Posts from Wednesday, December 14th, 2005

Event Pricing

Published 12 years, 9 months ago

Reading over the survey feedback from our AEA attendees, it seems that most people felt they got good value for their money.  That makes me feel a whole lot better, because figuring out how much to charge was one of the hardest parts of launching AEA.  We did have a few people say they thought the price was too steep, but in all honesty that’s a good sign.  Give me a few minutes and I’ll try to explain why.

There are two ways to look at pricing a seminar.  The first is to ask what makes it worth your while, financially, and then do some fairly simple math.  The second is a pure market-forces equation.  The first one is actually quite a bit more complicated, although the second is harder to find.

How do you figure the worth of a seminar—not to the attendees, who can always fill out an evaluation form to let you know, but to those who are organizing and presenting?  I mean, in a perfect world, seminars and workshops would be free to anyone interested enough to show up.  That’s hardly realistic, though, unless you can find a venue that’s willing to not charge anything for a day-long use of their facilities, the speakers and organizers are happy not being paid anything at all, and nobody minds having to bring their own food and drink.

So let’s take it as a given that putting on an event will cost something, and that those costs should be covered.  Suppose, just for the moment, that you find a venue where use of the facilities plus catering costs $5,000.  If you can get 100 people to show up, then you have to charge $50 per attendee to cover your venue expenses.  Since it makes the math so easy, let’s just go with 100 people as our attendance figure.

Assume another $2,500 in miscellaneous event-related expenses—marketing the event, badges, renting an LCD projector and screen, and so on: another $25 per head.  You might also expect that someone’s going to put in a few days at handling registrations, answering e-mailed questions from prospective attendees, and so on.  Factor in another few days of actually finding a venue; they don’t just fall out of the sky, after all.  So let’s call all of that $5,000 in administrative time that will have to be covered.  $50 more per head.  We’re up to $125 per attendee, and remember, that’s still without turning a single dime of profit.  (And, in all honesty, I’ve pretty seriously lowballed these figures.)

Just to keep things simple, we’ll further suppose that all the speakers are local, and so incur no travel costs.  Even so, you’ll be asking each speaker to give up a day of his time to attend and present.  That’s a loss of billable hours, and while our hypothetical speakers have agreed not to be recompensed in the manner of kings, they didn’t agree to run a deficit.  We should at least cover the time they invest.

At that rate, though, we have to consider that each speaker is investing the day to speak plus another three to five days of preparation (remember, this is a seminar, not a three-day conference where everyone gets 55 minutes to run through a slide deck).  Let’s just assume that each speaker puts in a total of a week in preparation and presentation.  That’s five days, and if we assume our speakers could bill $1,000 a day to clients (which is $125 per hour; not too unreasonable for people highly regarded enough to be speaking), that’s $5,000 each.

So if we have two speakers, that’s $10,000 in invested time costs that will need to be recovered, which is $100 per attendee if we fill 100 seats.  We’re now up to $275 a head, which will cover our current total costs and reimbursements of $27,500—assuming we have no more costs than those I’ve outlined and no profit is to be made.

Okay.  So what if the organizers would actually like to turn a profit?  Keep adding.  Let’s say the whole thing is run by a single guy, and he’d like to make a few grand for his efforts.  With 100 attendees, he’ll make $1,000 for every $10 he raises the fee above what covers his costs.  So if we set the price at $300, the organizer makes $2,500.  Go to $350, and he makes $7,500.  Five hundred per head will earn him $22,500, which is, let’s be honest, a very nice payout.

But maybe he has a couple of partners in the mix.  Divide the $22,500 three ways, and each person walks away with $7,500.  Not too bad, although not something you can make your sole source of income unless you’re doing a seminar no less than every other month and you live in a region with a vaguely sane cost of living.  Those living in expensive urban settings would have to do one event per month to stay afloat.

