Business in Arch Viz. Vol. 6 - Budget/Expenses/Pricing (Part 1 of 2)

Welcome to the sixth installment of our new RebusFarm Business in Arch Viz series.  Over the next year we will be featuring two articles every month. Each new article will discuss the business side of working in and running businesses in the visualization industry.  We will feature articles from some of the top studios in the world and have in-depth answers to questions that every studio and artist in the industry should know.  

The goal of this series is to provide a long-term resource for not only new artists and business owners entering the industry, but also long-time industry veterans.  The topics will range from contracts and IT infrastructure to hiring and business strategy.

Studios participating in this series include: 2G Studio, ArX Solutions, Beauty and the Bit, Cityscape, DBOX, Designstor, Digit Group, Inc., Factory Fifteen, Kilograph, Luxigon, MIR, Neoscape, Public Square, Steelblue, The Neighbourhood, Transparent House, Urbansimulations and many more. Collectively these companies generate hundreds of millions of dollars a year in revenue, and have decades of experience running some of the most successful businesses in the industry.


We hope you enjoy the series!

We would like to also like to sincerely thank RebusFarm for supporting this series. Through their support they are helping better our industry and contribute significantly to future generations of visualization businesses in our field. If you are looking for one of the best rendering farm companies in the world, we highly recommend checking them out here

Image Courtesy: Beauty & The Bit

When determining pricing, how much is based on market forces vs carefully analyzing the business to ensure profitability?

Arx Solutions: We try to measure each single project we do, we have real time tools to measure productivity, profit, etc. What can not be measured can't be improved.

Beauty & The Bit: Normally we have standard budgets though they can vary depending on the requirements of the client. Profit is always relative to the place you live in, so we always ensure that it provides a nice income for our artists.

Designstor: Our pricing is mostly based on what our business needs to remain profitable. When market forces come into play (i.e., lower prices), we try to engage in value propositions and competitive services, not price wars.

Factory Fifteen: I’d say 50-50. You make content in the time it takes to reach a certain quality bracket. That quality bracket within certain western markets is now known to cost a certain amount to produce so there is a relative standard. It also depends on what type of work you do. Luxury residential work commissioned through developers can often be commissioned on contract to deliver a wide range of material over a longer timespan. One off competition work direct with architects is often costed cheaper as it’s a faster turn around. 

Kilograph: I’d say 80-20 in terms of the price being determined by analysis. We pay a livable salary to all our artists in a big expensive city (los Angeles). We need to add a basic mark-up on their salaries to cover expenses and keep the company functional. This to a large extent determines our pricing. We are obviously aware of competitors pricings but more and more our pricing is a function of a growing company who knows how long it takes to do the work we need to do and the costs involved. Our margins are extremely tight but we feel confident that we are doing the best we can for our clients.

MIR: This is a very organic and almost spiritual process, where gut feeling, market, the wind, the vibe in the office and what not it taken into account. Our accountant once told us to be careful about upping our prices too much, because lowering them is a sign of failing.

Neoscape: We always want to know what it really takes to do a job properly.  We do price based on our workload.  

Paul Doherty / The Digit Group: It is always a balance to take market rates and move above them with value added services in order to increase profitability.  Which is why each contract is unique in pricing, schedule and deliverables.

PixelFlakes: When we started out, our pricing was heavily influenced by market force and rightly so. At the end of the day we were are asking clients to take a risk on us, as we had a limited portfolio, a lack of independent experience and a small team. As we are making our way up to around 13/14 employees this year things have changed. We know what our overheads are and our longer-term costs which we depreciate and spread out over the number of artists we have. With this information, we’ve formulated an excel sheet which calculates our bottom line reflected by the number of employees we have and their salaries. This allows us to see what we need to charge to remain profitable and reach our quarterly targets.

Public Square: A little bit of both. We’ve found that due to many companies outsourcing services to other countries, that overall prices have gone down, because of this, it’s sometimes difficult for clients to understand a company that is charging more even if the work is superior.

PURE: Hard question. All the years we calculated the prices that we need to have to work properly. But the market got rougher and it's sometimes hard to stay to the prices that you need to survive.

