Reverse Engineering The Profit Motive

It’s been my experience that making less money on a more consistent basis leads to making more money.

Bill - Airport

en.wikipedia.org/wiki/Profit_motive – “In economics, the profit motive is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is to make money. Stated differently, the reason for a business’s existence is to turn a profit.”

The reason why people work is to get paid.

Yes, there are some people who work so they have a sense of actual purpose in life.

Other than that, people don’t like working for free. For that, they could be sleeping or screwing for free.

Too much “Profit Motivation” isn’t necessarily a good thing for your business.

Why Are You Working? o_O

Let’s take the video industry as an example… The better you are at what you do, the more you can charge.

That’s all well & good, but the more you charge, the more people can’t afford your services.

Which makes no difference if your motive is profit. 😀 It’s definitely better to work less and make more money than vice versa.

The issue, however, is that the higher the budget gets, the more uniform the work becomes.

There aren’t many industries left with high budgets. Pharmaceutical Companies and Television Networks are two that remain standing.

So if you focus on Profit Motivation, you end up working for Profit instead of Motivation.

For most people this is great because they weren’t motivated to work anyway. They were working because they owe somebody money or because they’re GOING TO owe somebody money at the end of this month and they don’t already have it.

If you actually manage to get ahead of this game and you’re making more money than you’re spending, focusing on Profit as a Motive may not be the way for you to go.

Money Versus Art

Now let’s look at the record-producing industry. There used to be major budgets and now there are almost no budgets at all.

If your goal in producing records is maximizing your personal profit, this is going to have the same effect that I mentioned above. You’re only going to be able to work with groups that have a large enough budget to hire you and add you to their team.

Unfortunately, making records is about creativity, so by restricting the artists you can work with, you can rather quickly arrive at a point of diminishing returns.

It doesn’t really matter if you do a commercial or a corporate video when both clients are paying your rate.

It DOES matter if you can’t make a record with someone talented because they can’t scrape together any money to pay you with via crowdfunding and their day jobs don’t sufficiently finance their music careers.

So is the point of making records maximizing your profits or making records? o_O

Standby Seating

Of course there’s the style of having corporate rates and indie rates.

Indie Rates are like when you’re on Standby at the airport. You’re paying less but you may or may not be able to get on the plane! 😀

This is basically saying “I know you can’t afford what I do but I’m going to do community service and still do this for you if I’m not working on actual work AND I feel like working for less instead of partying with my friends.”

This isn’t what I’m talking about because it’s still focused on Profit as your motive for working at all.

There are no “Record-Producing Pharma Companies” unless you count commercial jingles.

Sure there are a couple of Major Labels still functioning, but *YOU* most likely don’t have any association with them so what I’m talking about is independent or freelance record producers.

The music industry pyramid is more like a quadrilateral with zero people occupying what would have been the top of the triangle.

This is why you see diminishing returns. The people you’re pricing out of making records with you are the ones who will fill up your dance card.

If your corporate rate is $600/project and your indie rate is $200/project, you’re better off with 4 indie projects than only one corporate project.

You may or may not spend the same amount of time on each one, but I’m talking about considering things on a monthly scale or whatever time period you usually get paid in.

By focusing on the work instead of the profit, you end up making more money within that given time period.

Is your goal to make money faster in one day or to make money faster in the entire month? o_O

Everybody’s Broke

I’m not talking about undercutting your peer’s rates. 😀 I’m talking about recognizing that the industry works differently now because it has to.

The hindrance used to be “I can’t get a record deal”, and now it’s “I can’t afford to work with you”.

Would you rather spend your working time making records or convincing people why they should find more money to pay you to make their record?

I’ve heard this from all sides of the situation. Producers can’t find artists. Artists can’t find musicians. Musicians can’t find mixers. Rock Paper Scissors.

This is why you’ve got to choose whether you want to do the work and build your catalogue or you’d rather barter for higher profits.

