Budgets are a pain, especially if you are bootstrapping your event with a bankroll of less than $1,000 in your pocket.
Often the difficulty lies in precisely predicting the total cost of an event when you cannot control how many people will show up.
As the saying goes, “if it was easy, everyone would be doing it!”
But just how much does the average racing endeavor cost?
To understand the answer, you need to first gain an understanding of how a race budget works, and know how to apply those fundamentals to a budget that makes sense to you and your business.
This includes accounting for all of your expenses, realizing where all your revenue is coming from, and measuring your expectations against some goals.
Since this is not an article on how to be an accountant, we will focus on only the budgeting jargon needed to give you some insight into your race financials.
What are my race financials?
Let’s figure that out in three easy steps:
- Step 1 – Determine your expenses
- Step 2 – Determine your revenues
- Step 3 – Determine your targets
Let’s do this!
Step 1 – Determine your expenses
One of the first exercises you need to do during each and every event is to get an understanding of the three (3) key factors in your expenses: initial, fixed, and variable costs.
If you plan on hosting more than one race, you are going to have to put some money down on a few items that you will need throughout the year.
These initial costs or “capital investments” are usually one-time expenses that make to buy equipment and supplies for your event management projects.
You do not repeat these expenses once you make the initial investment (unless the break a table or punch a hole through your tent).
Common examples of initial race production costs include:
- Venue Furniture (Tables, Chairs)
- Technology (Laptops, Printers, Monitors)
- Office Supplies (Pens, Paper, Ink, Cash-box)
- Storage Containers (Bins, Bags)
- Power Supply (Generators, Cords, Surge Protectors)
- Movable Shelter (Pop-Up Tents, Tarps)
- Coolers (Water, Food)
- Tools (Weed wacker, Shovel, Pickaxe)
Every race that has ever been held includes a laundry list of costs that repeat over and over again.
These costs are predictable.
Often referred to as operating expenses, these are costs that you cannot lower and may be obligated to pay before your event will be allowed to move forward.
If you can safely rely on a cost not changing (or not changing very much), then you can include these as fixed.
Common examples of fixed costs for races includes:
- Permits – Most Federal, State, and Regional parks have a flat fee for processing a permit. This is different from the costs associated with paying the park a percentage after the race is over.
- Insurance – Some insurance companies can provide you with semi-annual or annual coverage for your entire season. These kinds of policies can provide you with a stable, monthly bill that you just pay each month. However, if you events are more sporadic, there are insurance policies that can be purchased on a per event basis. If your attendance goals are roughly the same for each race, then these one-off insurance policies should cost you about the same each time.
- Online Services – If you use an online registration service, this cost is usually the same for each event. Often, the registration cost of the service is paid by the racer (and can be a source of frustration between you and the racer). These type of fixed fees can also include monthly bank charges or hosting costs of your event website.
- Your Salary – You’re not running a charity, and you’re not promoting races because you like getting outside. You need to pay yourself at some point. Not all race promoters can take a salary when they first start out. But you need to consider getting paid for the work you are putting into the company. You could only take earnings based on if you make a profit. Whatever you decide to do, you need to work it into your overall expenses.
These are the race costs that start to move you from the “need” into the “want” category.
Some of these variable costs will be required. However, the key word is “variable”.
What costs you one amount one race, may not be the same amount in a different race.
Because no two variable costs are the same each time, these are the costs that can ruin your budget, and potentially bankrupt your business.
These costs are unpredictable.
As a result, variable costs must be watched closely.
Common examples of variable costs for races includes:
- Marketing – If you are creating your event for the first time, these costs could include all the branded materials you need to create a unique brand awareness (e.g. logo creation, website development, flyer design). If this event is a retread from the previous year, these costs may still be required as you change or update the brand from last year to this year.
- Printing – Marketing materials like flyers, t-shirts, and branded awards to not print themselves! Flyers are always different, t-shirts will have new sponsor logos, and you never know how many branded awards will you have left over from race to race. Depending on how many items you need to have printed will directly impact the overall cost since printing prices usually change based on how many items you need.
- Marking Materials – Every venue will require different amounts of course marking materials (e.g. survey tape, course tape, arrows, signs). No two courses are alike, and even the same venue with the same course from the previous year will have dramatically different course marking requirements. It could be based on who marked it before, what lessons learned you have from the venue, or just who’s marking it now.
- Payroll – There are some jobs that you just need to hire someone to do. The extra help may include limiting the time to only 10-hours of work. But every race is different, and even if it is just part-time, 10-hours can turn into 20-hours in a snap of a finger. If you hire on steady part-time employees, this cost could move to the Fixed Cost category.
