The 3 Essential metrics you must measure in your business with Adam Forgione

Well, g' day folks. It's Dan here. Wednesday, another episode of the podcast. I am actually moving houses. We're moving state, in fact, 1200 kilometers up the road from Sydney to Noosa. So pretty hectic here. Plus I've got a quick trip to make to Brisbane to do a talk at an event. So, yeah, pretty crazy week. But I've got this really cool second part of our three part series with Adam Forgioni. Now, Adam runs a video production company in New York, and today we're going to talk in detail about how building a business is hard and it takes time. And if you're not measuring effectively, then the chances are you want to risk, you know, perhaps veering off course. So this episode is going to be a really powerful one for you and helping you understand how to balance your own expectations and making sure that what you're actually doing is benefiting the business. So enjoy the.

Sure.

Welcome to the Video Business Accelerator Podcast. Each week we uncover the secrets to creating a wildly successful and scalable video production business. With your host, Dan Lenny, discover how the accelerator program is transforming the lives of our members at www.videobusinessaccelerator.com. enjoy this episode.

So, Adam, we were just talking about the three boxes of, you know, building a business. You know, you've got sales and marketing, operations and financials. And you're quite right when you said, you know, as artists, we focus all our effort on the operations, on making the film. I think probably most businesses have got some hint of marketing, even if it's just a word of mouth. I would wager, and I'm going to say this without hesitation, that 98% is my guess of video production companies have a very, very poor.

Sort of number in terms of how they look after financials. What I hear even big companies doing is, hey, we got this gig, so we bought a camera. You know, the money comes in and they spend it on gear.

I'd just like to go there a little bit further because this is such an important topic and one that I feel needs more airtime. What was it? When did you kind of realize the value and the power of running financials properly and how did you go about it?

When I stopped getting money back on my taxes.

Wait a minute, I got money back? No, it was a good sign. It was a sign that I was growing too, because I wasn't. So I really got obsessed with understanding what's called a chart of accounts. And a chart of accounts is basically all the expenses. I think there could be income involved. There too. But I look at it as all the expenses, all the categories of expenses. And then I real. And, you know, every state, every country is different. So, you know, you got to, you know, work within the means of your own. Your own area where you're from. But for me in New York, in the United States.

My chart of accounts really kind of showed me, where am I spending all my money. And so, you know, again, give you very simple examples would be, you know, I didn't know what cost of goods sold was for a long time, and I finally learned what it was, and I was giving my accountant information, just like, here's everything. And he would say, okay, here you go. But I realized nobody knows my numbers and knows the sources of all. All of my expenses better than me. And that goes to everyone. So I started organizing them myself because I know where I spent that money and what that was. And he might not know. Cost of goods sold is basically, it's the stuff you spend money on that you need to spend money on for that specific project. So, for example, if you.

Create a video and you need to hire someone to write a script, and you need to hire someone to voice over that script, even though they are independent contractors, they are. These are cost of goods. It's actually cost of services. I believe it's called cost of good services or cost. But it's a. What we call a cog or cogs. And so I realized, like, when you're doing taxes, you know, it's not, hey, I made 100 grand. It's. I made 100 grand. But I had to spend, you know, $10,000 of COGS to make these 10 projects. So, you know, now it's saying, all right, well, we realize you didn't really make that much money, so you're not going to really get taxed as much because we realized that was part of your expenses. And that's just one example. But, you know, I have a ton. I have a list of examples, actually, when I give my workshops, I think I show 32.

Expenses that, you know, when companies come out, they're like, oh, I got to charge $1,000. Okay, great. And that's wonderful if you're first starting out. But you learn very quickly that where did all my money go? It's because you have an enormous amount of expenses. You have, you know, insurance, you have equipment, you have supplies, you have utilities, Internet, telephone, rent or lease, if you're using space like that, you know, any kind of stationary. Many forms of insurance, by the way, not just, you know, one form of insurance. You have vehicle expenses and vehicle insurance and the vehicle lease and, you know, it just keeps going on. Independent contractors, cogs I can keep. If I was looking at the list, I can ramble them on. But.

When I realized this, I said I got to start paying attention. And that's when I actually created my pricing formula so that I can make sure I don't get screwed anymore.