I’m also not talking about devaluing your expertise and/or equipment. I’m talking about working in a way that maximizes your efficiency in this situation even if on paper it doesn’t maximize your hourly rate.

The Bottom Line

Another thing I didn’t personally like, not that it was any of my business, was the way labels historically have dealt with artists.

I get the picture that without the label paying for everything, the artist is still a singing bellhop that nobody has heard of, so of course the label is going to take 87% of the profits. (13% being left for the artist except that they never recoup past their advance anyway so royalties are essentially hypothetical.)

Again, you have to look at the Profit Motive. If an artist is popular, they can sell records, merchandise, and go on physical tours unless they send a hologram…..

The only reason you’re offering the music to the fans is because you believe you’re going to profit from it.

This is the same reason why Pharmas still have large video editing budgets. Their money is coming from the people that they’ve convinced need their drugs so they can afford to pay top dollar to the advertising agency who pays top dollar to you to edit the commercial.

This doesn’t work in the music industry right now because the demand isn’t there to justify the large budgets.

Most people are paying $10/month (or nothing) to listen to music on Spotify or some other streaming service. That’s the equivalent of buying one CD and having access to all the music ever made in history for a full month after your purchase.

So the amount of money you can possibly recoup is way lower.

However, the cost of the gear that’s being used to make music is way lower as well.

When you don’t have any overhead because all your gear is paid off, what incentive do you have to maximize profit at the expense of pricing out potential customers and collaborators? o_O

Your business has expenses and profits. That’s it. So long as you’re covering your expenses and doing a little more than breaking even, you’re winning. There’s no reason to overdo it with the profit motive.

KISS

Also, although royalties are largely fictional, as long as you’re covering your expenses, you can get your money on the back end.

This requires collaboration, however. You have to believe in the artist/band and want to see them succeed.

You can make a deal where the artist is responsible for paying for your expenses in producing their record and then after that, you share the profit with the artist 50/50.

And not sneaky expenses either. Laid out up front. This is how much it’s going to cost to make your record. I get 100% of any profit before that, and then when we reach that goal, you get 50% of any following profit and I get 50%.

This is a way to get around budget concerns while simultaneously putting your hat in the ring to profit or not with an artist who you think is doing good work.

It’s up to you how you deal with the expenses part. You can either request the money up front before you do the work or you can take the entire budget out of the back end.

Same deal with crowdfunding. If a band doesn’t have any money, tell them to go get it with the same deal available to them, meaning a set amount of expenses and then a 50/50 share after that.

Keep it simple. Win-Win.

Catalogue

The other issue here is that the less work you do, the fewer people there are who understand what you do.

In the video industry, this isn’t much of a big deal because your business comes from word of mouth anyway. People that you’ve done good work for recommend you to people who need good work done.

Also, when you’re doing corporate work and commercials, your name as the video editor isn’t going to be included in the final product anyway.

With music, it’s a different story. People want to know who recorded it. People want to know who mixed it. People want to know who the musicians were. People want to know what studio was used.

Here’s a Punk Rock EP I mixed 5 years ago in 2012:

If you don’t put in the work, people don’t know what you can do, causing them to not contact you for their projects, causing you to not put in any work…..

I think you’re better off mixing more records you enjoy and believe in for less profit than you are if you mix fewer records that have a higher budget but net you less money and recognition at the end of the proverbial day.

Understand Your Numbers

I always knew there was something I didn’t like about the “label” concept. That doesn’t mean that I’m not going to get involved with one, but I’d rather just produce and/or mix records.

It was all well & good to treat music as a regular business industry before everything went digital and “everybody” stopped paying for music.

The question is whether you can still produce music and cover your bottom line with enough profit left over for what you’re doing to be worth your while instead of working at Target.

