5 Mistakes You Are Making With Your Event Budget
Without money there is no event and without the event there may be no money. The event budget is vital to the success or failure of your project. This how-to guide explains what you should be thinking about and common mistakes to avoid.
When you plan an event there is one aspect that may perhaps seem less exciting than others: how to get, manage and obtain the economic resources. The success of an event is not just a question of the “idea” and “innovation” but it is a question of the “money”. For this reason the economic and financial forecast is crucial for every event planner.
The event budget is the best way to determine whether an event is feasible and how great the risks are. It can help you to determine measurable and achievable objectives and targets for your event to keep you on the right path from the start.
The event budget is fundamental but it should not be a scary or prohibitive task. Event organizers should have a clear idea of what they will do and how every activity can be translated into economic and financial facts. A simple and clear budget helps to keep everything and everyone on track in terms of the costs and revenues associated with the event.
Creating an Event Budget – Where to Start
Organizers should estimate the different sources of income: customers (event tickets, sales on site), sponsorship and other revenues (e.g. exhibitor sales). Be realistic, do not underestimate, or worse still overestimate, income.
The estimation of sales could be affected by external factors or internal ones, the difference is that external are out of control of the organizers (i.e. competition and inflation). The longer the time scale for the forecast, the less precise the figures will turn out to be. Think about key variables and different scenarios and the likely impact this will have on revenues.
Estimation of Key Expenses
Work out all the likely costs. Break them into fixed costs (those that do not change regardless of how many attend the event e.g. room hire, AV equipment, marketing, office space, salaries) and variable costs (those that vary directly with the numbers attending e.g. catering costs, printing costs, registration fees and charges per attendee).
Understanding the different scenarios of fixed and variable costs will help you determine the margin of contribution of the event. The contribution margin is the amount that will be contributed towards the fixed costs after the variable costs have been satisfied.
Consider the likely impact of specific factors on your event budget. For example how loyal are your attendees, how receptive are your target audience to an increased spend on marketing, how price sensitive are they to price increases or special offers? Would an investment in one element lead to a greater return elsewhere? The budget can also help you to determine areas where you could save money and cut back, without having a negative effect on the event.
Estimation of Capital Requirement
How much money? By when? Two basic questions you need to ask at the end of the process to work out your cash flow and understand if the budget will work or you need to move back to the starting point. Once you have budgeted sales, costs and investments the capital requirement is the “plug” variable needed to close the budget. Organizers will need to consider how much equity is needed for investment into the event, how much capital is needed from lenders, or elsewhere and what are the financial milestones (how much is needed before, during and after the event).
The ultimate purpose is to have a simple and reasonable income statement, balance sheet and a cash statement that includes all the forecast information related to the event.
Delays in obtaining money and paying suppliers can create shortage of liquidity. That’s why the main suggestion is always to work with revenues and costs but also to think about cash inflows and cash outflows.
The organizers want to maximize cash flow, so more detail has to be spent on making accurate forecasts of the cash requirements for a successful event. Think about when payments are due to the venue and your suppliers and when income will be received. For instance some registration providers pay out on a weekly or monthly basis and sponsors may be given 30 day payment terms.
The Break Even Point and Sensitivity Analysis
You can work with the planned numbers to estimate the break-even point, to understand if the event is financially viable or not and link the level of risk with different case scenarios.
Performing sensitivity analysis will also be helpful to understand if it could be good to push on specific factors. For example will an increase in advertising spend of 10% positively affect the level of sales or not?
Common Mistakes with Event Budgets
Do Not Confuse Tools and Goals
Next to the economic and financial data it is useful to work with some basic ratios or margins. When you talk about budgeting typically you refer to ROI (Return on Investment). This ratio provides evidence of the profitability of an investment. The risk is to refuse some good situations because it seems that return on the investment will not satisfy a specific target amount.
The risk is also to focus too much on the short term while organizers should attempt to think not only about the income strictly related to the event but also to future sources of revenue and opportunity related to the event.
Don’t Rely Only on Ratios
For this reason it is good to consider other economic sources of information like the EVA (Economic Value Added) that is a measure of the economic difference between the operating profit and the cost of the capital invested. Use common sense to determine whether it is worthwhile investing in a certain area if there is a strong likelihood of a bigger financial return elsewhere.
“The devil is in the details” is a common way to express the necessity to look deeply at all figures. When you create a budget do not make the mistake of trying to break the revenues, the costs, cash inflow and cash outflow in too much detail.
Using the Wrong Tools
Using an Excel file or Google Sheets with some, clear and key headings is an efficient way of building your event budget and keeping it up to date. It’s not always good to rely on standard software that you find online which may permit you to create a budget but may not be very easy to manipulate.
Everyone involved in the event budget process should look at each specific case, rather than replicating the past. Think about a new situation with enthusiasm and try to understand key problems related to the budgeting of this specific event.
The event budget is crucial and determines the overall feasibility, or otherwise, of the event and helps to ensure logical and calculated decisions are made.
Organizers need to consider external factors that could affect the level of sales (such as competition from similar events in the same period) and internal factors (for example the fact that the event was profitable last year). As well as economic and financial factors event planners also consider important non-financial aspects (e.g. communication and loyalty) that can have even more impact on sales and the overall budget.
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