23 data to include in the business plan of your production company

This article was written by our expert who is surveying the industry and constantly updating the business plan for a production company.

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Ever wondered what the ideal production cost percentage should be to ensure your production company remains profitable?

Or how many projects need to be completed each quarter to meet your revenue goals?

And do you know the optimal crew-to-project ratio for a successful production schedule?

These aren’t just nice-to-know numbers; they’re the metrics that can make or break your business.

If you’re putting together a business plan, investors and banks will scrutinize these figures to gauge your strategic approach and potential for success.

In this article, we’ll cover 23 essential data points every production company business plan needs to demonstrate you're prepared and ready to thrive.

Production companies should aim to keep pre-production costs below 15% of the total budget

Production companies should aim to keep pre-production costs below 15% of the total budget to ensure that more resources are available for the actual production and post-production phases.

By maintaining a lower percentage for pre-production, companies can allocate more funds towards high-quality talent and state-of-the-art equipment, which are crucial for the success of the project. This approach also allows for a buffer in case of unexpected expenses during the production phase, which are often more costly and harder to predict.

However, this guideline can vary depending on the scale and scope of the project.

For instance, a large-scale blockbuster might require more extensive pre-production planning, such as location scouting and special effects design, which could justify a higher percentage of the budget. Conversely, a smaller independent film might be able to keep pre-production costs even lower, allowing for more flexibility in other areas of the budget.

Production labor costs should ideally stay between 25-35% of the total budget to ensure profitability

Production labor costs should ideally stay between 25-35% of the total budget to ensure profitability because this range allows for a balanced allocation of resources.

When labor costs exceed this range, it can squeeze the budget for other essential areas like materials, marketing, and overhead, potentially compromising the quality and reach of the production. Conversely, if labor costs are too low, it might indicate underinvestment in skilled labor, which can lead to subpar production quality and affect the final product.

Maintaining this balance is crucial for a production company to remain competitive and profitable in the long run.

However, this percentage can vary depending on the specific type of production and industry standards. For instance, a high-tech production might require more investment in technology and less in labor, while a labor-intensive production like theater might naturally have higher labor costs, making it essential to adjust the budget accordingly.

The average turnover rate for production crew is 50%, so budget for high recruiting and training costs

The average turnover rate for production crew is 50%, which means companies need to budget for high recruiting and training costs.

This high turnover can be attributed to the physically demanding nature of production work and the often irregular work hours that can lead to burnout. Additionally, many production crew members are freelancers or contractors, which naturally results in a higher turnover rate as they move from project to project.

In some cases, turnover rates can vary depending on the specific industry or the location of the production.

For instance, productions in areas with a high cost of living might see even higher turnover as crew members seek better-paying opportunities. Conversely, companies that offer competitive wages and benefits may experience lower turnover rates, helping to reduce recruiting and training expenses.

60% of production companies fail within the first three years, largely due to cash flow issues

Many production companies face failure within their first three years primarily due to cash flow issues.

These companies often struggle with irregular income streams because payments from clients can be delayed, while expenses like salaries and equipment rentals are constant. Additionally, the high upfront costs of production projects can drain resources before any revenue is generated.

Without a solid financial cushion, these companies find it challenging to sustain operations during lean periods.

However, the situation can vary depending on factors such as the type of production and the company's ability to secure long-term contracts. Companies that specialize in niche markets or have a strong network may experience more stability, while those in highly competitive areas might face greater financial pressure.

Projects should aim for a break-even point within 12 months post-release to be considered viable

Projects should aim for a break-even point within 12 months post-release to be considered viable because it ensures that the production company can quickly recover its initial investment and reinvest in new projects.

Achieving a break-even point within this timeframe helps maintain a healthy cash flow, which is crucial for covering ongoing operational costs and funding future productions. Additionally, a quick return on investment reduces the financial risk associated with the project, making it more attractive to investors and stakeholders.

However, the 12-month break-even target can vary depending on the nature of the project and the industry it operates in.

For instance, projects in industries with longer production cycles or those requiring extensive research and development may have a longer break-even period. Conversely, projects in fast-paced industries or those with lower initial costs might achieve break-even much sooner, allowing for more aggressive growth strategies.

