There are several ways to present budgets to clients and I've used them all at one time or another. No matter which way it's presented, the fee that most clients question is the one that concerns your profit. Let's explore some of the ways we present budgets, what some client objections might be, and then what our responses might be to all three scenarios.
Method 1: Transparency
This is a line item budget with one line for pre-production, another for on-site production and yet a third for post-production. And then -- fanfare please -- the line item that says "management fee" (or any euphemism you attach to that line item) which can either be a flat fee or a percentage of the job cost.
The response from client: Why are you charging a management fee? We think that should be part of the production fees.
My response: The management fee accounts for not only our profit but also taxes, insurance, overhead and all the internal costs including attending trade shows and industry meetings where we can source all products you need to make your program a success. Production costs are hard costs as I have to pay producers for their performance and cannot be assessed to be part of our profit (and drawing upon my last blog post, this might include giving them an example of how they price out their product, which might include R&D, production, packaging, advertising and promotion, labor and profit). You can also point out that you are being completely transparent so they know exactly what they are paying for and, of course, you will be happy to provide original invoices.
Method 2: A Mark Up
This is a line item budget where your management fee is built into every line item (which then keeps it from being transparent as every line item is marked up). And then you add production fees (as listed above).
Typical client response: Asking you to reveal actual costs so they know for what they are paying. They might even ask you to give them the actual invoices from all vendors.
It is up to you whether or not to reveal your sources, but if you value your event partners you should have no problem doing so as long as your mark-ups are also revealed. If faced with the same questions about production fees as I outlined above, the responses would be the same.
Method 3: All-Inclusive
This is a budget that lists a total cost of the job where all line items, as well as production costs and management fees, are in one all-inclusive dollar amount. You can really only use this method if the client requests it. I have found that the days of "how much will the whole event cost?" might only be an opening discussion but after that all costs need to be validated and memorialized.
The typical responses to clients questioning you on fees and profitability are to defend your right to make money, hire good staff and so on, which could lead to lowering your fee.
My advice is never to do that. We're back to "know your value" and even more important, know what it costs you to stay in business. You, like your client, are entitled to a fair profit. If you don't react defensively but instead are prepared to address what local, state and federal taxes, insurance and worker's comp fees actually cost in terms of the gross of a job then you are honoring them by informing them.
How do you do this tactfully? With empathy. Try, "I can understand why these fees might be unexpected and I appreciate your candor in bringing up your concerns. Would you be willing to let me share with you industry needs and practices to help you better understand our fee structure and billing?"
As always, you need to be convinced that you are worth whatever you are asking. If you are convinced then the client will be, too. After all, no one bought a car for solely the cost of parts, did they?
This video is a great example of some client objections you might face yet put into day-to-day scenarios.