I love that. It's like I had doing a coaching call with my accelerator clients of the other night and Sunday was doing a project and he said, how do I, you know, he's going through a bit of health trouble, so he wasn't able to go on the gig. And this has presented a really interesting opportunity for him because instead of him being on the gig, he's now acting as a producer. And he was asking, you know, how do I make sure I make money? And I showed him a budget I'd done for a one day studio shoot four or five years ago. And it was like 50 grand. And he was just going, oh my God, how can you charge 50 grand for one day shoot? I said, well, let me break it down. And I brought this huge spreadsheet out with every single line item, every single personnel, every roll of gaffer tape, every. Every cup of coffee. Literally, there's the budget. That's what I sent the client. And I said down here. He's like, what's that? He said, what's the production fee? I said, It's 12% of the budget, which is my production company fee for all my overheads. And he wasn't charging that. And he was like, oh my God, you can do that. And I'm like, absolutely. Because I know what it costs to run my business. And another thing is like software. I did a software audit recently. I was running 26 bits of digital software to run my business and I cleaned a lot of it out. So I think, you know, keeping an eye on that as well, especially with, you know, the subscription world we live in with SaaS products. You know that everything we do as a filmmaker is a subscription.

Talk to me more about, you know, how do you audit your expenses? How frequently do you look at your expenses and review, Am I using that software anymore? Am I not? Because those, those hundred dollars a month, they add up.

Yeah, I mean, I do look at them. I'd say I look at them seriously on a quarterly basis. But yeah, I mean, if you think about those, those apps that we use, I mean, for me, I use QuickBooks for my financials. So that's I'll give you prices based on what I remember. Anyway, I'll go by memory here. I think I pay 50 or $60 a month for that. I use Zoho, which is a CRM, but it's great because it. I can utilize it for project management. I can use it for, you know, there's hootsuite, which you, you know, you can post on multiple types of social medias. Well, I could do that through Zoho too. They have their own version of that. They have campaign. So I could do multiple things on there, but I have that. I. For my newsletters, I use Mad Mimi. I'm slowly transitioning to Mailchimp. I. I think that's like 20, $30 a month. Like I said, Zoho 60. I was using SEO tools, so I was using Moz, which is about $100 a month. I was using SEO Profiler, which was like another a hundred dollars a month. I stopped using those just because I wasn't really spending the time with it. I just started paying for pluralsight, which is for app, for, you know, for coders. Cause I'm very interested in that and I have an understanding. I'm not a professional, But I know CSS, I know HTML, I know some asp.net.

I know a lot about AWS now. So it's like $35. I'm doing that because I want to invest in myself with that. I'm trying to think of what other ones. These are ones that I still use that I still think are valuable. The SEO ones I got rid of. That's an example of I cleaned house with that. $100 a month. $100 a month times two is $200 a month.

That's $2,400 a year. I mean, that's a weekend. That's a nice week away. Weekend away with the family.

Yeah, I was happy when I cut that. I wasn't happy when I lost the features on it. Another one I used to use was called proposify. It was a hundred dollars a month and it was to write proposals and it was a great tool. But after about six, seven months I took the template and then I created my own internally so that I can manipulate and create a PDF. And then I started using Adobe Sign, which I think I use for like 100, I'm sorry, 10, $15 a month. And that allows me to do digital contracts. So I don't do any more paper contracts anymore. I'm trying to think there's probably a couple of more that I'm not thinking of. But you're right. These SaaS apps are just the world we live in. You know, it's just where it is.

I'd love to just pause you and pick up on. On contracts because another, another area that I hear a lot of filmmakers getting into trouble with is, is not being clear up front what is and isn't included in a scope of works. And as a, as a job gets scope creep, which they often do, how to handle that with the client. And you talked about contracts there. Talk me through your process for how you set that up with the client and how you, how you implement that if the, if the scope changes.

Well, can you. I'm not catching the question. So hit me up.

So when, when you, when you set up a job with the client.

Yeah.

You set up an agreed scope of what the works are going to be. So it's like, here's what we're planning to do for your project.

Yeah.

But sometimes that, that original agreement which gets signed.

Oh, I see.

What if it changes when the project grows? How do you approach. Like a lot of filmmakers don't have contracts and I really want to try and use this opportunity to explain why they're important.

Okay, I get you, I get you. So yes, and we refer to them as statement of works or contracts. But yeah, essentially what this document will have in it, it'll absolutely. There's got to be a certain amount of legal mumbo jumbo that just protects you. And a lot of times they're created based on the area you're from, you know, whether it's a state or a providence.

But anyway, with our contract, the scope of work that we describe on there is very close to the line items we use in the invoice as well. Just because it's specific and like an example of a scope of work for us would be something along the lines of.

The. We would explain that we would film, say like eight hours of filming.

