Why Reverse Budgeting Must Be the Rule, Not the Exception, in a Cost Estimate

How much do films cost? Reverse budgeting instead of classical calculation
The way to efficient price determination | © Pixabay

In practice, the buyer is often surprised by extreme price differences between the offers received, which are difficult for him to understand. It doesn’t have to be. Target calculations, known in the English-speaking world as reverse budgeting, offer a proven solution for this. Nevertheless, they are still the exception in contract production.

This article explains how reverse budgeting works in video production and why this principle should be the rule and not the exception in image films and video productions.

1The reality of open budget calculations

Pricing can be approached more efficiently in film production and video production using reverse budgeting. This is independent of how many minutes a film or video should last.

In contrast to reverse budgeting, one of the possible reasons for highly differing prices in the case of classic requests for quotation is not only the competitive market, which is difficult for outsiders to understand. But also in the technically complex costs and prices for production. And last but not least, also in the client-side briefing that precedes the preparation of a quotation.

2Making the right assumptions

The more questions a briefing leaves open, the greater the room for assumptions and interpretations on which the provider must base his offer. At the same time, gaps at the offer level are usually unavoidable. This proves to be a problem time and time again.

That’s understandable. Firstly, the client lacks the experience to work out the necessary parameters. Second, let the production company do the work. Let her show what she can do.

The only thing is: if an offer only defines the technical quality, for example, it is like someone contacting a few travel agencies by e-mail and asking for an offer for a holiday on the beach. The travel agent has no choice but to make assumptions. This is not the case with reverse budgeting.

Experience has taught us that tactical considerations always play a role when accepting offers (keyword: bait-and-switch offers).

The widest gap between the offers of different film production companies is when the future content of the video or film is not communicated. Be it because the concept or story does not yet exist at the time of the request or because it is still being worked on internally.

4Solution: Reverse Budgeting

In foreign markets, reverse budgeting is the norm in film and video communications for the production of image films and product videos. In this country, too, the principle is gaining more and more friends because of the increasing pressure on costs in image films. Especially when it comes to an estimate.

Reverse budgeting means nothing more and nothing less than quoting a fixed price to the candidates as part of the evaluation of potential providers. At most also the film duration.

5Prerequisites for the applicability of “backward budgeting

Instead of asking how much it costs to produce a film or video, reverse budgeting focuses on the service package. What does the customer get from the provider for the mentioned fixed price in a cost estimate?

The fixed price is determined internally by the client on the basis of previous projects in his own company with comparable tasks.

The involvement of a neutral film expert can make sense here. To do this, such a coach must have proven practical and industry experience and sound expert knowledge.

The time and effort required for an external consultant is between 2 and 5 working days, depending on the course of the tender (multi-stage, single-stage) and on the internal approval processes at the client (number of meetings for internal coordination).

In order for the services offered to be comparable, they must be reduced to success-relevant impact parameters.

These include for example

  • hard values such as the planned number of shooting days (production output)
  • Soft values such as the film concept (creative services)
  • Evidence of talent with showreel / track record from production company, film consultant or film agency
  • Project structure, roles and functions, naming of key people involved.

An external coach also provides significant support in the analysis of film offers with little effort. In this way, he compensates for a lack of know-how on the part of the client.

5Advantages of reverse budgeting

Reverse budgeting gives an experienced producer of image films the freedom to adjust all important project parameters perfectly like Swiss clockwork to achieve maximum quality. That’s why every serious and experienced producer will gladly agree to deliver his offer as a binding lump-sum budget when he is awarded the contract.

In the case of an open budget, the supplier will differentiate himself on the basis of price; in the case of a predefined budget, he will differentiate himself on the basis of quality.

Because it cannot win the pitch on price, but only on quality, the film production requested to prepare a quotation will think along with the content from the very beginning when reverse budgeting. Particularly in the case of existing concepts, she often makes valuable suggestions for improvement.

tips and tricks

Externally solicited offers always become a killer for the annual budget of marketing and communications departments if concepts or scripts have already been developed internally before the invitation to tender, detached from empirical values.

If the client lacks the knowledge of parameterization and cost drivers, budget overruns are inevitable. Surprises are included in this case.

Unexpectedly high external offers are particularly problematic if internal concepts and budget allocation have already been approved by the superior department before the external tender. This cannot happen with a cost estimate in reverse budgeting mode. This also eliminates potential reputational damage to the client.

The request to the offeror to communicate hourly rates or daily rates is only of limited use. For wherever artistic services are to be rendered, daily rates lead nowhere.

The author’s work can serve as an illustration. A young screenwriter may have deeper hourly approaches than the established scriptwriter. But the effort to get the script ready to shoot will take massively more time when working with a young writer. It will therefore be more expensive in the end than working with an established professional. This is the case even without including the client’s expenses in a full cost calculation.

Reference values: Online calculator from Filmpuls

With the online film cost calculator from Filmpuls, it is easy to determine guideline values for the price of a video. Enter length and genre and the calculator will show both a ballpark cost and the time frame required for production. This is calculated backwards from the date to which the film must be completed.

Learnings from Reverse Budgeting

Where customer expectations and reality diverge wildly, even reverse budgeting cannot square the circle. Serious comparative calculations and empirical values show: If you think backwards in a film tender and pitches with reverse budgeting, you often get ahead faster and achieve better quality results.

You need to know

  • Reverse budgeting is costing that takes into account a pre-determined umbrella budget. This is possible by aligning the key data of the project precisely with the target budget.
  • In contrast to an “open to the top” calculation, the reverse budget cannot be used to compare prices, but “only” the quality and service quantities of different suppliers.
  • The advantage of this type of film calculation: the supplier does not optimize the means, but the quality.
  • The disadvantage is that more experience is needed to evaluate a backward calculation than to simply compare pure final costs.

The genre is irrelevant: Reverse budgeting is just as applicable for CEO videos as for image films, product films or commercials. In the end, the only thing that counts is the effect (which also reflects the quality) and the question: how much do films cost?

This article was automatically translated into English using AI. If you would like to help us improve the quality, we would be happy to hear from you.

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