Editor’s note: The following is a guest column I wrote for BizBash on December 3, 2008.
We don’t usually run guest columns when people submit them. (Frankly, they’re usually not that interesting.) But this one seemed especially timely and relevant. With events and marketing budgets on the chopping block this season, making the case for holiday parties is tougher than ever. Here, Howard Givner, C.E.O. of New York-based event planning firm Paint the Town Red, a subsidiary of Global Events Group, suggests that corporate planners document the traditional corporate gathering’s return on investment in order to save their parties (and, ultimately, their jobs).
Spotted owls. Whales. Company holiday parties. Meet the latest member of the endangered species list. OK, maybe that’s a slight exaggeration, but not by much. In the past few months in-house planners have fallen into two categories: people who have been asked to cut back or cancel their holiday parties, or people who are afraid of being asked to do so at any moment. It’s like sitting through the movie Jaws and hearing that eerie music; you may not see the fin yet, but there’s blood in the water and you know the shark is out there.
Although holiday parties are not the only events coming under budget scrutiny these days, they are among the hardest to defend, because most have little or no ostensible business purpose that planners can clearly articulate. Deep in our bones we know they’re valuable in terms of morale, productivity, building relationships, rewarding workers for a tough year, etc. But we have a hard time putting that into words. Business executives know that if they cancel a sales meeting or a client conference or a product launch, there’s a consequence, a risk of an unmotivated sales force not hitting its numbers, or clients more susceptible to poaching from rivals. But it’s hard for them to see the consequences of nixing a holiday party. Planners need to make a case for keeping this event, and quick. Don’t look to management to do this for you. Identify the purpose of the event and the perceived benefits and outcomes, and compare those to the amount of money your firm spends. This is your R.O.I.: return on investment.
Yes, R.O.I. That over-used and under-implemented exercise that was a philosophical luxury a year ago has now become a survival mechanism for defending the holiday party, and every other meeting and event you manage. Because it’s not a far leap for someone to say, “Gee, with so many fewer events to plan (or none at all), do we really need all these planners?”
Sample Holiday Party R.O.I. #1
Here’s a sample ROI model you can use to help build your case.
- Let’s say your company (or department) holiday party has 200 people attending. And to make the math easy, let’s assume you’re paying $100 per person for the party, for a total of $20,000. Let’s assume the average person’s salary is $50,000 a year (again, to be conservative, and make the math easy). The total payroll is 200 people x $50,000 = $10 million.
- Most accountants tell you to shoot for each employee to bill three times their compensation in income. To be conservative, let’s put this at 2.5 times, or $25 million. In other words, our company or department with a $10 million payroll should generate $25 million in revenue or productivity.
- Let’s now assume that the holiday party has a positive impact on general office morale, worker enthusiasm, and productivity. [Many employees might argue this is a troubled assumption, but everyone's aiming for a positive impact, so let's go with it. —Ed.] Fewer people are gossiping around the water cooler about the company’s future or looking for jobs online, and instead are refocused on their tasks at hand. I know it’s hard to do, but we’ve got to try to quantify this effect, so let’s say there’s a modest 5 percent increase in worker productivity: $25 million x 5 percent = $1.25 million in productivity improvements.
- But realistically, the impact of the holiday party won’t last the whole year. Let’s assume that increase only lasts for a month, maybe a week or two before the event and a week or two after. So we divide the $1.25 million by 12, to get to $104,166. Let’s round it down to an even $100,000. In sum, the $20,000 we spent on the holiday party generated $100,000 in improved productivity, for a five times return on the investment. Or put another way, canceling the holiday party saved $20,000, but likely cost the company $100,000 in lost productivity. That’s your R.O.I. right there.
- That assumes that a cancellation gets a full refund. At this late stage, it’s more likely that the venue will charge a reasonable cancellation fee, which would make your case even stronger.
Sample Holiday Party R.O.I. #2
Following similar formulas as in the example above, let’s say:
- Some 300 people are attending at a cost of $150 per person. Add in entertainment to bring the total cost to $50,000.
- Of that group, 100 are clients, representing $50 million in revenue/accounts. The average client
- account is $1 million (each client sends two people).
- Let’s assume that most of our business at this company is from word of mouth and referrals from existing clients. If the relationships strengthened at this event help generate only one new client, that’s a 20 times return on the investment.
- Likewise, if we cancel this event, that could drive rumors that the company is in trouble, leading some clients to curtail their business. Or perhaps a competitor seizes on this opportunity and hosts its own reception and makes inroads on our clients. If the company loses only one client, or even if that client simply cuts its account in half, that’s a $500,000 revenue loss, all to save $50,000. Not a smart investment (or lack thereof).
Both of the above scenarios assume your company is not teetering on the verge of insolvency. Obviously, if a firm is struggling to pay its bills, these situations would not apply, and there are far graver issues at hand. But for most companies, it’s more likely that the finances are there, but someone feels it may not seem the right time to have an event.
Granted, a number of assumptions were made here, so like any other financial projection, this is an imperfect system. But we have to start somewhere, and even an imperfect analysis is better than none. As long as your assumptions are somewhat reasonable, you’ve made a fair case and have gone a long way to putting some teeth into quantifying the value of investing in a holiday party.