When I penned my original “Budgeting for Uncertainty” blog in September 2019, which now seems like one or two lifetimes ago, my goal was to help meeting professionals prepare for any economic or political instability associated with the 2020 U.S. election cycle that might impact the global financial markets. Four months into a global pandemic that has hammered financial markets around the world, I think most of us would take the “brief economic slowdown” I was concerned about in a heartbeat.
As so many of us have essentially had to throw away our 2020 plans and wade into uncharted waters, I wanted to write a follow-up to my original post to share some lessons learned, knowing that I’m certain I’ll be learning a lot more in this continued trial by fire. If you’re looking for a silver lining (I think we could all use one), it’s that the pandemic has become a shared experience for all of us that, if we let it, can help us grow and evolve as meeting professionals. We are all simultaneously novices and experts on everything related to the pandemic, including how we make current and future business decisions.
Here are a few things to keep in mind as you start looking to budget for a murky 2021.
Review Your Existing Data, And Use it to Support Your Decision-Making Process
Many of us have never experienced a global economic meltdown quite like this before, so how can we possibly make a budget without knowing what will come next? There’s no way around it, we’re likely not out of the woods on making these difficult and, in some cases, unpopular decisions, and our leaders are going to look to us to be the authority inside and outside of our organizations. I recommend starting with the varying data points that you may already have access to in dusty binders or old spreadsheets.
Data Point 1: Lessons from the Great Recession: What did the post-2009 recession teach you or your organization? While no one likes drudging up the past, these numbers may effectively forecast some of your participants’ financial decision-making behaviors and help you start to understand potential revenue shortfalls and places where you can shore up variable participant expenses.
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Data Point 2: How Much Do My Customers Really Cost?: Do you know your organization-wide Average Revenue per Customer (ARPC)? I think you’d be surprised how many companies and organizations don’t have the data. If you don’t have it, it’s critically important to get it, as it’s the best indicator of how an event must perform to cover costs.
Calculating ARPC is pretty straightforward and is done as follows: ARPC = Total Revenue/Customer Count.
Depending on your revenue structure, you may need to adjust this formula based on customer segments or product types. Here is an example.
o Sponsor ARPC = Total revenue from sponsors/Number of sponsors
o Member ARPC = Total revenue from members/Number of members
o Non-member ARPC = Total revenue from non-members/Number of non-members who have purchased items/Registrations
In addition to calculating your current ARPC, it’s also worth looking at any shifts in ARPC over the past few months. In other words, reviewing the organization’s year-over-year ARPC and whether or not you are on track at this point in your fiscal cycle. It’s always a good practice to monitor ARPC over time, as this data can help prepare you for shifts in your participants’ financial decision-making behaviors before they hit your event.
Data Point 3: What’s Going On With Membership?: If you’re a membership organization, what trends are you seeing and how might those affect event participation? Some of the first dollars to disappear in an economic decline are professional development dollars, which often include letting professional memberships lapse.
There are two key membership metrics that I’ll be tracking this year: membership numbers (gained, lost and total) and membership cash received. When looking at membership numbers, be sure to include any footnotes about heavily discounted, free or complimentary membership extensions that your organization may be offering to maintain memberships. Since you may not be able to offer a similar discount or promotion for your event registration, you should consider those members as “lost” from a revenue standpoint.
Cross-referencing membership numbers against membership cash can really help clarify projected or actual losses in event revenue. You may have access to some, all, none or more data points than the one I’ve shared, but the important theme here is: USE. THE. DATA. Having the right data and applying your analysis will be critical in allowing you to effectively convey how your decision-making process worked (and why you came to the decision you did) to your leadership, C-suite, board or other stakeholder.
Understand What the Organization Expects from Your Event
With the whirlwind of cancellations, postponements, hybrid and virtual events, it can be easy to overlook that expectations for what you can spend on your meetings and, in some cases, the purpose and financial goal of your events, may have changed. Many events base their pricing on a break-even model (income = expenses), while other meetings are more profit-oriented—it’s important to know where your events land on the spectrum.
Here’s a quick reminder on how to perform budget calculations.
Break-even budgeting calculation – Option 1: by number of participants
· Fixed costs/Contribution margin = Participants needed
Break-even budgeting calculation – Option 2: by registration fee
· (Fixed costs/Estimated attendance) + Variable costs = Registration fee
Profit-oriented calculation
· (Desired profit + Fixed costs) / (Estimated attendance x variable costs per person)
Multiple income source budgeting
1. Income = Fixed income + (attendance x registration fee) + (# of sponsors x sponsor fee) + (# of booths x booth fee)
2. Expense = Fixed costs + (attendance x variable costs per person)
3. Profit = Income – Expense
4. Profit Margin = Income/Sales x 100
Break-even budgeting works particularly well for smaller events for which you’re able to keep a very detailed records of costs and you expect little or no participant attrition. Margin budgeting generally works well for larger events. Remember, you can still run a break-even event while using the margin calculation, you’ll just need to adjust the fee portion of the calculation until your income matches your expenses.
In some instances, you may be approved to run your meeting at a deficit. If that’s the case, it’s equally important in your margin calculation to understand the maximum deficit you can run. This information will become extremely important when it comes to budget modeling and forecasting.
Be a Budgeting Role Model (Instead of a Supermodel)
We operate on a three-year average model to inform our budgetary decisions, but I typically rinse, recycle and repeat my budgeting process every year. This year, however, I’ll be tackling three different budgets: The Most Likely Scenario, The Best-Case Scenario and The Worst-Case Scenario.
· The Most Likely Budget Scenario
Now that you have the data points you need to include, and the formula calculations for income and expenses, it’s time to take those quantitative metrics and assemble them together into your most likely budget scenario. This budget is where you should factor in the ARPC and/or changes in membership numbers or cash flow, helping you forecast your most likely participant numbers at your most likely registration price points. You’ll also want to be sure to add in any additional expense items like personal protective equipment, additional room rentals, potential pricing increases in food and beverage and any other line items related to the pandemic.
· The Best-Case Budget Scenario
In a non-pandemic year, the best-case scenario is usually one of the more fun budget scenarios to run. Traditionally, your best case is an opportunity for you to think about growth in participant attendance and revenue and to share those stretch goals with your leadership. However, for 2021, you may want to consider your best case as simply maintaining your previous level of participants, revenue or both. Remember, in this scenario, even if your number of participants remains the same, but you’re charging them less (ex: virtual meeting), there may be a negative impact to revenue, which also needs to be accounted for in this budget.
· The Worst-Case Budget Scenario
In my opinion, this is simultaneously the most difficult and most important budget scenario to run. You really must resist the urge to choose the nuclear option. While we don’t have a clear understanding of what meetings will look like through the end of 2020 and into the beginning of 2021, your organization may have some financial exposure and liabilities due to existing contracts and commitments. It is very important in this scenario that you calculate all of that into this budget. For the purpose of this budget, you need to assume your revenue decreases based on the data points you’ve determined, and the liability for all your expenses. Be careful of hidden, absorbed or additional costs which may come as a result of a cancellation.
Creating a variety of budgets will take more of your time, but it will give you the ability to quickly pivot, which is something all of us have unfortunately become adept at doing. It seems more change is on the way, and the best we can do is to focus on the things in our control. Using data, you can better position both your budget and budget-making rationale to key internal and external stakeholders, position yourself as the authority on meetings and potentially help your organization weather this storm, regardless of how long it persists.
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