In this episode, Jared Judge revisits a critical topic that can make or break a musician's career: building a profit margin into your price. He shares his personal experiences and mistakes in managing his musical act, emphasizing the importance of not just compensating musicians but also covering administrative costs, marketing, and investments in equipment. Jared provides a step-by-step guide to calculating the cost of a gig and determining an appropriate profit margin, stressing that this is essential for the financial stability and longevity of a musical act. Whether you're part of a band or a solo act, this episode offers valuable insights into managing your finances and ensuring that your music thrives.
What's up gigging pros! Its Jared Judge Welcome to another episode of The Gigging Musician Podcast. I wanted to revisit a podcast episode I did, probably over 100 episodes ago, because it's that important for your music career. It is literally the thing that makes or breaks your ability to survive, makes or breaks your happiness makes or breaks the longevity of your act. And also makes or breaks your ability to invest in other things that your band or act desperately needs, like a PA system, or even the ability to pay for things like marketing, and training and coaching. So if you want any of those things, you want the ability to last a long time with your musical act. If you want the ability to be happy with the finances of your act, and not feel like you're losing money on each gig, well, then this is totally the episode that you needed to hear. Because the solution is building in a profit margin into your price. So for a long time, back when I started my first gigging accent, dream city strings, I knew that I wanted to build a string quartet, I wanted to sell it to, you know, high paying private event gigs, mostly weddings, but corporate events too. And, you know, I set about on that journey. And the way that I figured that I should just compensate everybody was by splitting the money, even, you know, four people, each of us gets 25% of the money. Sounds fair, right? Well, wrong. It's not fair. Because, you know, I was one of those four members. The other three members were musicians, obviously. And those three musicians simply did not contribute to the any of the administration of the Act, which is totally fine, because I didn't really ask them to. However, they were all getting compensated equally to me. And I was doing all of the administration for the act, the marketing of it, paying for the website, paying for ads, paying for all the like business incorporation, because yes, I incorporated as a business very early on. And not to mention the money that I put it in, but also the time and the effort. Like all of those things took time, I had to spend time figuring out how do I file an LLC? How do I get a business bank account, I had to visit in person and meet with my bank, person, business bank person, his name is Oleg, and all that stuff take a lot of time that I was not being compensated for, because I was being paid just for my musical service at this. So there's that. And then there's, there's the whole marketing of the Act, which you know, I put together website, that's, that was one of the first things I did. Websites cost money. As you all know, websites take time to put together into effort. And then I literally did spend extra money I spent like$2,000, to this guy who said he would write the text for your website make it a really high converting sales funnel. So I spent over $2,000 on this guy, which actually did not pan out. He's not a musician, he didn't really know how to market music. And so I tried using his website, but nothing happened other than me being out over$2,000, which I paid out of my own pocket, because again, I was paying myself equally to the musicians who just showed up at the gig, and played. And I have no resentment towards those musicians. This was completely a my, my fault. And if you're listening to this podcast, you might be in a similar situation where, you know, don't be resentful at your bandmates be resentful at yourself for putting yourself into the situation. I mean, don't be resentful because we all make mistakes. But it's time to change that. And so, you know, I spending all this money on marketing, and then spending all this time. Once I did get a lead, following up with that lead, so hours of my time, per lead per gig. And then once the gig was booked, once again, spending more time writing the contract, playing the cashier, getting their money, and then coordinating all the logistics of that gig. You know, because every gig is unique, the venues are different. And sometimes I would even visit the venue before the gig a couple days before just to see where are we setting up? What's the sound situation? Where's the electricity? So all this uncompensated time plus, this left the business in a dire financial situation because we after after each gig. I'd pay out all four musicians including myself, and that leave the business. This with no money left over for anything, right, it couldn't pay for the website. So that had to come out of my own pocket again, couldn't pay for any of the additional services like, you know, paying for the annual reports paying the taxes and accounting, all that had to come again out of my own pocket. And so this all could have been solved. Had I from very early on, implemented a profit margin. And it's crazy because they don't teach any of this stuff in music school or in the lessons that we take. Nobody talks about the completely unsexy finances behind running your band or your act. Even as a soloist, by the way, like, if you're just a solo act, you still got to do this, like you pay yourself a, you know a salary from the gig. That is for your musicianship for showing up and playing. But you still need to build in an additional profit margin to cover all of your expenses and invest in the future of your act. So profit margin is simply a percentage that you build into your price, on top of the fees that on top of your cost of goods, cost of goods is a squeak term I just need to define cost of goods is how much does it cost to actually make a gig happen. So you're paying for things when you're, when you're putting a gig on your first of all, paying for the musicians and yourself is included in that. And then, on top of that, perhaps you're paying travel fees. If the gig is two hours away, you definitely should charge and pay out a travel fee, to the musicians playing. On top of that, you may have to hire a sound engineer, or even, you know, rent equipment to make that happen to that's another cost of good. And then maybe you bought some new sheet music, like my string quartet did that all the time still does it. And that is another cost of good. And then anything else that needs to to be paid as part of that gig. So those are your cost of goods, I will say there is another cost of good cost of making that happen, which is your time as the administrator. So as the administrator, you're doing the selling, and you're also making sure the good gets fulfilled. So that is another cost of goods that I would