Now here’s the real kicker: what if the seminar doesn’t sell 100 seats?  What if it’s only 75 seats, or 66, or 50?  Remember, the price has to be set before the first seat is sold.  It’s not reasonable to sell seats where the price is “what it costs divided by the number of people who show up”.  It would be really great for the organizers, but it isn’t realistic.  Would you agree to pay for a seminar when you had no idea how much it would cost you?  Because if it costs $27,500 to put on the event and ten people register, then each one of them is on the hook for $2,750.  When those ten people all cancel due to the high cost, then the organizers are left holding a very heavy bag.

So: let’s say we’re being cautiously optimistic, and assume that 60 people will actually register.  $27,500 divided by 60 is $458.33 (and a third of a cent).  So let’s round that up to $500 per seat.  That way, if 60 people do register, $30,000 will be brought in, thus netting a profit of $2,500.  In which case, let’s hope there’s just the one organizer, instead of a triumvirate, or else they’re all looking at a darned small payday.  Even a solo organizer is going to wonder if the $2,500 was worth the effort.

On the other hand, if 100 people do register, then a fairly large profit is made.  The speakers could actually be paid something beyond compensation for the time they invested, for example.  Alternatively, maybe really nice swag could be given to all the attendees, or maybe the lunch gets upgraded to a really nice meal.  There are a lot of possibilities there.

Now’s a good time to point out that a lot of the costs I put into this little scenario are actually low.  $5,000 for venue and catering?  Yeah, right.  Maybe if you skip morning and afternoon coffee breaks and just get a lunch, and it’s one of those “pre-made cardboard boxed lunches with the dry turkey on dry wheat bread with a bag of Fritos®” kind of lunches.  I mean, you probably wouldn’t believe what a hotel or conference center charges for a bottle of water if I showed you the receipt.

(And don’t even get me started on what some places want to charge for internet access; $300 per MAC address is not uncommon.  I wish to God I were making that up.  Fortunately, there are also many places that have a clue and either charge a small flat fee for access, or else build said flat fee into the room rental fee.)

So you can see why pricing a seminar gets complicated.  Once you add up all the estimated costs, which you have to hope you got even vaguely close to correct, you have to gamble on your registration numbers.  It always makes more sense to plan for higher-than-expected expenses and lower-than-expected registration numbers, because otherwise you risk losing money on the deal.

And yes, it’s true that landing a corporate sponsor can help out with covering the costs, but that assumes you get a sponsor who’s actually coughing up cash—some of them contribute goods or services instead of actual money.  This is, of course, why most large conferences have enough sponsors to make a NASCAR team blush.  I can’t even imagine what it costs to rent most or all of a convention center for a week, like they do for SXSW.

So anyway, that’s the first way to price.  The second way, as I say, is a pure exercise in market forces: the cost of a seminar (as with anything else) should be as high as people are willing to pay, but not so high that you fail to sell all the available product.  If you can just barely manage to sell all 100 seats at your event for $1,278 each, then that’s what the cost should be.

The problem is that you can’t sell a seminar that way, either.  At best, you can run the same seminar over and over again, raising the price each time until you have an event where you don’t quite sell all the seats.  Then you drop back the price for the next event, and keep it there for a while before raising the price again.  That only works if you have a market large enough to support continual repeats of the seminar, of course; and if every event has different content, then you’re really just guessing each time.  Maybe this month’s seminar will sell out in three days, and next month’s will only sell half the seats… which, in a pure-market sense, means that this month’s seminar should be priced four or five times as much as next month’s.

You might think that there’s a more scientific way to figure out pricing, but if there is, I haven’t heard about it.  Every time I talk with other people who are putting on events, when we ask each other about how we arrived at our pricing, the answer generally boils down to “I ran some numbers, looked at what similar events cost, and then went on a gut feeling”.

I’ve occasionally toyed with the general concept of a modified auction system, but don’t quite see how it could work—it seems like you’d either underprice or overprice the seats.  Not that I’ve simulated this or anything.  It’s just a thought experiment I’ve tried a few times in my spare hours (usually when trying to fall asleep).

If you have ideas on how to better determine event pricing, I’d love to hear them.  If they’re really good, I might present them (with full credit, of course) when I appear on the SXSW panel “How to Roll Your Own Web Conference” this coming March.