Promoting Entertainment for Profit
8 February 2018
Strategic thinking about entertainment will save both big and small clubs from taking a financial hit.
Most clubs run entertainment and promotions to provide a reason for members to come to a club, eat the food and drink the beer, wine and spirits - oh, and coffee of course. But what is the return on investment? When we review club operations, especially on small clubs, working hard to survive and grow, we often struggle with the issue of advertising, entertainment, marketing and promotions (AEMP) that doesn't return a profit to the till.
We you put money into something that returns a profit (even a modest one), that is an investment. However, when you put money into something that doesn't return a profit, that is an expense.
The aim is to try to run entertainment and promotions that return a profit, if at all possible. It doesn't matter if it's a chook raffle, membership draw, live band or vouchers, the aim is to try to make more than you spent.
Many clubs with significant cashflows can afford to subsidise their entertainment, as if it is a public or community service, especially if the club has positioned itself as an entertainment venue, with regular shows on Friday and Saturday nights.
Small to medium clubs need to think more strategically about all the options they offer.
While it has changed dramatically in the past 10 years with the advent of the internet and social media, it was traditionally about 3-4 per cent of gross revenue to promote the club activities in the local newspaper, on local radio and in some cases, on television. Add to that the "promotions" of meat raffles, draws and vouchers (for drinks or meals) and you would probably come up to 5-7 per cent.
Including live bands, individual performers or stage performers (comedians, dance troupes and the like) and you have some more significant investment. You wouldn't want to go more than double the investment percentage so far, so another 7 per cent would bring the AEMP total to 14 per cent.
Pick a number here, but the return on investment equation is important.
Let's look at how to calculate that if we are looking to make money, rather than provide a community service. Say hypothetically a club hires a band for $2,000. Most people think if you make an extra $2,000 top-line revenue, then you have paid back the investment. But sadly this isn't the case. For ease of calculation, let's say both food and beverage operations have a gross profit margin of 50 percent. To pay back a $2,000 investment you need to make an additional $4,000 (at 50 per cent, the profit would be $2,000). And the critical word here is "additional". If you usually make $10,000 on a Friday night, then you need to make at least $14,000 to justify the investment financially.
If you need to make a profit on your entertainment investment, you need to track how much you spent on the band (or entertainer), what the advertising costs were for the event and then the additional revenue you made - divided by your gross profit margin. Subtract the expenses from the profit and if it is a plus figure - congratulations!
(SOURCE: Ron Browne, ClubsNSW Manager - Professional Development, ClubLIFE, December 2017)