Forget the intangibles for a moment. Corporate hospitality has got to pay. Ultimately you run an entertainment budget to see a financial return.
Speculating to accumulate is a perfectly acceptable ploy and you mustn’t forget the end-game, no matter how ugly talk of money may seem. That’s the advice of a number of entrepreneurs who have made it a key part of their overall growth strategy.
The question is then, how do you make it worth the time and expenditure you set aside for it? And how do you then measure the value it has created?
This is where life gets tricky. From talking to various corporate hospitality consultants and the departments of astute accountancy firms in charge of corporate entertainment budgets, it is clear there’s no one equation. Of course it depends in many ways on the industry you’re in. After all, there are higher expectations in some, such as the media. It also depends on your objectives – for example, are you looking to achieve increased market share or profit growth?
Your average profit margin is also a factor – spending 5% of your profits from one particular client won’t amount to much if your margins are 10% and the client only spends £10,000 with you in total. You’d probably stretch to a good bottle of champagne. Increase it to 10% of profits and you can start thinking about a low-key day or night out at £100- a-head.
The message is then, be sensible about what you can afford as there is sometimes a temptation to dismiss the expense as ‘worth it for the relationship’. As Mark Roy, chief executive of the REaD Group Plc says: “It bloody well does matter what you’re spending. Sometimes the principle of corporate hospitality – making money – gets lost. And before you know it you’ve whittled away your profits.”
APPLYING A FORMULA
His company applies a very simple formula. “If we spend £1,000, we like to see £5,000 back, over and above what they’re already spending.” The REaD Group, which tracks house movers and the deceased to ensure direct mail companies don’t send inappropriate or incorrectly addressed mail, has been running a major golf day every year for the past nine years.
The itinerary for the day includes 27 holes on one of Sussex’s top courses, a night in a hotel, slap-up lunch and a spectacular meal to round things off, says Roy. The event costs £50,000 to put on, equating to £500 a head for the 100 guests. “So, say a client is spending £25,000 with us and deserves an invite we need to see an uplift of £2,500 in his or her spend.”
Roy can see a clear correlation between growth and hospitality. “It’s a fairly key part of what we do as an organisation. And while it would be very easy to write a cheque and say ‘they’ve had a good day’, the priority is to make the best possible event and then make the numbers work.”
In addition to the golf events, which have become an established date in his industry’s calendar, Roy’s marketing team fix other ‘freebies’, such as rugby internationals, Wimbledon, major football matches and Ladies’ Day at Ascot. “There’s no point in doing it cheaply – you’ve got to give it everything you’ve got. Get the best possible price, but know full-well that it’s a golden opportunity for a client.”
The clients the REaD Group invites are largely made up of direct and value-added resellers and Roy’s team know exactly what they’ve spent historically and can forecast fairly accurately the expected growth. “We identify clients that ‘qualify’ for corporate hospitality. It’s simple, if you want to get involved in these events you have to spend more money with us. We wouldn’t be so crass as to say that to them, but they know what they’ve got to do.”
With the marketing department Roy goes through a stringent cost versus benefit analysis. He recognises that while his 5:1 metric is the justification for the company’s entertainment budget there are added values, such as creating a good relationship, shoring up an existing one and raising brand awareness.
KEEPING IT FLEXIBLE
Business ISP Mistral Internet, which is owned by entrepreneur Anthony Galley, is another company that believes corporate entertaining has played an instrumental part in it’s growth and can be a cost-efficient tool.
Marketing and PR manager Kat McClure is in charge of the company’s £150,000 budget. With offices in Southampton, Basingstoke and Cardiff, the company has taken the executive box at Southampton Football Club’s St. Mary’s Stadium, another box at the Millennium Stadium in Cardiff, and a £4m yacht, which is personally owned by Galley.
It’s a moving feast though, which can be important to keep things fresh, and the boxes in Cardiff and Southampton will soon be dropped in favour of a box at the new Wembley Stadium, which alone is costing £100,000. “I don’t think we’ll have a problem finding clients keen to attend Wembley in its first season,” says McClure. “And we decided it’s better to buy individual games elsewhere when you know people who will want to go. It costs more, but can be more targeted and we keep a record on our CRM system of what clients like – golf, sailing, rugby, football, the team they support etcetera.”
Like the REaD Group’s Roy, Mistral is clear about its grounds for such expense. “It has to pay off,” says McClure, “and is a lot of money to spend for a business of our size.” Mistral boasts a turnover of £20m and while it doesn’t have a set-in-stone metric it expects a very healthy return.
“Our deals tend to be reasonably sized so just one clientwin has an impact. A leased line provided by us could be worth £30,000 over three years. For spending £150,000 on corporate hospitality we’d probably expect a return of around £1m or possibly more in increased revenues,” says McClure.
SETTING A BUDGET