This time to this time at this location. And we're going to be filming interviews and B roll and then it's going to require 25 hours of editing at this rate per hour. And we'll require, you know, approximately $200 for music licensing fees and we will require, you know, $500 for writing the script. And the deliverables will be one three minute video. Approximate. I always put approximate three minute video.

That tells the story about who, you know, fill in the brand's name is and why they stand out from the crowd and how you can contact them to buy their service or Product. And I, you know, I'm kind of paraphrasing inside my head, but that's the basics of what I would include in my scope. And I would have it set up. It's similar to like line item on an invoice. And then in addition to that contract, for me, I would send out the contract, it goes through Adobe, sign digitally, and they would get the contract. They would either approve, agree to it and sign it digitally, or they would kick it back and say, well, we need to change this, we need to change that. And then if they do agree to it, then we would send them the invoice. And our invoice is set up for 50% to book a project. And then 50% do. Interesting. 50% do when the videos are delivered and approved by the client, which means we're taking a little risk there, but we're very careful as to who we work with to make sure we trust them. And we also are taking 50% from them upfront. So they're giving a little trust on one end and we're giving back a little trust on our end. But. And I can dive deeper into contracts, but that's kind of the workflow contract to invoice, to collecting payment.

I love that. You know, I've heard and.

Sorry, sorry, one thing. And you said, you know what, if it changes, I'll just add to this. We absolutely have a conversation with them and we'll put TBD to be determined if needed in the contract in certain scenarios, but we'll let them know. Listen, if we go over or under, we can always prorate this invoice and add more. A lot of times, I'll give you an example. Stock footage is a classic. We don't know if we're gonna need stock footage, but we go in there, we're unable to shoot the B roll we wanted. We say, hey, listen, we think you should use stock footage in these four areas, or you can hire us to come out and film again. But you'll save money if you go stock footage and they go pilot onto the invoice and it wasn't in the original contract. This is a perfect example. Happens all the time with us.

Well, I did a podcast a while ago with Matt Jepsen and we talked about this and the fact that. And he made a very good point. He said, if you get to the end of a project and you aren't getting paid, it's because you didn't set up the deal correctly. And I also want to reference another example, which was production company in the US West Coast, I believe, shot a music video for some rapper and they didn't get paid and, and so made a kind of parody video and put that out on the web and ended up in all sorts of, you know, legal stick about it. And, and, and, and, and I was just gobsmacked that anyone would show up on location with a crew of 14 people and, and a red because I happened to be that on that job and have not received 50% up front. And, and I hear a lot of stories of people saying, oh, my clients won't do that. And I, I just think that's, you know, because I work for Sony and I get 50% upfront from them and I get them to run around figuring out how they're going to work it out in Japan. I've never been in a position where I can't get 50% from a client up front. Have you ever had an experience where someone's resistant and how do you go about adjusting to fit? Or do you just say no?

Yeah, I mean, I'll give you three examples. First example is most of our clients do abide by the 50% down and you know, they know the drill. So it's, it's not surprising to them anymore. Right. We do have clients that, we have a lot of clients that have, we have good histories worth and good relationships with and you know, sometimes the money didn't come in when we showed up on the shoot just because of how quickly things happened. But we reserve that flexibility only for clients who have proven themselves to us and that we trust. So I will not lie and say we have broken our own rules, but we know of the circumstances, we understand why there's a delay and we're pretty confident everything is going to be fine. We do take a chance, but we have never been burned in those situations. You got to know your clients and know you can trust them, but the, that's not normal practice. And then I'll give you an example of when we did turn down a job. So recently, about six months ago, we were approached by WebMD to produce a series of videos and I very much wanted the account. I was excited. It's a big brand and it could have led to a lot of work. And so got back and forth with a lot of logistics. Finally have everything straightened out and sent off the invoice probably, you know, a week before that because we had that numbers ironed out and clearly states 50%, you know, due to, to book the project, to book the contract. And, and it was probably A week. A week away. And I said, you know, hey, just wanted to double check how long before this invoice is processed, just because we have about a week left. And then, you know, we're gonna be on this location. Not to mention, I had some extra hired guns that are gonna cost me money, extra from my normal crew size. And I had rental gear that I would have had to bring in, so, I mean, a lot of upfront costs. And she said, oh, it's gonna. It normally takes two to three weeks to process payment. And I said, well, the shoot's in a week. And she goes, yeah, I'm sorry about that. Yeah, it takes like, two to three weeks to process. And I understand they're a large company. It's the way they do it. And I said, unfortunately, you know, it stated it very clear on the. In the, in the invoice. And I did mention that, you know, 50% to book the project. You know, we have overhead costs that are happening before the shoot. We unfortunately can't book this unless we get paid the 50% because. And I said, quite frankly, because we've never done work before. And, you know, she. She explained to me that it was WebMD and they were good for the money and all that kind of stuff. And I said, I know it's WebMD. I really would love to work together, but realistically, there's a human being behind this decision. And I don't care if you work for Google or Apple or WebMD or a company down the road. If a human being decides not to pay me, then I'm out of money and I'm gonna get burned on this. And I've been burned in the past, and it's just our policy. So it turned out we lost the account over it. And, you know, I had to stick to my guns. Did it hurt? Yeah. But I'm thankful because maybe it could have caused problems down the road. There's gray areas for me. But, you know, practice is, yes, collect 50 up front.

