Budgeting 101: No Venue = No Date
One of the most common phrases we hear is “the event will be on (fill in any date) but we don’t have a venue yet.”
I’m going to let you in on a little secret: if you don’t have a signed venue contract, you don’t have a confirmed date. You may have a target date or a proposed date or a date on which you would like to hold the event, but you don’t have an actual date and you shouldn’t be publicizing the event or sending out save-the-dates. Over the years, we’ve seen too many organizations announce a date and tell us to save it, only to have to change it later. Over time, this erodes confidence and credibility in your organization.
Not having a contracted venue also leaves uncertainty and risk in your budget. Of course, you have an initial budget that you drafted based on average costs at the type of venue you are considering, but until a venue is contracted, you are working with soft numbers in the budget. The venue-associated costs will typically make up a large portion of your overall budget, so until you have firm numbers in those line items, it will be difficult to make commitments for all other budget categories.
Budgeting 201: 3 Types of Budget Outcome
There are 3 types of budget outcomes:
- Investment event: this is an event that your organization is hosting and not charging a fee to attendees.
- Break-even event: this is an event where attendees pay a fee and/or sponsors provide revenue that cover the cost of the overall event.
- Profitable: this is an event where attendees pay a fee and/or sponsors provide revenue that cover the cost of the overall event AND delivers a profit.
Regardless of the outcome, you will have to differentiate between fixed costs and variable costs in your budget.
- Fixed costs: costs that are not dependent on the number of attendees. Venue rental is typically a fixed cost because you will pay the same rental fee whether you have 10 people in the room or 100.
- Variable costs: costs that are dependent on the number of attendees. Food and beverage is typically a variable cost.
As part of this process, we often hear “my cost per head is $xxx.” Unless every single line item of your budget is a variable cost, this is a misleading statement.
Let’s compare 2 events at the same venue with the following costs:
- Venue rental fee = $10,000
- Entertainment = $2,500
- Room Décor = $2,500
- Food = $100++ per person (assuming 20% service charge and 7% tax (total of $128.40 per person)
- Rentals: $30++ per person (assuming 20% service charge and 7% tax (total of $38.52 per person)
Event #1 will have 100 people attending and event #2 will have 300 people attending. The total budget for event #1 is $31,692 (or $316.92 per head). The total budget for event #2 is $65,076 (or $216.92 per head). Let’s say, as an example, you built the budget for event #2 and your manager asked you for the cost per head and you told her it was $216.92. Your manager then goes into a meeting where it is decided that the total cost is too high so the attendee count was cut down to 100 so now your total budget is $21,692 (100 attendees X $216.92). But, you already know that the cost for event #1 at 100 people is $10,000 higher ($31,692). Now what? That’s why it is critical to talk about total budget being a function of both fixed and variable costs, and not as a per head fee. In this scenario, it would have been better to tell your manager “the variable cost is $166.92 per head, but the fixed costs are $15,000.”
These are common scenarios that we frequently encounter working with clients and we are continually refining our processes to smooth out these issues so that they don’t become major roadblocks in the planning process.
Your turn - what are the budgeting roadblocks you typically encounter?