2G Studio: This is interesting question. Well for me it's easier to be honest, the Indonesian local market price is not that good. So obviously I will not try to offer my service for local market.  So I can focus on analyzing the business to ensure profitability. But it doesn't mean it is an easy thing to do. The myth "outsource to asia is low cost" is real. The struggle is real too. 

Transparent House: Our pricing approach generally focuses on profitability analysis. As a result, we usually do not work off of price sheets, but custom price most of our bids to account for more immediate market factors such as local and overseas labor costs, specific project complexity, scalability, and changing overhead as our company expands. 

Urban Simulations: 75% is based to ensure profits and sustainability. The market forces us to ensure our human resources, marketing actions and global structure is on the standard

Steelblue: Primarily analyzing the business.

Image Courtesy: Kilograph

Have you ever gone into a project knowing you would not be profitable? If so, why?

Arx Solutions: Yes, several times, but we did it for some very strategical project/client in which we particularly wanted to get the account (when entering a new market, a landmark project, etc).

Beauty & The Bit: For sure. We sometimes embark in projects that are not so profitable moneywise, but may provide stunning visuals…well, why the hell? we lower down our cache.

Designstor: Yes, for a variety of reasons: relationships, portfolio pieces and/or budget trade-offs with other projects.

Factory Fifteen: Yes several times. Mostly through investing in portfolio or taking risks to jump the standard of work the studio undertakes. We also do a lot of our own IP which distinguishes us from other studios. 

Kilograph: Yes much to the dismay of the people running the finances  I want to do projects for the love of the building design, the cause (non profits such as Medicins Sans Frontiers or Drop in the Bucket Foundation), or just the fun of using some new techniques.  Also, if I know a project is going to be fun for the artists we will do it.

MIR: We are not that concerned with profitability on a micro-level. We are concerned with making enough money overall per month. We don't even know how you would count a project as profitable. The most profitable projects are the ones that makes your staff happy. We are happy as long as we don't go broke.

Neoscape: Selling new services is almost always an investment you need to make.

Paul Doherty / The Digit Group: Yes, we have taken on a few projects in order to position our company for being noticed for very specific events.  US Government Trade Missions, Sales Opportunities for Municipal Governments and for development of business development opportunities.  We usually put this cost as a business development or public relations line item.

PixelFlakes: Yes on a few occasions. When we started, we did it to get our name out there. Recently we have only ever done this with a strong chance of the work leading to either more profitable work later down the line, or as a favour to clients who have treated us well over the years and didn’t necessarily have the budget to commission high quality visualisations, for a competition entry for example.

Public Square: We’ve gone into projects knowing that our profit margins would be minimal if we think the job would be worthwhile for our portfolio and/or the project looks like it could lead to more work.

PURE: No. If we know it in front we don't do it. But life is sometimes not working this way. We got projects that started great and turned into a nightmare. And the other way around. That is one of the biggest challenges at the moment: The possibility to plan a project got more difficult.

2G Studio: Yes. obviously, like everyone else I guess. It is for the portfolio and how you can run your company in full capacity. But somehow, we still manage some profit. I don't think we can calculate the profit based on one project, but we need to see the overall output.

Transparent House: Absolutely. There are a number of projects we have taken on with no profit or even negative profit and the reasons vary. In some cases, the client is championing a cause that we agree with. Perhaps they are a non-profit and need help with marketing or visualization. In other cases, we take on certain projects as loss-leaders with the goal of becoming an approved vendor with a company that may be able to offer us much more long-term future work. And of course, friends and family always get a discount!

Urban Simulations: No, even with the promise of a key client for futures projects.

Steelblue: We have. There are strategic projects or clients and competitions that we want to be involved with that are not about the short term compensation. 

Image Courtesy: Factory Fifteen

When you first started how did you determine pricing for projects vs. now?

Arx Solutions: Based on knowing all our fixed and variables cost plus a markup.

Beauty & The Bit: I started this company alone in my little room at home. I would do images for really low price. I was starting and I wanted to win a little plot in this business. I guess is like when you have a band and you start making gigs…at the beginning you play in any joint, once you get a better label you promote yourself and start playing at better clubs with better conditions. After all, doing images for architects is not so different from playing in a band.