I also believe very firmly, because I've had a situation with a much smaller company that when I sent a contract to sign, they were like, oh, I don't want to sign this because of one reason or another. And I call at the time thinking, well, this is a sign. If someone doesn't want to sign a contract.

And they're not really kind of specifying why, it's an indication of how they might behave later on. And what I would second with that is sometimes the bigger the company, the harder they fall because you have no Idea of what's actually going on behind the scenes. Imagine you had been working with Kodak just before they went under or one of the big banks and you think, you know these guys. Was it Lehman Brothers that went down? One of the biggest banks in the world?

Yeah.

Like, you know, they could go over tomorrow. You have no idea what's happening and you're done. So I think it's really good advice to say no, no matter how appealing the client might appear.

Now with that said too, and this is just me, I am flexible. So we do get kickbacks on our contracts for revisions. And as long as they're reasonable and there's a win win, we're fine with it. And we do make those revisions on the contracts. And I would say it happens about 20, 30% of the time for us. So it's. It works for us. One of the biggest revisions we get in a contract is by default. Our contract says we own the rights. I'm sorry, we own. We have ownership over everything that we shoot and we're licensing them the rights to utilize the footage that we film and the videos that we produce. And that's my default in the contract. And that's pretty common from what I've seen in other contracts in this field too. But everyone's got their own thing that's just ours. We do have clients that kick back either especially the ones if we have to sign an NDA, but even the ones that don't where they'll say no, we want to own the rights and we'll license it to you to use for marketing purposes. And to be honest with you, we, unless there's a specific reason, we're fine with it. We let it go 180 and we flip it. Because the reality is.

What we'll miss out on is if we ever want to take that footage and sell it to a stock photo library, we can't do that. We haven't done that. That's not what we are built for. And it may be something we may segue in in the future and we have plenty to fill in that with. But right now I'd rather build a relationship and it's fine as long as we can utilize it to market our brand. That's essentially what we do with the videos when we make it. We deliver it and we utilize it and say, is this good enough to market our brand with? We'll make this public or we'll hide this. And as long as they give us the right to do that, we're fine with it. Maybe as we get bigger and we get more leverage, we might say no more often, but doesn't bother me right now. But that's a perfect example of how our contract gets revised. And you know, occasionally over the years I've caught little things on my contract where certain words were in there that related to another industry, you know, and I was able to fix them from clients. After over years you're able to really polish your contract. And I'll add at the end here that my, my, my attorney that I use now, he's really fine tuned and polished my existing statement of work. It's kick ass. And you know, if you or anyone needs anybody at any point, you just let me know. I'll be happy to, you know, share his name. And he, he, he can definitely help people out with like a turnkey contract for reasonable price. And then if you need to customize it, he can, he can tweak it as well. But he's really important.

And I'm guessing in your contract there's a line about who owns the original footage. Because I know a lot of clients that I work with will say, oh, the client wants the raw footage. And I always use the analogy when I explain to, because I love analogies. And I'll say to a client, look, imagine I was a restaurateur and you came to my Michelin star restaurant to have dinner and you come and you sit down and you eat the dinner and, and you have a wonderful time. But then you say, hey, I really like that. Could you give me the name of your supplier of the meat, where you get your vegetables from, exactly how you cook the recipe, what temperature you do it at, and can you give me the instructions for how you made the meal? Like that's never going to happen in a restaurant. Yet clients often feel that because you filmed on location. Can I just have the rushes so that I can clearly recut it myself? How do you handle requests like that? Or do they not come up because you've got it firmly in your contract?

Well, I mean that goes back to what I said earlier and that's exactly what we're fairly flexible on. And it's not, we're not going to show them the secret saucer, give them instructions or show them what we do, or give them hard worked after effects templates that we've modified and created. But.

