, but next time you’re at the supermarket to make you want to pick up a case of Coke instead of Pepsi. Other than the number of impression made, there is no way to tie increases in revenue directly to the video.
So, how do your determine the value of these two vastly different types of video? It takes two different approaches and I’m going to explain each in the way that makes the most sense to me — we’ll call them the salesman and the public relations approach.
The Salesman Approach
The salesman approach will be very difficult to calculate for first-time video buyers, because there’s no baseline. I call it the salesman approach, because the value is found in the same place that it would be found when hiring a salesman — direct increase in revenue.
Dropbox famously increased conversions by 10% using an explainer video on their homepage, resulting in anywhere between 24–48 million dollars in revenue with a video that cost them $50,000.
However, put yourself in the Dropbox marketing directors shoes. When he ordered a $50,000 video for the first time, he didn’t have any idea it would generate millions in revenue. So, how did he determine its value? I don’t know him personally, but I imagine he asked himself, “will this video generate at least $50,000 in revenue over its lifetime?” How he answered that question was, in no small part, critical to Dropbox’s success.
How do you determine if you can see that amount of success? For first time buyers, it’s a leap of faith that’s followed by trackable data, but you have to ask yourself “will this video generate at least (cost of video) in revenue over its lifetime?”
The Public Relations Approach
Let’s start by discussing the role of public relations as a utility — to create interactions with the general public that present your business in a positive light. There’s rarely ever a short-term goal to increase your revenue when it comes to impressions created by public relations.
What is the goal? Creating impressions.
An impression is any instance when a consumer interacts with your brand. The goal of an impression is to create a positive interaction that will, in the future, influence the consumer to purchase your product or service over a competitor’s.
Tracking impressions is relatively easy. If you’re running your video as a television advertisement, the network running your ad will give you data on the number of viewers who watched your ad when it ran. The process is even easier if you’re sharing your video online, because there’s a view counter!
However, the most important question is the one your can’t answer — did your impression cause the viewer to buy your product? The answer will only be revealed through watching your revenue over a long period of time and, even then, the data isn’t concrete.
Here’s an example. In November 2014, we (Identity Visuals) released a short film titled SOLUS on vimeo. We had spent months producing, designing, animating, tweaking, and scoring the film. Our release strategy was simple, use twitter to get it in front of as many publication editors as possible.
One month later, SOLUS had 150,000 views, had been featured on Gizmodo (a popular tech-focused publication), A.V. Club (film commentary website) and was chosen as a Vimeo Staff Pick. Did it generate any direct revenue? No. Did it get our names in front of 150,000 consumers that could refer and/or hire us directly in the future? Yes.
Find Your Value
We love creating video, it’s our passion and we hope to continue to improve our skills and constantly make better content. However, we 100% that video should provide value to our clients. Whether you’re looking for a salesman video or a public relations video, take the time to think about the value that it presents for your business and your investment. For first time buyer’s the answer isn’t always clear, but taking that first jump into video production and diligently tracking its effectiveness will give you the data you need for future investments.
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