Picking the Path of an Independent Contractor vs. Studio

by Ron Dawson4 Comments

There used to be a time when in order to start a video production business, you literally needed tens of thousands of dollars, years and years of experience, and the strength to lug around 30+ lb. cameras on you shoulder plus 15 lb. battery belt packs. You needed to have the patience to do LINEAR, tape-to-tape editing. In other words, the barriers to entry were sky high.


Image © !/_PeacePlusOne on Flickr

Now look at the industry. You can shoot with cameras that literally fit in the palm of your hand (internationally renowned DP Philip Bloom shot this documentary on a teeny-tiny Sony NEX5n). The cost of that equipment is a joke. You can easily spend less than $700 and start shooting. Even renting gear is easier. I remember back in the day when if you wanted to rent gear, you'd need amazing credit, and have to put a huge deposit on your credit card. And if you didn't live in a major metro like L.A. or NY, finding a rental house might darn well be like trying to find the proverbial needle in that proverbial haystack. Now you have sites like LensProToGo, Lensrentals and Borrowlenses to get equipment inexpensively and quickly.

Education is abound. You have this blog, my blog, CreativeLive, and a whole host of other sites, seminars and forums to glean a 4-years college education for free (and in just a few months). Heck, high school students are just going out and shooting and learning by trial and error.

In other words, the barriers to entry now are really non-existent. Anyway can get camera gear and call himself/herself a “professional videographer/filmmaker.”

Philip Bloom's beautifully shot doc was shot on a $600 camera.

Picking your Path

Chances are if you read this blog, it's because you fit into one of the categories I mentioned above. You have your HD DSLR and all the other gear in tow. Either you've already made the leap of faith to start a business, or you strongly considering it. One question you need to ask and answer is, “What kind of business do I want to start? Do I want to primarily be a ‘gun for hire,' or build a studio?” Over the next couple of weeks, I want to address the path of the independent contractor (“IC”). This is the person who determines he or she would prefer to work for other studios, larger companies, or ad agencies as a single individual vs. building a studio with a team, extended services, leasing studio space, etc. This week I'll address things to consider when starting out, as well as some links to successful ICs. Next week I'll address branding. How do you see YOU as a brand.

So why would you want to market yourself as an IC vs. building a company? Here are some benefits of going the IC route vs. the formal studio:

  • Simpler financials and bookkeeping (for the most part)
  • Don't have to manage employees
  • Larger market (as an IC, you can market yourself to both companies AND other studios who need ICs)
  • Streamlined marketing
  • Generally lower overhead

I think the most significant advantage above is the wider market. When you market a formal studio or production company, you will be in competition with other production companies in your area. However, if you primarily market yourself as an IC, you can market yourself not only to regular corporate or event clients, but you can also market yourself to other production companies.  I can speak from experience as the owner of my own small production company that I am frequently in need of talented contractors. Think about the opportunities at your disposal in terms of finding work. You can join a local videographer or filmmakers association and pass out biz cards as a sort of free agent. Instead of everyone in that association seeing you as competition, they now see you as a resource to hire themselves. If you're a talented shooter and/or editor, you can keep very busy just serving studios in such an association.

Joining video associations and user groups are a great resource for consistent work from studio owners. Image © BOSFCPUG

Selecting A Business Form

I should point out that the business form you take does not have to change just because you become an IC. Technically, you can still incorporate your business if you wanted. Usually corporations must have a fictitious business name so look into whether or not your state allows personal corporations. If they don't, at the worst you'll need to come up with a fictitious name to use, but you could still operate as an IC, just make sure you do all the yearly duties required of a corporation (e.g. filing minutes, etc.). Once you reach a certain level of income, there are some definite tax benefits to incorporating vs. being a sole proprietor. As a sole proprietor you must pay self-employment tax, comprised of FICA and medicare. The FICA portion is 12.4% up to the first $106,800. After that, the 12.4% stops. The medicare portion never stops. So up to $106,800, you're paying 15.3%. As a corporation, you don't pay self-employment tax. However, you do need to take a salary and your corporation will need to pay FICA on the salary you take, plus a portion of the medicare. But can you see the point. If your corporation earns $106,000, you're only going to pay employment taxes on whatever amount you pay yourself as a salary. Let's say that based on that income, a fair and reasonable salary is $20,000. Now you're only paying employment tax  on that $20k, not the full $106K. (Note: if you don't pay yourself a “fair and reasonable” salary, you may raise red flags with the IRS). Click here for more information on self-employment tax right from the horse's mouth.