Post-production profit margins are generally 40-50%, higher than production, making efficient editing crucial for profitability

Post-production profit margins are generally higher than production because the costs associated with editing and finalizing a project are often lower compared to the initial production phase.

During production, expenses can be substantial due to factors like location fees, equipment rentals, and crew salaries, which can quickly add up. In contrast, post-production primarily involves editing, sound design, and visual effects, which, while still costly, are often more predictable and manageable, leading to higher profit margins.

Efficient editing is crucial because it can significantly reduce the time and resources needed to complete a project, directly impacting profitability.

However, these margins can vary depending on the type of project and the specific demands of the post-production process. For instance, a project requiring extensive visual effects or high-end sound design might see lower margins due to increased costs, whereas a straightforward edit with minimal effects could maintain or even exceed the typical 40-50% margin.

Prime cost (production and post-production) should stay below 70% of the total budget for financial health

Keeping the prime cost below 70% of the total budget is crucial for a production company's financial health.

This ensures that there is enough budget left for marketing and distribution, which are essential for the project's success. Additionally, it provides a buffer for unexpected expenses that may arise during the production process.

However, this percentage can vary depending on the type of production and its specific needs.

For instance, a high-budget film with extensive special effects might allocate a larger portion to production costs, while a documentary might spend more on post-production and distribution. Ultimately, the key is to maintain a balance that allows for both quality production and effective promotion.

Production companies should ideally reserve 1-2% of the budget for equipment maintenance and replacement annually

Production companies should ideally reserve 1-2% of their budget for equipment maintenance and replacement annually to ensure the longevity and reliability of their assets.

Regular maintenance helps prevent unexpected breakdowns that can disrupt production schedules and incur additional costs. By setting aside a small portion of the budget, companies can also plan for the gradual replacement of outdated or worn-out equipment, ensuring they stay competitive with the latest technology.

This budget allocation can vary depending on the type of production and the specific equipment used.

For instance, a company heavily reliant on high-tech cameras and lighting may need to allocate more funds due to the higher cost and complexity of these items. Conversely, a company with a focus on digital content creation might spend less on physical equipment but more on software updates and licenses.

A successful production company completes at least 2-3 projects per year to maintain cash flow

A successful production company often completes at least 2-3 projects per year to maintain a steady cash flow and ensure financial stability.

Each project generates revenue that helps cover operational costs such as salaries, equipment, and marketing expenses. By consistently working on multiple projects, the company can also mitigate the risk of financial loss from any single project underperforming.

However, the number of projects needed can vary depending on the scale and budget of each production.

For instance, a company working on high-budget films may only need one or two projects a year to achieve the same financial goals. Conversely, smaller production companies might need to complete more projects to maintain the same level of financial health and growth.

Inventory turnover for props and costumes should happen every 6-8 months to avoid waste and ensure freshness

Inventory turnover for props and costumes should occur every 6-8 months to prevent waste and maintain freshness.

In a production company, props and costumes can quickly become outdated or damaged if not regularly assessed, leading to unnecessary clutter and potential financial loss. By conducting inventory turnover within this timeframe, companies can ensure that their stock remains relevant and in good condition, ready for upcoming productions.

This practice also allows for the timely identification of items that need repair or replacement, ensuring that the production quality is not compromised.

However, the frequency of inventory turnover can vary depending on the specific needs of a production company. For instance, a company that frequently produces period pieces may require more frequent updates to their inventory to keep up with historical accuracy, while a company focusing on modern productions might not need to refresh their stock as often. By tailoring the inventory turnover schedule to their unique requirements, production companies can optimize their resources and maintain a high standard of production quality.

It’s common for production companies to lose 2-4% of revenue due to theft or equipment shrinkage

It's common for production companies to lose 2-4% of revenue due to theft or equipment shrinkage because these issues are prevalent across various industries.

One reason is that large inventories and complex supply chains make it difficult to monitor every item, leading to opportunities for theft. Additionally, equipment shrinkage can occur due to mismanagement or inefficient tracking systems, which are not uncommon in production environments.

The percentage of revenue lost can vary depending on the industry and the size of the company.

For instance, companies in high-theft industries like electronics might experience higher losses, while those with robust security measures may see lower percentages. Ultimately, the impact of theft and shrinkage is influenced by how effectively a company implements preventative measures and manages its inventory systems.