build into your price. And for that one, I would use a percentage, you know, there's one of the things that we're trying out a lot is a 10%. Commission to the person who books the gig and makes it happen. And so I would build that right into the price. So that is not your profit margin yet. We haven't even gotten there. But after that, so you get this nice, nice number that is your entire cost to make the gig happen. And then that's when the profit margin kicks in. Profit Margin is an additional percentage on top of the cost of the goods that you have sold. And it is so important to build that in. And the way to do that is by deciding on a percentage. You know, in online and like E commerce, there are a lot of people who have over a 50% profit margin, meaning it costs less than 50% to manufacture the little trinket that you bought on Amazon, that costs 50% of the price that you paid to make it now in music and and services. We are in the service industry like we're service workers, we show up at a at a time and at a place 50% profit margin is less realistic. However, there are some musicians who do that. But also, I would say that 10% is way too low. I can't make you like I can't tell you what to do as far as the profit margin. You have to figure that out yourself. But I will revisit what I said in the first past podcast episode about the 50% thing. In California there's a class action lawsuit against a large corporate style band because they take over a 50% profit margin. So all the musicians got together and did a class action lawsuit saying like this, this band is taking too much, which I think is fair. You know 50% I think is too much. But I don't think too much lower. Is is a is a bad thing. You know how you wouldn't go 10% I would go higher and what this does. So by the way, the quick formula for doing this is like say that you are paying out$1,000 To all of your musicians and the cost of, of making the gig happen, say you decide on a, let's, let's just use 50% as the example because it makes really clean numbers. And so if you were to say I'm going to make a 50% profit margin or the act is going to have a 50% profit margin, and the cost of the gig is $1,000. The way to do figure out what the total gig should be, is to divide the cost of the goods by the profit margin percentage. Actually, I always get this wrong, but it's actually the inverse. So you divide the cost of the goods that you've sold by one minus the profit margin. So you want to get like, if 50% is the profit margin, what's the other half what percentage of the gig was the cost of the goods sold. So you divide the cost of the goods sold by the percentage of the total price, that is the cost of goods sold, which in this case would still be 50%, and you get the total gig. So 1000 divided by 50%, is 2000. So $2,000 is the total price that you're going to charge to the customer for the gig. And then 5500 Sorry, $1,000 of that goes towards the musicians and other costs as part of the gig. The other 1000 is pure profit, profit that goes into the business bank account for the act, profit that goes towards paying your gig salad subscription, your website, your memberships, a full time he's got me, your assistant, your business cards that you printed at FedEx, and other things. So isn't that amazing? That if you're wondering, like, why would I book a gay, how come I'm losing money? Well, this is the exact reason why. So you have not built a profit margin into your gig. And I wanted to show you what the possibilities are. That once you build that profit margin into a gig, this enables the long term longevity of your act. Because it's now financially state stable. It's kind of like a human body, you need blood to survive, you're gigging x is, it's basically a person that needs blood to survive. And if every gig, you get an injection of blood from somebody paying for it, but then you spend all that blood, you lose all that blood by paying for the cost of the goods, you leave the body with no blood left, eventually, no oxygen gets to the brain, and it dies. So we don't want that sole purpose is to make more music and be happier and more financially sound doing it. And a profit margin is the way. So again, you have to decide what profit margin works best for you. Zero is completely unacceptable. If you're doing zero, I can predict that you're probably feeling a bit resentful of your act right now. Getting like it's a drain feeling like Oh, society won't support my music. But actually, no, it's the decision not to have a profit margin that is causing you to feel that way. So this is your chance to to change it. Right now. I want you to, you know, if you're driving, you know, pull over. Otherwise, get out a piece of paper or get out the Notes app on your phone. Right out? How much does it cost for you to put on a gig? How much are you paying your bandmates yourself. And next, add in a fee for you as the person who does the administration and booking. And then once you get that, calculate a profit margin decide on a percentage, somewhere between 20 and 50%. And then divide the cost of goods by one minus the percentage of the gig, that is the cost of the goods. So if you're doing a 40% profit margin, then the percentage of the gig that's the cost of goods is 60%. So if I did one minus 40%, is 60%. So Cost of Goods divided by 60%. Then you get your total gig price that you need to charge to the customer. So I hope this was helpful. And if you're one of my Fulltime Music Academy students, you know, you struggle with this, I hope you listen to this and do it right now. Figure out your price. And do this for every possible configuration of your app that you book. And I promise you, you will have a much happier band, much happier bank account, you'll get the ability to pay off your credit card debts, pay off your student loans faster. And it's really amazing what being financially comfortable is. Don't be shy about this. There's nothing wrong with charging a profit margin. I would just say don't be greedy, but I knew that if you're a musician listening to this, you're not going to be Really, you're doing this in service of your music, so that you can put out a higher quality product for the people who book you. You can create a better experience for the musicians who play with you, and you enable music to thrive. You're not driving down the prices of everybody. So that is my high horse for today. Thanks for sticking with me all the way to the end. I appreciate you. Thanks for tuning in to another episode of The Gigging Musician Podcast. By the way, this is one of the fundamental things that I teach inside of Fulltime Music Academy. And if you're interested in that, I'd love to give you a free trial of it. When you get the Gig Vault absolutely free. There's a treasure trove of over 24,665 private event contacts. These are the money gigs as Tracy Silverman says, if you want access to the money gigs, you need a plan to get there. Fulltime Music Academy gives you that plan. And the Gig Vault gives you the exact people that you need to reach out to Get Your Free Copy at OpenTheGigVault.com And remember, "Your music will not market itself!".