I know what you're going to say next: how can I live on $20K a year? Well, the rest of the money you live on can come in many forms. Distributions from the corporation will be the main way. Those distributions will be taxed at your regular income tax rate, unless you're an S-Corporation, in which case your income taxes are based on the income of the S-corp, not what you take out. Most small business who incorporate (me included) go the S-corp route. Other ways you “live” off your that total revenue are the expenses you can write off as the businesses share of your home expenses (e.g. rent, utilities, etc.)

Needless to say, I am not a tax expert (I just play one on this blog. ;) ) Find yourself a competent CPA or tax expert to advise you. Ideally, see if you can find an Enrolled Agent (EA). An EA is a special designation by the IRS given to a select few tax specialists. We have always used EAs to do our taxes. They will find all the best ways for you to legally and honestly write off expenses you never dreamed you could have written off. (e.g. did you know that if you find a couch in the street, pick it up and bring it into your business, you can write off the fair value of that coach? EAs will show you stuff like that).

Find a good tax professional. The tax chain H & R Block has EAs in many of their offices. Worth looking into.

Charging for Your Services

The last thing I think is very important to point out is how you charge for your services as an IC. You have to look at yourself as providing a wholesale service. That means, if my studio charges a client $200/hour for shooting with a full set of gear, if I hire you to shoot it for me, I can NOT pay you $200/hour. Charge other studios a fair rate for your talent and time, but be mindful that they have to make a profit on your portion of their services, just like they need to make a profit on other expenses they incur. Now, the benefit to you for that lower fee (compared to what the production company is getting) is that 1) you didn't have to do in marketing to get that client and 2) you don't have to manage that client relationship. In most cases, if you're shooter, you just show up and shoot. If a corporation is hiring you directly, then by all means, charge more to account for the extra work involved with client management.

I won't get into how much to charge. It depends on so much: where you're located, how good you are, the market rate, etc. Perhaps that can be fodder for a future blog post.

Successful ICs

Below are links to a few ICs who are very successful and are a great model for where your career can go if you're a talented filmmaker or producer (in no particular order)

ASC cinematographers like Shane Hurlbut and other Hollywood professionals would also fit into this category. Take a look at all of their websites to see how they present and market themselves. That will be your homework before we tackle part 2, “The Brand of YOU.” See you next week.

Ron's cliche director image.Ron Dawson is an accomplished writer, director, award-winning video producer, speaker and author. He is the founder and president of Dare Dreamer Media, a boutique new media marketing agency and production company specializing in commercial video production and branded content. Although he’s done work for the likes of Apple, Adobe, Kodak and international brands, his passion is inspirational and cause-driven films for small and large non-profits and worthy causes. He writes about the art & business of filmmaking & photography on his blog DareDreamerMag.com.

(cover photo credit: by Movieing Images on Flickr)


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Comments

  1. Michael Kleven

    Ron,
    Thanks so much for the informative article. In the Seattle are which seems to me a “small” market I find myself drawn to the easier to find freelance work but excited also by opportunities to produce and direct a project. I am inspired by the creative efforts of others when I freelance and enjoy that I did not have to put the whole thing together.

    But there is a lot that can be said for being the chief from time to time in terms of creativity and control. I hope that I can continue to dip my toe in both pools. Thanks again for your post and to Mitch for the work he does at planet5D.

    1. Author
      Ron Dawson

      Thanks for your kind words Michael. I too love being able to work with other creatives on a big project. The few times where I have hired myself out as an IC for another studio, it was nice not having to be “the boss” on set. I actually found the shooting more enjoyable during those times.

  2. Stephane

    Thanks for this post !
    12.4%…. it sounds like a dream to me !
    In France : self-employment tax : 45%
    And If you have benefits at the end of the year you pay 36% of it….

    1. Author
      Ron Dawson

      Yikes! 45%! That’s crazy. I’ll be sure to tell my wife. Her dream is to live in Paris some day. Not at those rates! :)

      It only occurred to me later that everything I wrote was related to the U.S. I hope all the other info was still good enough for our international friends.

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