Designstor: Initially, pricing was a guess based on past experience and knowing some clients’ tolerances. Now it is much more systematic. Interestingly, the two are not that far off!

Factory Fifteen: When you first start out your overheads should be low and there is less management in the team, so you can technically turn a profit on a much lower gross. It’s a balance. You are not known to the world so you need to stand out and price is a factor, but if you are so cheap clients also are concerned that you are not a serious player and want a guarantee of quality. As you grow you realise.

Kilograph: We had no overhead and no expenses other than babyfood and rent. I set prices based on what people would pay me. 

MIR: One of our clients complained that we were to cheap compared to the quality of our product. It was a shock to us! They told us we had to triple the price!!! When they paid the invoice we felt like we were robbing them and had a big celebration dance in the office. Looking back at this, in the beginning, we actually financed our clients visualisations with our student loans. It is easy to forget that computers, electricity, offices and food cost money. Our prices are depending a lot on how the society is moving. In Norway, our abundance of oil has given us great financial stability, but it is also an expensive society to live in.

Neoscape: Gut feeling is how we priced at the beginning.  Usually we bid way too low.  Now we take our time if possible and try to figure out the actual effort.

Paul Doherty / The Digit Group: In the beginning, pricing was market rates only… just get the work in.  Today, we have value priced ourselves and have been profitable.  Many repeat clients make the value pricing work. 

PixelFlakes: When we started, it was based on market forces and what we felt we were worth. Now it’s based on those factors as well as our overheads and targets.

Public Square: Pricing has always been a flat rate depending on the amount of revisions and specifics of the project. We agree to a scope and then deal with overages as they pop up.

PURE: Today we analyze much more clearly if things can work out as planned.

2G Studio: hahaha, back then when I was starting to work as a freelancer, I only thought 500 USD could get me a good life in Indonesia. I already had two i7 workstation back then, and low end monitor. And as any other freelancer, i use pirated software. the only genuine license I got back then was vray 2.0. After several years working with that price, I got  quite decent of money. But humans are never satisfied. When you have money, you want to get time freedom as well. So you need to start to think about investment in workstations, renderfarms, networks, offices, hiring artists, buying licenses, overhead cost, saving on bank, holiday expense for the artists, gathering expense for the artists. So definitely 500 USD is not enough.

Urban Simulations: 25 years ago it was not market standards, no references, no anything, then we moved into a 200% profit over costs.

Steelblue: How we determined cost then and now are similar.  The pricing is largely different now but the method is mostly the same. There is the popular answer to the question on how much to charge which is 'As much as you can get.’ That said, when we review a project we look at the time that will go into it, our overhead, any intellectual property investment and try to price it according to those factors. 

Image Courtesy MIR

With very large scope projects can you walk us through your process. How do you ensure you remain profitable and don’t run over on your budget? Are you always profitable or have there been unforeseen circumstances that affected profitability?

Arx Solutions: Because our industry works on a fixed budget it very difficult to charge on an hourly rate. For big projects we use our background to quote properly and we define in advance all deliverables and time-frame in order to minimize the risk of getting a loss. I wish it was that easy to always meet the goals.

Beauty & The Bit: Honestly 90% of our production is competitions so that forces you normally to short processes. On the other hand I hate long processes. What I love of my job is that this week we are with a stadium, next week with a library and the next one with a museum. I  love short processes for their freshness. When we do long projects we tend to fall on boredom and that is a bad ally for creativity. 

Designstor: Large projects are all about breaking things down into manageable pieces, right from the quoting stage. It is key to have solid project management that keeps an eye on the overall process and staging. We track time and compare to budget on a regular basis, as well as keeping track of milestones and checking client-supplied information. There are always unforeseen circumstances. We have learned to plan for those so that they are allowed to happen and not swallow up budget in a huge way. We also provide clauses in contracts that attempt to protect from crazy changes or circumstances.

