Head Start

Building a Race Budget

• Sean Ryan • Episode 52

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Whether you’re putting on races through a for-profit or a nonprofit organization, having a good grasp of your race budget can often make the difference between a profitable bottom line and days of post-race head-scratching about what went wrong to land you in the red.

Admittedly, building and maintaining a race budget is not a lot of fun - not to most people, anyway - but it is something that has to be done, and has to be done right.

So to help us understand what “right” looks like for a race budget, I’ve got the pleasure of being joined in the podcast today by SRSE Sports’ Sean Ryan. 

Sean has been a veteran of the industry with almost 20 years of experience in race directing, marketing, operations and financial planning, and was once hailed as “the most overeducated race director” in the industry, holding an MBA from the Kellogg School of Management. And today he’ll be helping us understand the value of good budgeting practices, how to put together a transparent and practically useful race budget, as well as sharing his thoughts on managing budget shortfalls and juggling the complexities of cost cutting while trying to maintain a quality race experience. 

In this episode:

  • Why putting on races is a capital intensive exercise that requires sound budgeting
  • Where most race budgets fail: over-exuberance and erroneous assumptions
  • The importance of keeping an updated working copy of your budget at all times
  • Top line revenue vs bottom line revenue vs gross profit vs operating profit vs net profit
  • Organizing expenses by category: administrative, operating, marketing
  • Fixed vs variable expenses, and why fixed expenses can break your budget
  • What you should aim for for a healthy bottom-line profit
  • The perils of underspending on marketing
  • How to build a budget from the ground up
  • Calculating your budget breakeven point
  • Managing budget shortfalls
  • Transparent vs non-transparent cost cuts, and why, if you have to cut costs, you need to start with the latter
  • You can raise prices or reduce quality, but you should not try to do both
  • How to treat donations and in-kind sponsorship on your budget
  • The true cost of race volunteers

Thanks to RunSignup for supporting quality content for race directors by sponsoring this episode. More than 26,000 in-person, virtual, and hybrid events use RunSignup's free and integrated solution to save time, grow their events, and raise more. If you'd like to learn more about RunSignup's all-in-one technology solution for endurance and fundraising events visit runsignup.com.

You can find more resources on anything and everything related to race directing on our website RaceDirectorsHQ.com.

You can also share your questions about race budgeting or anything else in our Facebook group, Race Directors Hub.

Panos:

Hi! Welcome to Head Start, the podcast for race directors and the business of putting on races. Whether you're putting on races through a for-profit or a nonprofit organisation, having a good grasp of your race budget can often make the difference between a profitable bottom line and days of post-race head-scratching about what went wrong to land you in the red. Admittedly, building and maintaining a race budget is not a lot of fun - not to most people, anyway - but it is something that has to be done, and it has to be done right. So to help us understand what"right" looks like for a race budget, I've got the pleasure of being joined in the podcast today by SRSE Sports' Sean Ryan. Sean has been a veteran of our industry with almost 20 years of experience in race directing, marketing, operations and financial planning, and was once hailed as "the most over educated race director" in the industry, holding an MBA from the Kellogg School of Management. And today, he will be helping us understand the value of good budgeting practices, how to put together a transparent and practically useful race budget, as well as sharing his thoughts on managing budget shortfalls and juggling the complexities of cost cutting while trying to maintain a quality race experience. If you feel that budgeting talk is as fun as a visit to the dentist, we have what is hopefully a gentle, fun go at the whole thing today that I hope can spur you to better, more confident budgeting in the future. So, stay tuned! Before we get into this awesome episode though, I'd like to give a quick shout out to our amazing podcast sponsor, RunSignup, race directors' favourite all-in-one technology solution for endurance and fundraising events. More than 26,000 in-person, virtual, and hybrid events use RunSignup's free and integrated solution to save time, grow their events, and raise more. And we'll be hearing a bit more from this great company a little later in the podcast. But, now, let's dive into our discussion on race budgeting with SRSE Sports' Sean Ryan. Sean, welcome to the podcast.

Sean:

Good morning.

Panos:

It's great to have you with us today. Where are you joining from?

