Last Updated on October 7, 2021
Last week, we talked about the processes involved in making your event firm known to the world. Today, we’re going to be looking at something a little more difficult to deal with: your budget. In all honesty, budgeting is actually where the vast majority of event management businesses fail. It all starts with figuring out how much you’re going to need for your startup costs, and going from there.
Generally speaking, if you’re starting up a new firm, you’re going to have to manage some if not all of the following expenditures:
- Rent/Building Costs
- Equipment Purchases
- Licenses and Taxes
- Payroll (if you’re planning to hire staff)
- Legal Fees & Accounting
- Other costs including transportation, equipment rental, etc.
Work out exactly how much you need to pay for each item on that list, and total the costs up. If you’re a seasoned event management professional you may be able to do a quick back-of-the-napkin calculation. If you’re new to the game, dive in and start researching, ask mentors for answers, cold call suppliers (this is also an opportunity to introduce yourself.) Once you’ve totaled your costs, congratulations – that was the easy part.
Hint: the saying goes “take your total cost and double it.” Make sure you leave a little wiggle room for any unexpected expenditures.
Your next step is determining how to price your services based on your operating costs and industry standards. Creating a pricing structure that supports growth is actually where the vast majority of first-time businesses (including event management firms) tend to fail, as new owners have a troubling tendency to price their services too low. It’s pretty clear what happens next. Because their services are priced so low, they can’t meet their overhead demands, and they eventually hemorrhage money until their business is bankrupt.
Naturally, that’s something you want very much to avoid. But how can you determine the right price for your services? How can you work out whether you’re setting things too low or too high?
There are three things you need to keep in mind when charting out how much you’ll charge your clients. The first is which market segment you serve. This will inform your fee structure. Different market segments have different standard operating procedures when it comes to how you charge for services. In social events, for example, planners generally receive an upfront fee for their services as well as a percentage of vendor streams. Meanwhile, corporate events, which tend to be considerably pricier, use a fee plus costs model; event managers charge a rate for their services and then pass on all additional costs.
The second thing to consider is your geographic region. If you’re in the southeast United States, for example, prices are going to be lower than in the Northeast. When researching your industry standards, remember to compare apples to apples. Keep an eye on how much your competitors are charging, and adjust your own prices accordingly. This may cause you to adjust your proposed budget; do your own accounting; or employee The Lean Startup methodology; but well keep you competitive and hopefully in business.
Last, but certainly not least, your experience and reputation plays a role in how much you’ll be charging your clients. If you’re a veteran event management professional with fifteen years in the industry, you’ll naturally be charging your clients more than a bright-eyed planner fresh out of school. That said, don’t undervalue you – a bit of market research into average costs and fees goes a long way.
I can’t resist: fake it ‘til you make it. Undervaluing your services can actually turn potential clients away.
As far as the raw calculations go, most event planners run a fees-for-service framework, with a “cost-plus” method. In plain English, this means that they contract out labor, supplies, and materials involved in an event production and charge their clients a fee of between ten and twenty percent of the event’s total cost. This may be an easy place for a new event planner to start. Take the research, run the numbers, know the industry benchmarks and see what you come up with for a budget. Does it match your back-of-the-napkin calculation?
As an event planner, you’re used to working within a strict, tightly controlled budget. You’re used to making the most out of the money you’ve been given to work with. What you’re probably not used to is setting your own businesses’ budget, working out the costs based on region, experience and industry segmentation. Hopefully this guide offered some tips on how to see your way through the first few months as a new event firm – preferably without breaking the bank.
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