Event Profit Margins and Why You Need to Know Them
Looking for a more profitable business? I can help.
I had the pleasure of speaking at Biz Bash last week in Florida. I sat in on Todd Fiscus‘ Innovation Forum talk while I was there. He shared his thoughts on how to design events smarter.
Being the numbers girl that I am, I really perked up when he talked about event profitability… specifically managing your event budgets. I’m not talking about your client’s budget – tho it does apply. I’m talking about the budget that you have established for each event. You have that, right?
This is what I’m talking about…
client is paying you $20k to design their event
your cost budget for this event is $6k… meaning you have $6 to spend on materials, labor, etc.
If you track your profit and cost margins (and you should), you’ll know that a $20k wedding sale minus $6 k in costs, leaves you with $14k… or a 70% profit margin*. Nice!
You need to have a profit margin benchmark when preparing to service your client… this applies to you whether you are an event designer, or a photographer, or a filmmaker, or a stationer. If you’re a filmmaker, you need to know upfront how much money you have to work with when hiring a second shooter, when outsourcing to an editor for post-production. How much of a cost budget do you have to work with for a $5k job vs. a $10k job?
And… then… the trick is to manage that event’s cost budget… watch it closely. Being successful and profitable with events is so heavily reliant on that profit margin… the bigger the better. (We aren’t selling bulk widgets here at 10% margins… services need to have nice hefty margins.)
What’s a ‘good’ profit margin? Ahhh… it depends on so many factors: what you do, what you sell, who your clients are, what your overhead expenses are, how much you want to earn from your business. You need to find that profitability sweet spot that works with YOUR business model!
What are your thoughts on this? Have you seen this in your business? (Confused? Need help figuring out your profitability sweet spot? Shoot me an email and I can help: michelle@sageweddingpros.com .)
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*Profit Margin is calculated like this:
Gross Profit / Sales = Profit Margin %
or
Profit from one event / Sales Price = Profit Margin %
This was a great reminder of the “numbers” information we learned all about during the Simple Plan Workshop. We use this calculation ALL THE TIME now to ensure we are hitting our target margins. As a photography team our margins are typically between 80-90% since we offer a VERY personal service and can only work with one couple on a given wedding day. Thanks for keeping us inspired to watch the numbers 😉
D+E
Your formula at the bottom is just calculating profit from individual sales. Profit MARGIN, in business terms, you need to also include all of your overhead costs to run your business, not just the costs specific to a particular client or project. To get a better understanding of your profit margin as a business, it is best to look at your annual income and total expenses, since most of your expenses as a business can’t easily be broken down when looking at singular bookings. So your business profit margin is total annual gross / total costs (business overhead + individual costs to produce good/service for client) = profit margin.
Hi Sarah! Thanks for your comment. A profit margin is the profit on what you SELL. (It is there to calculate whether what you sell is profitable – all by itself.) It stems from the accounting treatment of measuring profits on units. (In olden time, this might be the calculation of profit on widgets. You sell the widget for $4. The cost to make that widget is $1. The profit per widget is $3. Your profit margin is 75%.)
It does NOT include overhead (or the cost of doing business). {this is actually an accounting thing – not something we’ve made up 🙂 }
This is how it works:
Sale price – cost of what you sell (labor or material on the event) = *gross profit* (from which the profit margin % is calculated)
Gross profit – overhead expenses = net income (or net profit)
You probably recognize this from examining a profit & loss report. Same thing.
It is certainly helpful to calculate the net income to sales to determine the profitability on your business as a WHOLE. BUT profit margin determines whether you can cover your overhead expenses, and have business net income (business net profits) at the end of the day.
My example in the above article is written to illustrate that people do need to THINK about the profit per event. (PROFITABILITY IN YOUR BUSINESS SHOULD BE A GIVEN.) But -are you breaking out the materials, and especially the LABOR to determine what the profit margin is per event. You need to know those margins because those margins are what are most fluid in the business… and what most people are LOSING money on. MARGINS are EVERYTHING.
LOVE the dialogue! Thank you for commenting!