It’s hard to understate the importance of developing a rock-solid event pricing strategy. Between the vast maze of challenges you need to navigate during the event planning process, your pricing is the first and most important. Why? It’s simple: before you are able to deliver a stellar experience, you need to actually get people through the doors.
That said, it’s always a surprise to me how little producers and event planners spend thinking about their event pricing. Even the most veteran producers tend to hang their entire strategy on a ‘gut feeling’, historicals, or simply what it would take for them to recoup their losses. While there’s a lot to be said about each of those points, it’s not the whole pie. Usually, it’s not even a slice of the pie.
The reason for this is that the interplay between ticket sales and your price point is wildly complicated. Everything you do or say as a producer; everything the fan thinks about; everything the market responds to; just everything is reflected in how many tickets people buy at what price point. It’s the ultimate metric of performance and it singularly determines the success or failure of your event: fail, and you’re not coming back. Succeed, and you’ll make it rain.
Sellin’ out & makin’ it rain.
I was inspired to write an in-depth guide as the planning season for next year’s festivals started winding up. I was having similar conversations with 4 different festival organizers about how to best develop a pricing strategy for their event. Each of them required a different approach that combined a lot of different areas, but all ultimately boiled down to one thing: What is the fan willing to pay?
Simple question, but an incredibly complex answer.
There are many different paths to go down to start uncovering the answer to that question that it’s challenging to even know where to start. In this guide, I hope to give a peek into what you should be looking at when planning your event ticketing strategy.
So…where do we start? Well…
The wrong way to price an event
Before we jump into what you should be doing, it’s worth discussing what you shouldn’t be doing. Many producers rely solely on a concept called Cost-Plus pricing as the start and end of determining your event ticket pricing. It’s a simple method, intuitive, and can be worked through fairly quickly, so I certainly understand the temptation.
At its core, a cost-plus strategy makes sense: You figure out your total cost of the event, add a profit margin, and divide by the number of expected attendees. If your overall event budget is $5 million, you add a 20% profit margin to find your gross potential: $6 million. Let’s say you expect 25,000 people to show up — just divide those two numbers to get your average ticket price: $300 per ticket. It’s easy, works well and now you can move onto the next thing.
The problem with cost-plus pricing is how much it ignores in the equation. Does your artist lineup justify that cost? What are other festivals pricing themselves at? What is the total cost once a fan buys hotel rooms, flights, etc? How much do fans trust you to deliver a stellar experience? Most importantly, will fans even pay that price?
Cost-plus pricing breaks down fairly quickly because it ignores the single biggest part of putting on an event — the fan. The assumptions you need to take for cost-plus pricing to work seem innocuous at first, but in actuality are massively important. The price sensitivities of your target market are, in many ways, the only thing that matters. Of course, there are other factors at play in producing a successful event but, for them to even be a consideration, you need to get people through the door.
The reality is that nailing the price of your event is much more difficult, nuanced, and involved than simply “covering your expenses”. It starts with truly understanding the experience you are providing, and how fans value that experience.
The right way to price an event
If cost-plus pricing looks inward at expenses, value-based pricing sits on the entirely opposite end of the spectrum by focusing outward. Instead of asking “What do I need to charge to cover my expenses?” you really should be asking “How can I build my expenses around what people are willing to pay?” With value-based pricing, you create a budget for your event based on what the market can bear. This puts you in a better position right from the start — instead of relying on your fanbase to carry the weight of paying for your entire festival, you’re instead building your entire costs around the people who you will make or break your event — the fans.
Of course, this line of thinking opens up a lot of questions: How do you know what the sweet spot is? What is considered the right price by the majority of fans? How do you best balance scale (how many tickets you sell) with value (the price you sell them at)? Those questions are all hard to answer, but taking the time to unpack them will ultimately lead to a vastly more successful festival.
To take the first step into understanding value-based pricing, we need to understand why fans buy tickets in the first place.
Perceived Value is a concept that is at the very crux of selling a ticket to an event. The idea is simple — a person chooses to buy a ticket if they believe the value they will receive is worth the cost.
In an excellent primer on value-based pricing, Eventbrite defines Perceived Value as “…what the customer thinks they will get out of your event. Here it is perception, as much as reality, that drives the transaction.”
What this all means is that there are three fundamental goals in building a successful pricing strategy:
- Your event marketing efforts should focus on maintaining or raising the perceived value
- Your ticket should be priced at or below the perceived value
- Your festival’s cost-per-fan (overall budget divided by number of attendees) should be below your ticket price. This is your profit margin.
To illustrate this, let’s look at an example of how one of the most successful festivals around uses each concept to consistently sell out their festival before they even announce their lineup: Coachella.
Few festivals have been as successful marketing themselves as Coachella has. Between mega lineups, celebrity endorsements, and constantly being referenced in pop culture, the festival has truly become a rite-of-passage to attend. While in reality there are plenty of festivals out there that offer a comparable experience on site, the fact that “attending Coachella” is a bucket list item for so many people leads to massive perceived value (even before the lineup drops). Think about it — if it’s truly a “must-attend” event, then why not splurge on it? Hell, people are lucky to just buy a ticket before it sells out.
Since the festival has done such a good job marketing a high perceived value, they have no issue charging $429 for one General Admission ticket. That pricing model would be a non-starter for almost any other festival out there, but Coachella fans consistently demonstrate they think it’s worth it. Conversely, if Coachella charged $1,500 for a General Admission ticket, it’s easy to see how they might not be the cultural icon they are today.
Because the $429 ticket cost is clearly below its perceived value, Coachella has no issue selling tickets. Last year, the festival generated $114.6 million in gross revenue. By keeping their production budget well below that, they make money hand-over-fist. If the festival costs $70 million over the two weekends to produce (I have no inside knowledge here…just guessing), that’s $44.6 million in pure profit that they take home every year.
To reiterate — successful value-based pricing means you price your event’s ticket at or below its perceived value. So, how do you figure out ‘perceived value’?
In part 2 of the series, I discuss the key data points to look at to uncover your event’s perceived value: Festival comparables, your artist lineup (for music fests), surveys, the total cost to fans, and who is buying what ticket.
Read on! How to price an event: Part 2 »