Factory Fifteen: Hard to answer this one. I guess it starts with the delivery deadline and working back from there in terms of man days. You cost things based on a predicted number of man days to achieve the client's scope. It’s only through experience of running large jobs that you know how many artists will be needed. It’s only through experience that you know how much a 2-3 day shoot will cost if you do things properly. It’s also through experience that you know what is achievable on a 3 man guerilla shoot vs a huge film crew. If you don’t have the experience. Ask people who do. On very large projects we tend to always turn the biggest profits as we have a efficient team and good directors who understand the technical and shooting process. We also have a very good pre-production method where we try to decide as much of the creative things as possible before the shoot and even create final assets during this phase. Then post shoot, we are all in automation mode. 

Kilograph: We use pretty complex management software now called workamajig. This allows us to closely track artist’s hours, monitor change orders and any additional expenses on a project together with changing schedules. The larger the project the longer it will run and the more small errors (and late nights) can impact profit in a negative way. We also have an account management team who makes sure the clients are communicated to in a regular and strategic way. This makes for fewer unnecessary changes and keeps everyone happy and moving forward. Also management helps the artistic teams to understand the goals of our clients as they relate to the project keeping the product on brief and successful.

MIR: We have arranged our business in such a way that our clients books slots. We know already months before starting a project how much money the work will generate.

Neoscape: Haha - nobody is ALWAYS profitable on a job.  There are too many factors to control.  We recently switched over to budgeting all jobs in google sheets.  We work up labor numbers based on deliverables and then tally up known direct expenses.  We have been applying a 15% management fee to our labor which covers the Project Management Team time and creative lead.  We will have department heads review the pricing prior to sending the proposal to the client.

Paul Doherty / The Digit Group: Through the process of large projects (long schedules), we have remained profitable due to resource planning and tight project controls.  If we see a project slipping in the critical path scheduling, we use the “float” to cover the slip.  If that does work, we minimize the resources until an alignment occurs (like the client paying us on time or catching up on payments).  In other words, no money, no honey.  We write this into our contracts that as long as payment milestones are met, the project continues with proper personnel.  If payments slip, we take people off the project which directly effects the next deliverable.  This way it is up to the client if they do not want the deliverables on time (which they always do), then they must follow the schedule and the contract terms. 

PixelFlakes: Large scale projects are treated in the same way as we do any other project, except for milestone payments. Regardless we would charge a 30% deposit and ensure that our clients know when they can expect WIPs / deliverables, when they need to send their comments by and the consequences of delivering comments late / outside of the agreed scope. This allows us to stay on track and not overrun budget.

Public Square: Larger projects tend to be the most profitable since there is an economy of scale for the client and for us. For example, if a client wants a flythrough, we can pull renderings from the flythrough for less work than a stand alone rendering.

PURE: First we try to setup a reasonable price for the scope. Then we create tasks and define the estimated hours for each task. These tasks are time tracked with a tool. The main unknown component is the client. This can be in the end the key factor if a project is successful or not

2G Studio: Well, I always inform all the terms and conditions to my client before I work with them. Everything outside the scope and terms and conditions will have additional charge. For example, if the client wants us to do the 3rd revision, if its major changes, I will send them additional cost. Or if it's in the middle of the project they want us to model some building that supposed to use a photo at the very beginning, we will ask for an additional fee. And of course additional timing.

The main problem most of the time is the client will try not to pay the additional costs, and try to scare us by telling us this is going to hurt the relationship, and they might not send another job to us. Most of the time it is just a bluff. Although the possibility to happen is still 50 -50. Most people are afraid when the client starting to say that, but the problem is, they might not be back to you anyway so why be afraid? If you say yes to their threat, what happens on the next project from the same client?  They already see an opportunity to squeeze you again and again because you give them room to do so.

The other problem is they always ask us to work 24 hours like we don't need to rest. They don't care if you are asleep or not, so you need to care about your self and your team. Obviously if it cant be done, then it cant be done. If they insist, we usually drop the job no matter what. My team is more important than anything. Yes we need money, but I can find another client who can respect us as a human being. This is what makes the company not profitable, because I always have to pay for crazy overtime without getting paid.

The other profit that cannot be seen with our bare eyes and even on paper, if you keep asking your artist to work like crazy just to get money and make your client happy, you are not making your artist as part of the team, no matter how you want to tell me. The artist is part of the company, they are assets, we need to treat them well as we treat ourself. If we keep asking them work like crazy, they will quit, and you will need to find another artist to replace them.

