Understanding your marketing Cost of Sale might sound like jargon, but it's essentially the key to unlocking the efficiency and effectiveness of your marketing efforts.
But first, what is the Cost of Sale?
It's the amount you spend on marketing to generate one dollar of ticket revenue.
How to Calculate Your Cost of Sale
To calculate it, simply divide your marketing spend by the amount of resulting sales.
So, if you spend $1,000 on marketing a performance and achieve $5,000 in ticket sales, your cost of sale is 20%, or $0.20 of expense for every $1.00 of revenue.
Knowing your Cost of Sale is like having a roadmap for your marketing strategy.
It tells you how much you are spending for every dollar in revenue.
This is especially vital for organizations with limited budgets.
Dangers of Underspending
It may be tempting for organizations with limited budgets to see how low they can get their cost of sale.
However, when you don't invest enough in marketing, you leave ticket revenue on the table.
Spending too little on marketing usually results in not realizing your full potential.
Dangers of Overspending
On the flip side, if you overspend on marketing, your Cost of Sale could be high.
In fact, I’ve seen on a few occasions where an organization was unaware they were spending $1.50, or more, for every $1 in ticket revenue.
If this sounds familiar, it means you're probably burning through your marketing budget and taking resources away from somewhere else in the budget.
Overspending is inefficient and can lead to financial strain.
Finding the Balance
So, how do you strike the right balance?
Start by setting your marketing budget based on your expected sales. For example, ten or twenty percent of the budgeted revenue.
Then, consider what you can implement at this amount. Experiment with adding or subtracting five percent from one event to the next to see how doing so positively or negatively impacts your revenue.
It won’t take long to find an optimal range to use for future planning.
Remember, your marketing budget is an investment, not an expense.
When you know your Cost of Sale, you gain the insights you need to make informed decisions, allocate resources effectively, and achieve your goals without breaking the bank.
Knowing your Marketing Cost of Sale is not just a number; it's a powerful metric that can help your arts and cultural organization thrive.