Cost Accounting

Trade shows – 3 critical factors to analyze before setting up shop

Bustling Market

As the summer season approaches, particularly in Wisconsin, trade shows and vendor booths are a popular way for businesses to generate sales.  The theory makes sense – setting up a booth gives a business owner access to a large amount of foot traffic, event logo and ad placement, and networking opportunities.  However, how does a business owner ensure they’re wisely investing their time and money?

There are three critical factors worth considering before signing up for a trade show booth.  Let’s compare two booth examples, one that charges a $400 flat fee, and one that charges $200 but a 10% commission on sales.

 

Breakeven sales

Let’s assume a business sales mix averages revenue of $20 per item, and a contribution margin of $8 per item.  This is a key figure, because $8 is really the margin before administrative costs that should be considered, not the $20/item selling price.
 

Sales quantity targets Flat Fee Variable Fee
Cash breakeven 20 units 10 units
Actual margin 50 units 34 units
Net income of $500 113 units 117 units

This scenario ignores some of these costs that should be factored into a final analysis: travel, breakage, labor, and amortization of show booth materials. Note also how a commission on sales can quickly eat at profits, despite lower initial fees.

 

Time metrics

It’s great to set a minimum target of 50 sales to breakeven, but is it realistic? Analysis of time constraints is key here, based on the nature of the show and available selling hours. How many sales per hour need to occur to at least breakeven?

Time Available Flat Fee Variable Fee
1 day – 10 hours 5 sales per hour 3.4 sales per hour
2 days – 20 hours 2.5 sales per hour 1.7 sales per hour

There are useful metrics that are excluded here, such as estimated foot traffic, historical sales data, and staffing level.  In the absence of that data, a business owner must contemplate if 5 sales per hour is reasonable. How long does each transaction take?  How much hands-on time is needed to discuss or demonstrate products before closing a sale?

 

Opportunity cost

The above scenario paints a rosy picture, as it excludes administrative costs, assumes 100% time productivity, and uses a mere breakeven target.  However, what return is the owner looking for? What value per hour do they place on their time? If targeting $50/hour, such as the “net income of $500” scenario above and a 10 hour day, 113-117 sales is a lofty goal, requiring a sale every 5 minutes.

There are non-financial aspects to consider such as community goodwill, brand development, and customer loyalty, to name a few. After a detailed analysis, it should be clearer if a business owner’s time is well-spent here versus other growth avenues, such as internet promotion or meeting with distributors.

 
Want help analyzing and improving your growth plan?  Email (lunariaps@gmail.com) or call (262-297-3577) anytime for a free consultation!

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