Wednesday, January 27, 2010

Calculating an Event’s Break-Even Point [Part II]

Last week, we looked at the “Rate Per Person” equation for events and went over each variable. Here it is again:

Rate Per Person = [SM + FC + (X * VC) + IC + PM] / Y

If you need to review what all of the variables mean, click here for the previous post. This week, let’s take an example and see how it plays out. Ready? OK, here we go...

I want to do a small gathering of cross-stitch fans for a luncheon. Let’s say we expect to have a maximum of 30 people attending, including an invited speaker whom we will not charge for their participation. I am also attending and am included in the 30 count.

SM (Sunk Money): I am able to advertise this fairly cheaply. I spend $25 on flyers that I distribute at local fabric stores, who allow me to post on their message boards for free.

FC (Fixed Costs): The speaker has a Power Point presentation that they plan to do, using their own laptop. Let’s assume that an LCD package (projector, screen, power, and cords) will cost $400, including tax and service charges. The total number of guests is small enough that I should not need a microphone for the speaker. And, since I am providing lunch as part of the program, the hotel will not charge me a room rental fee. (Aren’t they nice?)

X (Number of participants): We expect 30 total participants.

VC (Variable Costs): The only cost we have in this category is the lunch itself. I was able to negotiate a rate of $20 inclusive for my lunch. Remember, this is a per person rate.

IC (Indirect Costs): I am donating my time, so there are no admin costs that I am trying to recoup, but I will not be paying to attend either. This figure will be $0.

PM (Profit Margin): If I make a profit, that would be great, but I do not have a specific profit goal – I just want the event to pay for itself – so this number will be $0.

Y (Number of Paying Guests): We have two people who will not pay to attend (comps), so that means we have 28 paying guests.

OK – putting it all together, the equation now looks like this:

Rate Per Person = [$25 + $400 + (30 * $20) + $0 + $0] / 28

When we do the math, the final figure comes out to $1,025/28, which works out to $36.61 per person. Many novice planners’ initial reaction is to charge that amount; maybe they’ll round up to $37. If 28 people pay $37 each to attend, we’ll make $1,036, which covers all of our expenses. We have broken even!

However, there is one drawback to this – we need to sell out in order to break even. So, how can we fix that? We adjust the number of attendees and paid attendees and recalculate. Let’s assume that only 20 people attend (including our two comps). Now the equation looks like this:

Rate Per Person = [$25 + $400 + (20 * $20) + $0 + $0] / 18

We will now have to charge $45.83 per person to break even. Of course, each paid attendee after the 18th one starts adding to our profit, but our break-even point is 18 people at $45.83 per person.

You can also work from a predetermined rate to figure out how many people would need to pay that amount in order to break even. If, say, we wanted to charge $40 per person, then we’d break even with the 24th paid attendee (the Rate per Person with 24 paid attendees and 2 comps is $39.38) and start making profit with each paid attendee after that.

While most of these two posts have been just about the math, the art of calculating a break-even point comes in figuring out realistic numbers for all of the variables – especially since you do not always know what those numbers will be when you first begin – and that is one of the places where a professional planner can be of assistance to anyone who has to manage their event budget. They can help identify expenses and help come up with realistic numbers for you, as well as using your event history to generate solid tracking of paid attendance.

- Karl Baur, CMP • Project Director, RDL enterprises

Wednesday, January 20, 2010

Calculating an Event’s Break-Even Point [Part I]

As we start off 2010 and the economy is slowly recovering, most of the planners I know are much more aware of the costs of their events and are under more pressure to ensure that they make a profit (or come in under budget). At the very least, they need to break even (or not exceed their allocated budget). These folks deal with this issue regularly, however, and have all the tools they need to track income and expenses to be able to project how they’ll do financially. And, if they are working with a fixed budget, it is relatively easy to simply tally up all of the projected expenses and compare the two numbers. You break even when your income matches or exceeds your expenses.

But what if you are planning your own event and you do not have a specific funding amount or if the event has to fund itself? How do you know when you will hit the “break-even point” and start making a profit? Well…there is an art and a science to this.

Let’s look at a key formula first (science) and then we’ll discuss how to use it (art and science). [Warning! This will involve some math but don’t panic; we’ll go through each piece of it.]

Rate Per Person = [SM + FC + (X * VC) + IC + PM] / Y

That’s a lot of variables. What do they mean?

SM = “Sunk” Money: This represents money that you spend to put on an event that you must spend whether or not the event happens. For instance, money spent promoting the event and non-refundable deposits are both considered “sunk” money. Sunk money can often be “buried” within other costs but it is something that is quite important to know, especially if cancellation of your event becomes necessary.

