What is an expense?
An expense is money spent to operate. In an agency the useful split is between direct expenses, which belong to a specific client job (crew, equipment, locations, talent, travel, music, post), and indirect expenses, which keep the business running regardless of any job (rent, software, insurance, admin salaries, the agency's own marketing). Direct expenses are tracked against project budgets and are often billed through to the client. Indirect expenses are overhead, recovered through the rates and fees charged across all the work.
Accountants add further distinctions: fixed versus variable, capital versus operating, reimbursable versus absorbed. For most of the people running a creative business the first question is simpler. Is this cost for a job, or for the company?
Why it matters
Why expenses matter
Revenue is what a business earns; expenses are what keeps it from being profit. An agency that does not know its expenses in detail cannot price its work, because it does not know what the work costs. It also cannot tell a good year from a busy one, since turnover can rise while the money left over falls. For production businesses the stakes are higher, because direct expenses are large and paid early: a single shoot can commit more cash in a week than the agency spends on rent in a quarter.
On the client side, expenses are where trust is built or lost. A client who sees a clear breakdown of what was spent and why will accept a number; one who sees a lump sum labeled production will question it.
In practice
How expenses work in practice
- 01
Direct expenses are planned in the project budget, approved by the client as part of the proposal, incurred during the job, logged with receipts against the budget line and reconciled at wrap. Depending on the agreement they are billed at cost, marked up with a handling fee or bundled into a fixed price. Indirect expenses are planned in the annual business budget, tagged to cost centers as they are paid and reviewed monthly against that plan.
- 02
Both kinds feed the pricing. Direct expense history tells the producer what the next shoot will really cost; indirect expense totals set the overhead rate that every billable hour has to carry. At year end both flow into the accounts: direct expenses as cost of sales, indirect as operating expenses, with the difference between revenue and the two of them being the profit.
At RIOT
Expenses at RIOT
On our productions the direct expenses are planned before the client sees a number: a scoped plan goes out within a couple of business days with the shoot days, crew and costs it assumes. Krova, our production software, holds that budget through to delivery, so what was planned and what was spent sit on the same page when the job wraps.
Watch out
What people get wrong about expenses
Confusing direct with indirect. An agency that charges a client for a share of its rent looks greedy; one that absorbs crew costs it should have passed through loses its margin. The line has to be clear in the proposal. The other mistake is treating small expenses as too small to track. Taxis, drives and crew meals are individually trivial and collectively a budget line, and they are the ones that are never in the estimate.