Office rent should not exceed 5-8% of total revenue to avoid financial strain

Office rent should ideally be kept between 5-8% of total revenue for a production company to prevent financial strain.

When rent exceeds this percentage, it can significantly impact the company's cash flow and limit its ability to invest in other crucial areas like equipment upgrades and talent acquisition. Keeping rent within this range ensures that the company maintains a healthy balance between fixed costs and operational flexibility.

However, this percentage can vary depending on the location and size of the production company.

For instance, a company in a high-rent area might need to allocate a slightly higher percentage to rent, while a smaller company with fewer employees might manage with less. Ultimately, the key is to ensure that rent does not become a burden that hinders the company's growth and innovation.

Upselling additional services like VFX can increase project revenue by 15-25%

Upselling additional services like VFX can significantly boost a production company's revenue by 15-25% because these services add substantial value to the final product.

When a production company offers high-quality VFX, it enhances the visual appeal and storytelling of a project, making it more attractive to audiences and distributors. This increased appeal can lead to higher sales, licensing deals, and even awards, which in turn boosts the project's overall profitability.

However, the impact of upselling VFX services can vary depending on the project's genre and target audience.

For instance, a sci-fi or fantasy film might benefit more from advanced VFX, as these genres rely heavily on visual effects to create immersive worlds. On the other hand, a documentary or drama might see less of a revenue increase from VFX upselling, as these genres typically focus more on narrative and character development rather than visual spectacle.

The average profit margin for a production company is 5-7%, with higher margins for commercials and lower for feature films

The average profit margin for a production company is typically between 5-7% because of the high costs and risks associated with producing content.

Producing feature films often involves significant expenses, such as hiring well-known actors, securing locations, and extensive post-production work, which can lead to lower profit margins. On the other hand, commercials usually have higher profit margins because they are shorter, require less production time, and often have a guaranteed client willing to pay a premium for advertising.

In specific cases, these margins can vary significantly based on factors like the production company's reputation, the project's budget, and the distribution strategy.

For instance, a production company with a strong track record might secure better financing terms or distribution deals, leading to higher profitability. Conversely, a project with unexpected delays or cost overruns can quickly erode the anticipated profit margin, making it crucial for companies to manage their resources effectively.

Average project budget should grow by at least 4-6% year-over-year to offset rising costs

In a production company, the average project budget should increase by at least 4-6% annually to counteract the effects of rising costs.

One major factor is inflation, which naturally increases the cost of materials, labor, and other resources needed for production. Additionally, as technology advances, there may be a need to invest in new equipment or software to stay competitive, which can also drive up costs.

However, this percentage can vary depending on the specific circumstances of each project or company.

For instance, a company that heavily relies on imported materials might need to adjust their budget more significantly due to fluctuating exchange rates. Conversely, a company that has secured long-term contracts with suppliers might experience more stable costs, allowing for a smaller budget increase.

Ideally, a production company should maintain a current ratio (assets to liabilities) of 1.5:1

Ideally, a production company should maintain a current ratio of 1.5:1 because it indicates a healthy balance between its current assets and current liabilities.

This ratio suggests that the company has enough liquidity to cover its short-term obligations while still having a buffer for unexpected expenses. A ratio of 1.5:1 is often seen as a sweet spot, providing a cushion without tying up too much capital in non-productive assets.

However, this ideal ratio can vary depending on the specific industry and the company's business model.

For instance, a production company with seasonal fluctuations might need a higher ratio to manage periods of low revenue. Conversely, a company with steady cash flow might operate efficiently with a lower ratio, as it can rely on consistent income to meet its obligations.

Effective project scheduling can boost efficiency by 10-20% by minimizing downtime

Effective project scheduling can significantly enhance a production company's efficiency by reducing downtime, potentially boosting productivity by 10-20%.

By strategically planning tasks and allocating resources, companies can ensure that machines and workers are consistently engaged, minimizing idle periods. This not only optimizes the use of available resources but also helps in maintaining a steady workflow, which is crucial for meeting production targets.

However, the impact of scheduling can vary depending on the specific nature of the production process.

For instance, in a highly automated environment, precise scheduling can prevent bottlenecks and ensure that automated systems operate at full capacity. Conversely, in a more manual setup, effective scheduling might focus on aligning human resources with peak demand periods to maximize output.

