In recent years, a lot of my interpretive planning work has been with smaller non-profit and government organizations. And in both of these worlds, I think it’s safe to say that the emphasis on fiscal sustainability (a.k.a. “making money”) is getting stronger.
If you’re like me, you’ve probably got some strong feelings about the role of revenue generation in the heritage sector: how much should we be charging people for access to their treasured historic and natural resources? I was recently moved to write about the ethics of that, and you can look for my musings in the next issue of the National Association of Interpretation’s Legacy Magazine.
But today I’m writing at a more practical level. As a planner, I’m often called upon to help people calculate costs and set prices for their visitor experience products. It’s a surprisingly tricky endeavour, as the definition of cost recovery tends to vary from one organization to another. Do you factor staff time when costing out a product? Government tends not to; non-profits usually do. What about overhead? Do you factor in, say, your booking staff, your web master, your promotions team’s time?
Generally I encourage my clients to be as thorough as they can—but whatever you choose to include, the most important thing is that you, your manager and your board are all on the same page. Interpreters and product developers tend to commit sins of omission in order to demonstrate that their great new idea is going to make LOTS OF MONEY. Managers, especially of the Type A variety, can be pretty quick to deflate those claims as they begin to point things out like development time, evaluation costs, mileage, and so on. It’s best to get your organization’s official definition of cost recovery out in the open from the get-go, I feel.
To that end, I have been developing a spreadsheet that tries to accommodates some of the variables that are unique to the not-for-profit and public sectors. I’m offering it here in the hope that a) I can get feedback on it and make it even more useful, and then b) I can make it available for everyone to use.
The spreadsheet reflects a theoretical visitor experience product that has between 18 and 45 participants (though you can adjust these numbers as you go.)
One of the first things you notice is the dramatic influence of economies of scale: your price per participant drops quickly as your group size gets bigger. Mind you, bigger is not always better in our business, and you’ll need to decide what your optimal group size is for the kind of program you’re offering.
The next variable is the number of times you’ll be offering the program. You’ll soon discover that a one-off is expensive; you need to recoup a whole lot of investment in a single event. (And why oh why do we do so many one-offs in our business? It’s a collective mental illness, I swear.)
As for the kinds of costs that you’re factoring into the product, I suggest that you lump these in three different piles. First, you’ve got your one-time costs (research and scriptwriting, say) that remain fixed no matter how many times you run the program. Next, you’ve got per-event costs: your instructor’s fees, say, or your rented venue, or the cost of your vehicle to and from the venue. These costs increase with the number of times you run the program.
And lastly, you’ve got per-participant costs; these increase with the number of participants, and include items like refreshments or take-home craft supplies or printed materials. It’s important to split these out, as you can pass them directly on to the client.
From here, it’s pretty easy to whip up a few formulae in your spreadsheet to calculate your price per participant. And from there, with a few simple clicks, you can enjoy the sudden and complete disillusionment that comes with discovering what a typical interpretive program really costs. It’s actually a bit depressing, I find.
But wait, there’s more. What if you want to go beyond simple cost recovery, into the world of revenue generation or, dare I say it, profit? I know what you’re about to say: non-profits don’t do profit. And of course, that’s true: in the non-profit and public sectors, all surplus revenue is re-invested into the mission of the organization, as opposed to being distributed to shareholders.
But if you’ve got a really great idea for a program that has potential to be a bit of a cash cow, I say go for it. Make hay while the sun shines, and use that cash to do wonderful things: reduce or eliminate your gate admission, for example, or offer programs for free to disadvantaged sectors in your audience.
How much profit is reasonable? That depends entirely on what the market will bear, of course: in the retail world, 100% is typical. In the for-profit tourism sector, it’s equally common to see a company tack 100% onto the cost of a product. But if you’re new at revenue-generating programs, I say don’t get greedy. Start with basic cost recovery for your pilot program, and work up from there.
There’s one more factor that’s unique to the non-profit world, and I can barely type about it at the moment since I’m so busy patting myself on the back for figuring out how to factor it in. I’m talking about the dedicated grant or donation that offsets the cost of a program. For instance, let’s say you’re running a day camp program that you’re charging for, but Mrs. Awesome Donor has decided to throw in $2000 to offset the costs, and allow more kids to take part.
In my spreadsheet, I apply that donation directly to the price per participant: the bigger the donation, the lower the cost per customer. However, if you’d prefer that the organization reap the benefit of the donation rather than the customer, you can just crank up your profit margin, which will increase both the ticket price and your bottom line (but seriously: what would Mrs. Awesome think of that?)
A fringe benefit of the third-party-donation factor: you can use the spreadsheet to show a prospective donor the exact impact of his/her donation. “See, for a simple $800 donation, we can drop the price of admission for everyone by $X.00.”
So here’s the spreadsheet, and here’s the call to action: I’m looking for a few colleagues who are good with spreadsheets to try it out, put it through its paces, and let me know if they find any bad formulae. Once we beta-test the thing, I’ll put it online as a downloadable Excel doc.
Let me know in the comments or through my “contact” page if you can help.