- Amenities – Some races include that little extra polish like finish line bottled/canned drinks, fresh food, or finishing prizes (e.g. medals, beer glasses, bracelets). This expense should also include anything you provide to your racers in the form of off-the-shelf goodies, swag, or any give-a-ways you purchase yourself.
- Purses – To get the Pro’s to attend your event, you may need to offer them a cash purse that you will need to pay out in cash or check on race day. Sometimes this amount is equal to the number of Professionals that register divided by Top 3 or 5. However, this amount could be more if you are using it as a means of attracting elite racers.
- Fees – Once the race is over, you may have to pay officials, licensing purchases, late fees, vendor contracts, non-refundable deposits, and a percentage of total sales to the park. If you do not plan on making a large investment into reusable equipment (see Initial Costs), most of your rental costs would be calculated here.
- Timing Services – If you decide to use an outside company to conduct your timing, these services usually have a predictable cost that does not change from race to race. However, if not enough racers show up, or if the timing company backs out at the last minute, you may need to figure out timing all on your own.
- Transportation – You need to get all your gear to the venue in something; most likely in some kind of truck, trailer, or SUV. Additionally, you may have to visit the venue multiple times (e.g. clear trails of weeds, plan the course, mark the course, race day, clean up). Each trip will require gasoline in your car.
Now that you have an understanding of what expenses are, let’s see an example of what your race expenses could be (approximate estimates):
- $250 Initial Costs (Tables, Chairs, Tents, Jugs)
- $900 Insurance (Liability and Commercial)
- $50 Venue Permit
- $150 Sanctioning Permit
- $350 Sanctioning Officials
- $75 Bathrooms (per race day)
- $100 Tape, Cones, and Barricades
- $25 Water/Gatorade
- $100 Race Flyer printing
That gives us a total of $2,000 in expenses.
Where can I cut to save money?
Maybe we don’t buy so many tables and chairs and find some place to rent or borrow them. We could also ask someone to print our race flyers for us, possibly as a favor.
Bathrooms (port-a-potties) are one of those things that are good for race reputation, especially among women racers. So we should probably keep that.
Permits and sanctioning permits are a must have. But we might be able to a way to borrow cones, and some bike shops and retailers have branded boundary tape they often give away.
We could also find a sponsor to pay for the water and Gatorade too — and they could through in cups!
However, overall, this looks to be very bare-bones when it comes to race expenses.
Nowhere in this list do we talk about timing, staff, office supplies (paper, pens, clipboards), medical kits, signs, fence posts, or several other possible expenses.
But it’s a good first draft of some of the need-to-have items we need to account for.
In my article The 5 steps to getting your event under control, I go into detail about the difficulty many race promoters have getting their races off the ground due to costs.
Fortunately, the article The 5 steps to getting your event under control walks you through creating two (2) important lists for getting Variable Costs under control: an ordered list of need-to-have priorities, and an ordered list of nice-to-have wants.
Use this process to help you better visualize what race expenses are truly important, and what only provide fringe value.
Step 2 – Determine your revenues
Next, you need to figure out how much revenue you need to make in order to just break even.
Because one of your goals will be to not lose money.
Having a break-even point figured out will be one of your first metrics in determining the success of a race.
It would really suck to only break-even. But it would suck worse to produce a race that lost money.
Before we can worry about breaking even, we need to determine where our revenue is going to come from.
Revenue can come from more than registration fees alone.
You could have money already saved away that you can use to finance your event. This is often called “personal” or “out-of-pocket” financing.
However, when it comes to bootstrapping your race, your main sources of revenue are going to come from only four (4) places:
- Pre-registration sales
- Race Day registration sales
- Sponsorships or in-kind donations
- Personal savings or loans
This is where the realization will suddenly set in that the more expenses you have, the more revenue you will need to go beyond the break-even point and make a profit.
The good news is that everything you make above and beyond the break even point is profit.
This is where efficiencies related to reducing costs and getting more with less impact your bottom line.
Conversely, making less revenue than your break-even point is considered a loss.
Taking a loss on your race would be painful if you are funding it out of your own pocket.
However, if you are bootstrapping your event, any type of loss is considered a disaster!
So what is the solution to avoiding a loss?
The strategies are simple when you think about it.
You can do one of the following:
- Cut back on expenses – the less expenses you have, the less revenue you need to fund it
- Get some financing – this is where your own money, loan money, or sponsorship money can impact your races bottom line.