Is the motive the profit or the records? o_O

I just had a conversation with someone who’s a partner in a studio whose overhead is $1k USD/Month. He was telling me about a deal they have where they’re selling X amount of hours per month to clients for $200. (I don’t remember how many hours that was)

This means that if he gets 5 clients to go for that deal, the amount he has to pay for his studio for the entire month is free for him. It’s covered by the work he may or may not have to do because the clients are purchasing potential hours without rollover (as far as I know).

It’s an excellent deal because IF you have a month where you want to use all of those X hours, it’s a great price for a professionally-built studio AND you have access to all of the gear they own without an added rental fee.

Also, the hours don’t have to be consecutive. They just have to be scheduled.

This is way better than studios that want to charge you for a block of time whether you use it or not.

People need to be able to see if they can book 2 hours at your studio if that’s what they think they need. NOT getting stuck with purchasing 4, 8, or 10 hours or else they’re locked out of the studio entirely.

Things are way simpler now. People don’t own millions of dollars’ worth of equipment that they took out loans to buy. People don’t have spacious, multi-room studios where they need to charge you $3,500 for the day to keep their doors open.

People, Process, Progress.

It’s nice to make money quickly, but it’s also nice to make money consistently.

It’s been my experience that making less money on a more consistent basis leads to making more money.

This is due to supply and demand.

If you fill up your dance card with $200 projects, someone is going to want to pay you $300 to bump one of your $200 clients and then someone is going to want to pay you $400 to bump your $300 clients.

I mean… Assuming you’re FANTASTIC at what you do!! 😀 hahaha

Doing the work builds your network.

Doing the work well builds your client roster.

Doing the work quickly allows you to do 3 $200 projects in the same day you would have done one $600 project, and at the end of the day, you’ve made the same amount of money.

I’m not against people charging what they want and holding out for what they feel they deserve.

I’m saying that in an industry where budgets are steadily declining and people are making less money now than they were making 10 years ago, you have to question whether a normal business approach makes the most sense for you.

What happens if you agree to work with a band that has $0 USD to their name for an expenses budget of $1,000 and then they hop on GoFundMe.com and their fans support them to the tune of $5,000? o_O

If your deal was 50% after expenses, you just went from $0 to $3,000 while the band paid you all the money they owe you and simultaneously cleared $2,000 for themselves.

Even if you didn’t make that deal, you still clear $1,000 instead of $0 before you even start working on the project. (The band receiving the excess $4,000)

If you’re doing one $1,000 project per week, that’s $4,000/month (gross). That’s $200/day if you don’t work on weekends. ($140/day if you do)

Compare that to holding out for $500/day and being hired for two projects at that rate per month….

What happens when you hire an assistant to work for a fraction of your rate although your productivity is being doubled? o_O

What happens when your quality was so good a client insists on working with you again and requests a lockout which they have to pay extra for because you can’t interact with your regular clients?

What happens when your speed was so fast that even though they paid you more, they got their product to market faster and recouped their money sooner?

What happens when one or more of the songs you own 50% become popular and you keep getting paid for work you already did?

There are too many ways to get paid in the music industry if you back down (temporarily) from your profit motivation.

I’m not suggesting that for people who are already doing well with what they’re currently charging.

It’s simple math that doing twice the work at half the rate gets you the same amount of money. 😀

The work, however, gets you the recognition, which is what gets you more work, which is what fills up your dance card, which is what allows you to raise your rates for people who want to work with you and bump your current clients.

It’s also what makes your current clients not feel like getting bumped and decide to pay you more instead of letting someone else buy your time.

Also, if you try it and don’t like it, you can go back to what you were doing.

Raising Rates can definitely lead to diminishing returns, as far as profit is concerned.

It’s great if you want to work less and make more money. 😀

It isn’t great if you’re pricing yourself above the range that people who would enjoy working with you can afford and/or justify for the quality they’re receiving.

Sometimes, you’re at the very top of this particular mountain you were climbing, and the only way to ascend to new heights is to back up from where you are and climb a different mountain.

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