It can be challenging to make realistic financial projections for your event — especially if your event is new. However, if you’re hoping to secure investments, borrow from the bank, or simply want to make a profit, it’s a necessary exercise.

Whether you want to put together the business case for your brand-new project or make a multi-year forecast for your existing event business, here are five top tips to help you get started:

1. Don’t rely on the ‘x% of the market’ theory

When determining how viable a new venture is, it can be tempting to look at the overall market and assume you’ll be able to claim a certain percentage of customers.

I have personal experience with the pitfalls of this forecasting technique. 10 years ago I opened a sandwich shop; I scoped out the premises by observing how much foot traffic it had. In one hour, about 200 people passed by. I naïvely presumed that I would be able to tempt around 5% of these people to stop for a sandwich, giving me at least 10 customers an hour. How wrong I was!

As it turned out, most of the people passing my shop were firmly focused on going somewhere else (a nearby supermarket), and my average conversion rate was more like 1%. You won’t be surprised to hear that my business didn’t last very long.

So, what should I have done? Well, the first mistake I made was assuming all these people passing by were potential customers. My shop was actually quite niche, offering calorie-controlled food, so it didn’t appeal to everyone.

To make a more accurate estimate of your potential customer base, you have to be realistic about who you’ll actually be able to reach. To do this, you’ll need to calculate how many people in your target demographic fall into your event’s “catchment zone.”

Your catchment zone will vary depending on the type and size of your event. For example, people will typically be prepared to travel further for a festival than for a club night. Look at your competitors and do some market research to determine how far people will realistically be willing to travel to attend.

2. Work out the cost of reaching your customers

How far you can cast your net will also depend on your marketing budget. You now have an idea of market size, but it’s important to think about how you will drive awareness among your target audience before you can confidently put a figure on your reach.

For example, there might be 100,000 teenagers in the catchment area of your millennial-friendly festival. But if you can’t afford a big marketing campaign with print, radio, PPC, and social media ads, how many of those will you realistically be able to reach?

For consumer events, it’s worth setting up a test campaign on Facebook that’s targeted to your demographic. You’ll be able to see how many people could potentially be served your ad in their news feed — and how much that is going to cost. How big of a campaign can you afford?

For B2B events, you’ll need to consider the readership of trade websites and magazines in your industry and how much it will cost you to advertise.

Once you have this information, you can put a realistic figure on your potential reach (i.e. “I can advertise my event to 22,000 targets”). But remember, not all of these people will convert into attendees, or even become a lead (by, for example, clicking on your ad and visiting your website). Estimating your number of leads and your rate of conversion (the percentage of leads that buy tickets) comes next…

3. Estimate your sales conversion rate

Let’s assume your marketing strategy is focused around Facebook. The average click-through rate for a Facebook promoted post is just 0.79%. If your campaign is served to 2,818 users, this means that just 25 people will click on the post.

Now it’s time to determine what percentage of these ‘leads’ you will turn into ticket buyers. A good conversion rate is considered to be 5% – but whether you achieve this (or higher) will be down to the quality of your website, your sales copy, and the overall persuasiveness of your offer.

There are many factors that influence conversion rate — and optimizing your site for maximum conversions will be an on-going job.

You’ll want to factor a gradually improving conversion rate into your long-range financial forecast. This allows you to take your optimization efforts into consideration as well as (hopefully) a growing marketing budget as revenue increases. You’re unlikely to achieve 5+% in the beginning, so it’s wise to make a more conservative estimate. The median conversion rate stands at around 2%, but rates differ depending on the industry. Any research you can conduct around average conversion rates in your industry will help you make more accurate predictions. (Here’s some handy research on conversion rates for different industries by Smart Insights).

If you’ve hosted your event in the past, you can use Google Analytics to look at the traffic and conversion rate your site has historically achieved. If your event is hosted on Eventbrite, you can also access sales and attendee reports from your dashboard. This data will form the basis of your financial projections.

4. Calculate how much each customer is worth

Once you understand the cost of securing a sale, you can work out how much profit each customer represents.

Let’s say it costs you $5 in advertising to make a sale, and the average sale will be two tickets at $20 each (for a total value $40). This leaves you a gross profit of $35. Then you’ll have to deduct any fees charged by your payment gateway or ticketing platform and postage costs, if applicable.

You should already have a thorough understanding of how much it will cost you to run the event. How many tickets do you need to sell to break even? How many to make a profit?

5. Detail your growth drivers

When making financial forecasts, startups often make the mistake of picking an arbitrary figure to estimate annual revenue growth. “Let’s say we’re going to grow at a rate of 2% an event; that’s a low figure, so it sounds reasonable.”

Before you put any figure on future growth, you need to have a clear understanding of how you will stimulate that growth. It’s not enough to rely on growing reputation and word of mouth.

Build a driver-based model that shows how marketing investment will get you more customers, and your revenue will grow accordingly. Bear in mind that more attendees mean you might need more event staff or a bigger venue. Scaling up requires investment, so don’t forget to take that into consideration in your calculations.

 

Making a financial forecast can seem daunting, but these five steps will put you on the right path. Wish you were projecting higher revenues? Discover 4 ways you can use technology to accelerate event growth.

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