The biggest question is, can the new artist produce imagery as good as previous artist? If they can produce good images,  can they follow your company rendering style? Is  consistency with your images? Every good artist need to adapt with the company they work with, its obvious, they also human as everyone of us. The time for this adaptation will cost us money, this can be calculate as lost of money.

Some people will pay the artist a very high salary, but at the end of the day, its not just about the salary, but about the environment. And the last but not least, its about you as the leader in the company. 

Transparent House: Pricing is not a perfect science, especially on larger projects. We do our best to conduct a thorough discovery during the bidding process to identify preferred workflows and potential pitfalls. We then break the project into manageable phases, which are further broken down into individual tasks per phase, which, with the input from our department heads, we can price more accurately.

Often we will then apply a volume pricing model once we identify efficiencies, which may reduce the price per item or phase by a certain percentage. We factor in our preferred markup, and viola! Of course, there are times when the amount of information coming from a client, for example, is limited, or the parameters change during critical points during project execution. To counter these situations, we  protect ourselves with strong change control language in our contracts.

To maintain stronger client relationships, we prefer not to underbid and then charge lots of overages, but we have employed change control on numerous occasions when appropriate and to great success, both in maintaining profitability and the relationship with the client. Clients are always more comfortable when everything is on the table up front and it’s easier to manage expectations when the parameters of each project are clear.

Urban Simulations: Always we have a well defined scope of the work that leads the time we have to work, cost and therefore is everything tied, but as usually everything moves in unexpected way due to a project changes in the last week or something we address all the additional work in additional costs for the client.

Steelblue: Every project is predictable…  Predictable in that there will be unforeseen circumstances. We are not always profitable on a per project basis. If the scope of work is not properly defined or not understood, this leaves room for error and affect profitability. Incorrectly estimating the effort and not identifying risk have an effect.  Not tracking profitability throughout the project, something we are guilty of, will sneak up on you. You can’t leave that towards the end. 

Image Courtesy PixelFlakes

How do you track the hours per project and per employee?

Arx Solutions: Our time units are based on half day, so one day is two full units. We track the time for each person in ArX Solutions. We know exactly how many units we spent in a project two years ago. We use it also to keep track of a client's record, so if we detect a complicated client, we might charge them with higher fees.

Beauty & The Bit: We ensure that at the end of the month each of our artists have a nice amount of money in the bank.

Designstor: We use an online system called Harvest for tracking time for all employees. 

Factory Fifteen: We have a project based profit calculator on google sheets which our producer inputs man days and additional costs in during the lifetime of the project. 

Kilograph: Yes we do both per project and per employee. We have blended rates for certain services and try to keep everyone on an 8-hour day. 

MIR: Our employees have a fixed work week of 37,5 hours, in which they have to make one image.

Neoscape: We track using a tool called Mavenlink.  We break it down by project:deliverable:phases and put in estimates at the project start and then track against our estimates.  Every employee fills out a timesheet..ideally every day.

Paul Doherty / The Digit Group:  We use on online tracking system.  We know how long projects should take and if an employee or contractor is taking advantage, we can quickly remedy the situation. 

PixelFlakes: We use Asana as our main scheduling tool. This is a great free scrum based platform where we split our daily tasks out per image, per artist. At the end of each day comments / timings are recorded.

Public Square: We usually track on days and half days worked. Hours are difficult if you have to pull in freelancers for bigger projects.

PURE: Monitored by a tool.

2G Studio: To be honest with you, I dont know how to track this, because there are to many variable can be happen. What happens if the client send the feedback two weeks after we send them draft 1? how would you calculate this?

Transparent House: We use project tracking software to log hours and generate spreadsheets to analyze efficiencies per quarter or after individual projects close out.

Urban Simulations: After trying tons of software to track, we tested and prove as had to maintain most of the solutions in the market… I shouldn't name them but are basically everything but Google… we have written a script that identifies every employee google calendar tracking by the name of the project, tasks and counting it to know how we are over the budget.

Steelblue: We use Forecast to estimate and Harvest to track.