Cutting Expenses and Increasing Event Revenue
You’ve just wrapped up another year, and if you are like most business leaders, January is your time to define the goals for the new year. When our numbers don’t pan out as we’d hoped, we generally tend to set a goal of increasing event revenue. For event business owners, that generally translates to, “I want to sell more tickets.” But is it really revenue we’re after? Did you know that cutting expenses is like getting a big boost in ticket sales?
Expenses are the low hanging fruit that -- without changing anything else -- with a small decrease in your expense budget, you suddenly have more revenue, profits and cash. So, before your plans for the future get lost, let’s talk about why expense reduction should be the first step in any goal involving an increase in event revenue and profits.
First, you'll need to determine your net profit margin (NPM). NPM is the amount of profit left after all expenses are made and generally expressed as a percentage. For example, let’s say you sell a $20 ticket with projected net profit of $2 per ticket. This calculates to a NPM of 10%. (One study shows a 3% NPM average for events.) Let’s add further that you sell 1000 tickets per year resulting in a total net profit of $2000. We know that if we want to increase profits by $100, we have to sell 50 more tickets (50 tickets * $2/ticket).
Now let’s look at the flip side of the equation -- paring down expenses to increase profit. Let's say that you go on a cost cutting spree slashing monthly expenses by $100 for a total profit boost of $1200 annually. We can now determine how many additional ticket sales would be needed to get the equivalent amount of profit through ticket sales alone.
Total Expenses Saved / NPM = Total Sales Units
$100 / .10 = 1000 tickets
That nominal $100 savings per month translates into a whopping 12-fold increase in ticket sales! Given the huge effect of expense reduction, it is almost certainly well worth your time -- and far easier -- to slash expenses than to figure out how to increase ticket sales to get an equivalent profit. Interestingly, the lower your NPM, the greater the effect of a single dollar of savings.
Returning to our resolutions for the new year, let’s say you initially considered a goal of boosting ticket sales by 10%. Using our initial example, that would be an additional 100 tickets above the previous year average of 1000 tickets sold annually. We can apply our high school algebra to express the number of ticket sales as a dollar amount of expenses saved. Let “X” be the amount of savings needed to produce our extra 100 tickets sold.
Total Expenses Saved ($) / NPM = Total Sales Units
X / .10 = 100 tickets
X = 100 tickets * .10
X = $10
Woah! Did you see that? Every $10 reduction in expenses produces the same profit as 100 additional ticket sales! And there is an even greater benefit for the future: hard economic times are cyclical, and when businesses are pressed for profits, your lean company will outshine the competition that wasn't committed to cost cutting during flush times. Knowing that cutting expenses is like getting a big boost in ticket sales, you should cut with abandon!
So, where do you start on your expense reduction plan? First, you need to examine every expense listed in your accounting software that was paid last year. Be judicious about finding the "fat" in your expense budget. Do you really need color copies when inexpensive black and white would do? How much can you save by adjusting the thermostat during off hours? Are you using and taking advantage of all of those external software services that you pay for each month like Salesforce and Little Green Light?
Change the inputs and you’ll change the outputs. Some inputs are harder to change than others, and cutting expenses should be the first order of business this month, and the month after.
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