If in the contract, and we want the deal if in the contract, because automatically it says we own the footage, not them, but if they say no, we want to flip it, we want to, you know, Meaning they want to own the footage and they want to license it to us. We. Unless there's certain scenarios, we are very flexible with that and we'll allow them. It only happens about maybe 20, 25% of the time, that specific one that'll come up. But for us.

We'Re using it for marketing purposes. They can't take that away from us. If they take that away from us, then we won't do the deal. But if they want to own the footage, that's fine. We shoot it, we lock it. They're going to get. And by the way, all of our clients have access to all their raw footage at any time. There's no charge, except for the time it takes to transfer that footage. And, you know, if we're even, it's never happened. But if we were on site and they had a drive and they were transferring it while we were packing up, it wouldn't cost them a cent. It's never happened. But. But, you know, in reality, if a client wants the raw footage, they can send us a drive or we can, you know, send it. If it's not a lot of footage, we could send it to them through Dropbox and software like that. But I'm not. I'm not afraid of that, and I'm not worried about that myself. And there are other companies in my area that are much larger, you know, like $50, 60 million a year. And I've had conversations with them, and they've said the same thing where if the client wants the raw footage, they give them the raw footage. We haven't had the conversation about who owns what footage. But again, for me, it's fine. It works. And there may be a day where we stop allowing that to pass in our contract. But, you know, we have. We have some really good clients, and we know they don't want.

You know, they don't want us to own the footage outright. They don't want us to have ownership over the footage, and we're fine with.

Sounds very much like you have a very abundant attitude. I mean, I think a lot of. A lot of filmmakers who think perhaps came from a freelance background or have been photographers have this real sort of bugbear about owning the rights, because photographers traditionally own the rights to their work and their license. But actually, you know, I think back to my career. I think once I've been asked for footage and all I did was say, sure, sure, no problem. It'll cost you 200 bucks. Yeah. My clients rarely take it at the library and transfer it onto a Drive for you.

Yeah. They rarely ask for the raw footage. I rarely. It's in the contract. They can ask for it, but they rarely ask for it. It's just knowing that they can have it, I think gives them peace of mind. But in regards to the ownership bit.

I would say over $100,000 in business is due to signing contracts with clients who want to own the raw footage. So, I mean, I would have lost out on that business. And right now, all's I'm doing is putting it on a hard drive and archiving it and allowing it to get dusty. I'm not doing anything with it. So I can hold onto it and say, this is my little baby. But for now, it doesn't really bug me. And I think that might go back to my background with music, now that we're talking about it, now that I think about it, because I used to write songs for a living. And in the beginning, when you're a songwriter, you kind of hold on to your little baby like, this is a perfect song, and it's perfect, and I don't want any. You bring it to a producer and they change it, and you're like, no, you're ruining my song. This is my art. You don't understand. I worked on this for a year, and it's perfect, you know, and after you become a seasoned writer and you do it for a profession, you learn not to get emotionally attached to any of your work. I mean, there's nothing wrong with getting emotionally attached to your baby projects. That's okay. But when you're doing it for a living and next week is going to be a new project or a new song, you start to learn to disconnect yourself from that and understand that, you know, look, I'm going to write a song today, and tomorrow I'm going to write another song. And it's, it's, It's. You kind of. You know, you kind of. You get used to the fact that that's how it is. You don't. You don't try to say, this is it, and this is all I can ever do. Tomorrow I'm going to write a better one. And so I think that mentality as a songwriter, maybe that instilled something in me to allow myself not to get upset over clients that want to own the rights. But I do understand, you know, when a photographer takes specific pictures of, you know, landscape footage and they know they can outright sell those prints for a lot of money, I think it's a different animal. I think. I mean, I look I'm shooting B roll in offices. I mean, it's not, it's not hard to find that stuff on Shutterstock. And I don't think that type of footage is worth a lot. So I'm not going to lose sleep over it. If it was a specific project with interesting concepts and I was able to film and be an artiste, you know, really take the time to get the right shots, I might want to hold on to that a little bit more dearly. But, you know, I'm not in the business. I see a lot of guys on Vimeo and you see every looks, perf, projects perfect and it's not for a major brand. You know, it's just like an amazing production. And you find out later that it was just, you know, it was a passion project but there was no budget to it. I just, I don't too old for this. This is what I do for a living. I, you know, it's business to me. So I can't afford to do pro bono stuff anymore. And you know, it's just business as usual. Turnkey. Tomorrow's going to be another gig.

Adam, this is a great, I think a great end to this episode. I do want to talk to you again because I want to talk about the music library. So let's pause this now and we'll pick this up up another episode.

Absolutely.

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