FC = Fixed Costs: These are expenses that usually do not change based on the actual attendance at the event. A good example here is a speaker’s fees. Typically, a speaker will charge you a set fee to present at your event, which will not change if your numbers go from 100 people up to 125 people or down to 93 people. Other examples of fixed costs include audio-visual equipment, guest rooms for speakers or other VIPs (if covered by the event), awards, etc.

X = This variable represents the number of people who will attend your event. It is not necessarily the same number as the number of people who will pay to attend your event!

VC = Variable Costs. Variable costs are those expenses that depend on the actual number of people that you plan to provide for. In other words, the total amount you will pay is affected by changes in your attendance. The classic example of a variable cost is a meal. You pay on a per person basis for meals and they are even presented that way in hotel menus.

IC = Indirect Costs: Also known as personnel or administrative costs. This represents staff salaries, office overhead, and other related expenses that may not be directly tied to the event but must be somehow “recouped” by the event.

PM = Profit Margin. Quite simply, this represents how much profit the event must make once all expenses are paid. This is particularly useful to include in cases where an event is being used as a fundraiser for other activities your group is doing.

Y = Number of participants who will pay to attend

Note: all of these variables, except for number of people (X and Y), are expressed in dollars (or whatever currency you’re using). I tend to round to the nearest whole dollar to make calculations a bit easier but it is not necessary, especially if you use a spreadsheet to do the calculations for you. It can also be tricky sometimes to know if an expense is a fixed cost (FC) or a variable cost (VC). Just remember that a variable cost is one that is based on the number of people attending, even though you may order more or less of something based on other information. For instance, if I need poster boards for a scientific presentation session, the number of boards required will vary based on size of posters, number of presenters, and the layout I want to use. However, rental of the boards is still considered a fixed cost (FC) because it does not matter if I have 100 people attending the event or 75 or 140 – attendance does not affect the cost for renting the boards.

Fill in the blanks and do the math – and you have your break-even point based on your projected attendance. Essentially what we’ve done with this equation is add up all of the event’s expenses and then divide by the number of people paying to attend the event to get a rate per attendee. This amount is the basis for coming up with a registration fee for the event and, ultimately, determining a realistic break-even point.

Next week – an example using the equation…

- Karl Baur, CMP • Project Director, RDL enterprises

Thursday, January 14, 2010

What is a BEO?

BEO stands for Banquet Event Order. This is a term that you will come across often if you are a meeting planner – and you will learn what it means quickly. But for those of you out there who are doing an event for the first time, perhaps, or only plan a function once a year, it can be tough to learn (or remember) the myriad acronyms that we use in the meetings and events industry.

A “formal” definition of a BEO is: a description of room setup, food and beverage, timing, and cost for an event, usually created by the convention services (or catering) department and is primarily for the internal use of the hotel staff. A BEO for a hotel will also typically include any audio-visual equipment ordered as well as other goods or services to be provided by the hotel. In short, a BEO is your event, translated into a standard form that everyone involved reads from.

How many pages make up a BEO depends upon the size of your event and how many details need to be included. I generally expect to receive either one page for each room I am using or one page for each function I am having during my event. A small meeting may only have one BEO, while it is not unusual for a large and/or complicated event to have many pages of event orders to review – but you always want to go through them in detail (no matter how many pages!) and make sure they are accurate. BEOs are the hotel’s “bible” on your event and every department is relying on their accuracy to enable them to provide you with great service. I review BEOs for every meeting or conference I work on, no matter what size. By making sure that the hotel and I are on the same page (literally), I can ensure a smooth event for my clients and their attendees.

- Karl Baur, CMP • Project Director, RDL enterprises

Wednesday, January 6, 2010

Thinking Outside the Box for Small Meetings

It is amazing to see how the current economic situation is bringing out great new ideas in many industries. I recently read an article in Corporate Meetings & Incentives that described a process for meeting planners and administrative personnel to help their companies save two very important resources – time and money – with regard to the meetings they do on an ongoing basis.

It is becoming known in the business as “Meeting in a Box.” The article is a bit lengthy and may be somewhat confusing to someone not directly involved in the meetings industry. However, the concept is basically that the planner and hotel partner to create pre-negotiated packages for a client who does many small meetings. You can read the full article here.

We have done something similar in the past with a series of small trainings held throughout California which involved developing pre-negotiated packages with preferred hotels that included set menus, meeting space, basic audiovisual, and standardized contracts. “Admins can then choose a package that meets their needs and book the program without having to negotiate costs or review contract terms and conditions.”

This relationship is a benefit to everyone involved – the planner and hotel are able to provide their services to more companies and the client (admin person and their company) is able to more accurately track the expenses, save money, and increase efficiency. I’d say these benefits are always important, no matter the economic climate!

- Ginger Myrick • Meeting Planner, RDL enterprises