- Get more registrations – Increase your marketing efforts and find more customers
When it comes to bootstrapping, you should think back to the principles that were laid out in Principles of a profitable race, that suggested that if you start small, your races can potentially earn a large profit.
This, in turn, can fund your growth into the next race, and allow you to build bigger and bigger events over time.
The Start Small strategy is designed to make sure you keep some funding in the bank to work with if a loss should occur.
Take too many losses in one year?
Simply return to the Start Small principle and re-establish your racing war chest in year two.
Step 3 – Determine your targets
If you have been playing along at home, you should have a good idea of what your expenses are, and where your revenue is going to come from.
Now you need to write down some goals based on those numbers.
Goals that deal with measuring the success of failure of your budget are called targets.
For your race, you should focus on these targets as good indicators of how you are doing:
- Maximum Expenses: A limit to how much you are willing to spend on your race.
- Break-Even Point: How much revenue do you need to equal the cost of your expenses.
- Sales Goals: How many registration sales to you need to be successful
- Profit Goals: How much of a profit do you want your business to make.
You should always have revenue targets and constantly monitor how much you need your business to make, versus how much is does make each race.
The first is your break-even point.
Your break-even point is an important revenue target that you determine by taking your price per registration (price), and dividing it by all of your costs for producing, marketing, and selling your race (expenses).
Let’s try an example of how you calculate your break-even point:
Add up all your expenses as you outlined above.
We’ll say our expenses for our upcoming race is $2,000.
Next, we take the lowest price we expect our racers to for registration.
Why the lowest?
In a perfect world, our race sells out 30-minutes after our pre-registration opens.
Yes, way! I’ve seen it happen more than once (i.e. Case in point, the Battle of Burke Farm, with a 500 entry registration cap, sold out in 29-minutes in 2016).
For this example, we’ll use $20.00/per racer.
Now we divide our expenses ($2,000) by our lowest price ($20.00) using the formula:
(E/P) = B
E = Expenses (Total)
P = Price (Lowest)
B = Break-Even Point
That works out to be:
B = 100 Registrations
————— = 100 Registered Racers
The final result is the minimum number of registered racers you will need to pay for only your expenses.
In our example above, that turns out to be 100 registered racers, at $20.00 each.
That is Sales Goal #1 — Selling at least 100 registrations.
If you don’t sell at least 100 registrations, chances are good that you will not recoup any money you put into your race.
Worse, you could have to pull money out of your own pocket to pay off vendors, park fees, and officials.
If getting 100 racers to your event seems like a challenge you cannot achieve, then you need to deal with in one of three (3) ways like before:
- Lower your expenses by cutting something or finding a cheaper alternative
- Increasing your lowest price
- Increase your marketing efforts and hit your Sales Goal of 100 registrations
Regardless of what you plan on doing with your Break-Even Point result, the calculation should provide you with something you can use to make an intelligent decision.
Next is your Profit Goal.
A good way to factor in your profit goal is to think about how much additional money do you need to build the exact same race again — if all your prices and expenses were the same.
Take that number, and add it to your total expenses for this race.
Subtract your break-even goal.
That is your Race’s Profit Goal, and Sales Goal #2
Now think about doing ten (10) of these races in a year (for example, you can change this number depending on how many you actually want your business to promote in a year).
Multiply your Profit Goal by a total number of races you are going to do in one year, which in this example is ten (10).
This is the Annual Profit Goal of your business.
Profit Margins can be computed either race to race, or for the entire year.
If you can produce and promote a certain number of races a year, your overall all profit earned, minus your overall expenses, will provide you with a Profit Margin for the year.
Why is a Profit Margin important?
For two reasons.
First, it gives you a target to aim for in the following year. It acts as a barometer to how good or poor you are doing compared to the year before.
The measurement can help you see problems before they appear, and give you some early warning regarding revenue (earnings).
If your profit margin is slipping, you could add another race to your calendar. However, if it is growing, you might be able to buy something for your company that you couldn’t before.
Maybe a trailer, or a new timing system, or just go on vacation with your family.
It’s your money. So long as your account for it (and pay your taxes on it), you can do just about anything you want with it.
The second thing it does is give you insight into growth.
Are your races getting bigger and bigger? Maybe you need to expand your reach or increase your prices.
Are your margins flat? Maybe you need to try new venues or decrease your prices.
Whatever the result, the point is to have a metric that you can use to make intelligent business decisions.
If you do not measure anything, how can you know if you succeeded?
That is why you create targets.
You owe it to yourself, and to your racing business, to always be relentlessly measuring everything you do.