In the past few weeks, we've covered the release and the early reports of the performance of the new Mac Pro extensively. From what we've seen to this point, it doesn't seem like a stretch of the imagination to say that these machines will become fairly ubiquitous in the filmmaking world over the next year or two. However, there's one aspect to this story that we haven't yet covered, and that's the economic debate of performance vs. price, especially in regards to people who use these machines as the foundation of their creative businesses. Our friend Chris Potter over at Screenlight (a video-sharing software for video pros) has written up a fantastic post about how to make the best economic decisions for your creative business as you look to purchase new hardware.
We all know that the new Mac Pros have some pretty impressive specs, and we've seen that they can perform very well with a newly updated and optimized FCP. Accordingly, these computers come with a premium price tag. We've also talked about the fact that the new versions of the iMac offer fantastic performance in various NLE's and other pieces of high-end filmmaking software. Additionally, a spec'd-out iMac will cost you significantly less than a spec'd-out version of the new Mac Pro.
This begs the question: if the differences in relative performance between the two machines are somewhat negligible in terms of the software that you use to generate income, is there any reason to invest in the more expensive hardware? Here's Chris Potter's take, as he charts out an in-depth look at the economics of that question.
The starting point in determining how to best invest for your business has to start with taking a good hard look at where your business is currently, and more importantly, where you'd like your business to be in the future. For the nitty-gritty of how best to accomplish this, head on over to Chris's article, because he explains the process better than I ever could. Here's a brief snippet from his section on determining where your business is headed in the future:
The rationale here is that any investment decision you undertake needs to support your ability to realize this vision. There must also be a realistic path to get from where you are today to where you want to go. So now is a good time to think about how the kind of work you do is changing? Will you be hiring new staff? Are there new areas of the business that you want to move into? What new workflows do you hope to support? Is there new software that you need to run? Are you going to be spending more time doing color correction, 3D graphics and other computer intensive operations? Where does 4k fit into your plans?
Once you have a sense of where your business is and where you would like it to be, it's time to start considering how new hardware will factor into your business. This starts with determining which hardware options are available, and which of those options would best suit the current and future needs of your business. Obviously in the case of this article, the decision is between the Mac Pro and the iMac, but there are plenty of powerful PC options available for comparison as well. You can also certainly opt for the "do nothing option" if your current hardware is allowing your business meet its goals.
In the Mac Pro vs. iMac financial debate, you should then start outlining the differences in revenue that the two different options would provide. Some of the differences in revenue from these two machines might be:
- Revenue from work you wouldn't otherwise get with an iMac or with your current hardware. This could come from new jobs you can take on, the ability to do more jobs at once, the ability to do new types of work, the ability to command higher rates because you can do things you otherwise wouldn't have been able to do, etc.
- Time savings associated with faster hardware. How much time will you save over the course of the year from using faster and more powerful hardware. For example, 20 minutes per day over 200 working days per year at a rate of $50 / hour would be about $3,333 per year. Of course, this time savings should only be included if it will be used for other productive work.
The next step in the process is to forecast your projected cash flows for each of your options. These cash flows are derived from the above revenue differences, and while they're entirely hypothetical, they should take into consideration the internal and external factors of the hardware. In order for this process to provide the most accurate results, it's best to be fairly conservative with your projections so as to avoid making a misguided economic investment based on overly optimistic numbers.
Discounting the cash flows and then adding them up provides the Net Present Value (NPV) of the two alternatives. Comparing the financial benefit of the different options is easy once everything has been converted into today's dollars. The alternative with the greatest NPV is the one that does the best job of meeting the objectives of profit maximization.
Once you have a set of hypothetical numbers for each machine, you can start plugging them into a spreadsheet in order to determine the value proposition for each piece of hardware. As mentioned above, the higher the NPV, the better long-term value that hardware hypothetically represents.
Chris has graciously provided an open google-doc version of this spreadsheet so that you can change these numbers based on your individual business needs. You can view and manipulate the doc here. The numbers in blue are the ones that are meant to be changed for individual projections.
In the case of the above spreadsheet, because the NPV (Net Present Value) of the Mac Pro is significantly higher over the course of the three-year projection, it represents a higher value to this individual business, despite the significantly higher initial investment in the hardware. This is due to the fact that the computer not only represents fairly significant cumulative time savings in the long run, but it also opens up new streams of revenue that would have been otherwise unavailable with the purchase of an iMac.
All of this information represents the bare-bones basics of the decision to buy new hardware. To read the rest of Chris's article, which contains quite a bit more information than was included here, head on over to the Screenlight blog and check it out. If you have questions about the specifics of the process and the spreadsheet, don't hesitate to ask Chris.
What do you guys think? Is this a practical method by which creatives and their businesses can approach the economics of purchasing new hardware? What are your methods for determining the economic viability of new hardware? Let us know in the comments!