A production company should have 0.3-0.5 square meters of office space per employee to ensure efficiency

A production company should allocate between 0.3-0.5 square meters of office space per employee to maintain optimal efficiency.

This range ensures that employees have enough room to perform their tasks without feeling cramped, which can lead to increased productivity. Additionally, it helps in maintaining a comfortable work environment that can reduce stress and improve overall job satisfaction.

However, the specific space requirements can vary depending on the nature of the production work.

For instance, a company focusing on digital production might require less physical space compared to one that involves physical assembly or manufacturing. Ultimately, the key is to balance space allocation with the specific needs of the production processes and the employees involved.

Client satisfaction scores can directly impact repeat business and should stay above 85%

Client satisfaction scores are crucial for a production company because they can significantly influence the likelihood of repeat business.

When satisfaction scores are above 85%, it indicates that clients are generally happy with the services provided, which fosters trust and loyalty. This level of satisfaction encourages clients to return for future projects, ensuring a steady stream of ongoing work for the company.

However, satisfaction scores can vary depending on specific factors such as the complexity of the project or the client's unique expectations.

For instance, a high-profile project with tight deadlines might require more resources and attention, potentially affecting satisfaction scores if not managed well. Conversely, a straightforward project with clear communication might easily achieve high satisfaction, reinforcing the importance of tailored client management strategies.

Production companies in high-demand areas often allocate 4-6% of revenue for distribution partnerships and fees

Production companies in high-demand areas often allocate 4-6% of revenue for distribution partnerships and fees because these partnerships are crucial for ensuring their content reaches a wide audience.

In high-demand areas, the competition is fierce, and having strong distribution partners can be the difference between success and failure. By investing a portion of their revenue into these partnerships, companies can leverage the expertise and networks of distributors to maximize their reach and profitability.

This allocation can vary depending on the specific needs and goals of the production company.

For instance, a company focusing on niche markets might allocate a different percentage compared to one targeting mainstream audiences. Additionally, the nature of the content and the target demographic can also influence how much is spent on distribution partnerships and fees.

Digital marketing should take up about 2-4% of revenue, especially for new or growing companies

Digital marketing should take up about 2-4% of revenue for new or growing production companies because it provides a balanced approach to investing in growth while managing costs.

For a production company, this percentage allows for sufficient investment in brand awareness and customer acquisition without overextending financial resources. New companies often need to establish their presence in the market, and a focused digital marketing strategy can help achieve this by targeting specific audiences and measuring results effectively.

However, the exact percentage can vary depending on factors such as the company's growth stage and industry competition.

For instance, a company in a highly competitive market might need to allocate more than 4% to stay ahead, while a company with a strong existing customer base might spend less. Ultimately, the key is to align the marketing budget with the company's strategic goals and ensure that every dollar spent contributes to measurable growth.

Seasonal content changes can increase viewership by up to 20% by attracting repeat clients

Seasonal content changes can boost viewership by up to 20% because they attract repeat clients who are eager for fresh, timely material.

By aligning content with specific seasons or holidays, production companies tap into the audience's emotional connection with these times of the year. This strategy not only draws in new viewers but also encourages loyal customers to return for more, as they anticipate the unique offerings tied to their favorite seasons.

However, the effectiveness of this approach can vary depending on the type of content and the target audience.

For instance, a company producing holiday-themed movies might see a significant spike in viewership during the festive season, while a company focusing on sports content might experience increased engagement during major sporting events. Ultimately, the key is to understand the audience's preferences and tailor the content to meet their expectations during these peak times.

Establishing a budget variance below 5% project-to-project is a sign of strong management and control.

Establishing a budget variance below 5% from project to project in a production company is a clear indicator of strong management and effective control.

When a production company consistently maintains such a low variance, it demonstrates that the management team is adept at accurately forecasting costs and revenues. This level of precision suggests that the company has a deep understanding of its production processes and can anticipate potential issues before they escalate.

However, the significance of a low budget variance can vary depending on the specific circumstances of each project.

For instance, projects with high levels of uncertainty or those that involve new technologies might naturally have higher variances due to unforeseen challenges. In contrast, projects that are more routine or have been done multiple times before should ideally have lower variances, as the company has already learned from past experiences and can apply that knowledge to optimize efficiency.