Sean:

I am based in Green Bay, Wisconsin, so Upper Midwest in the United States.

Panos:

Are you actually close to the lake?

Sean:

Yeah. Green Bay is on a tributary of Lake Michigan. So the Bay of Green Bay swoops around and right at the base of that Bay is where Green Bay is located - home of the Packers. We're probably the most famous for our football team. There are also a lot of endurance athletes in this part of the country, which is why I'm in the road race business.

Panos:

Yeah, I have heard of the Packers actually - great team. And great part of the world you live in. So you have been in this industry for a long, long time. Just looking at your bio the other day, you're going on 20 years, I think.

Sean:

Yes.

Panos:

You've involved yourself in the past with all kinds of great events - Boston Marathon being one of them that jumps out. You've worked with DMSC, the company behind the Boston Marathon. You also organise your own race. You have your own managing and consulting company for races. SRSE. Do you want to maybe, like, take a minute to share with our listeners about all the many things you do in the industry?

Sean:

Yeah, sure. I've been in the industry since 2004. I started out directing the marathon at Lambeau Field. But over the almost 20 years as you pointed out, I've really worked in a variety of capacities, not just on creating and building my own events, but working for different events. I work as the transportation coordinator in charge of bus loading for the Boston Marathon - I work just as a contractor, a small piece of a very big team there. I work on triathlons. I work on cycling events. I work on road races. A lot of companies are only in one area, maybe - they're doing triathlons or they're doing road races, but I've worked in all capacities in cycling, in triathlon, and running and I like to say every race director has to wear multiple hats, but most race directors learn over time that they're not necessarily an expert with each and every one of those hats. And if they're smart, they'll backfill those roles with people who have more expertise. This year, I did about 10 events, so it was a busy year. I still have lots of events on the portfolio each year. I try to manage it though, so I'm not overwhelmed. I don't have a full-time staff. I work out of my house. I have an office inside my house and I work out of there as a freelance consultant. I have consulted from the Midwest in Boston. I help direct the race over the Chesapeake Bay Bridge in Annapolis, Maryland. So lots of travel, but I still love what I do. I'll keep doing it as long as that's true.

Panos:

That's great. We should say for listeners that this year means, 2022 for us - that's when we're recording this. This will probably go out early in 2023, but that would be when we're recording. You're also, by education, an MBA graduate, which we don't get a lot of you guys in the industry.

Sean:

No.

Panos:

What sort of, like, took you away from the MBA traditional track into our industry?

Sean:

It's interesting. Dave McGillivray, the Boston Marathon director likes to tease me that I'm the most over-educated race director in the industry because I have a bachelor's in finance and an MBA in marketing. I guess, "If someone has too much education, it doesn't hurt" is my answer. So I left Northwestern University with an MBA in '97. I worked in a family construction business, kind of moved sideways in that and started working in the restaurant development arm of a family business. So I owned multiple restaurants. I was in the fast food sector. Even though, financially, I was doing well, I didn't feel fulfilled with what I was doing on a day-to-day basis. I was not in love with my career. So I took what I thought was just a side gig, directing the marathon at Lambeau Field. It was not originally planned to be a career move. I think, at the time, if I'm honest, I didn't realise you could even make a living as an event director full-time directing races. But I learned quickly and I rapidly fell in love with the field. Within a short order, within a couple of years, I was adding and creating events. I was joining teams for other events, sold my restaurants, and moved into this full-time. So yeah, it's funny when I meet up with my old MBA classmates. Most of them are on traditional tracks working for Fortune 500 companies or they're working for consulting firms like McKinsey or Arthur Andersen. And when I say, "Well, I'm a freelance race director," most of them kind of chuckle. They wonder what a non-traditional trajectory that is, but I've found that the skill sets I developed in school and in my previous careers help out in a lot of ways. Even the fast food background helps out a lot with crowd movement and things like that. My finance and budgeting is particularly useful because a lot of people who come into my industry are not from a finance background. So budgeting and finance is usually not a strong suit for most race organisations - that I can tell.

Panos:

Yeah, indeed. It's one of those areas. I mean, as you say, race directors have their strong suits. And it's quite interesting actually, how many different people find themselves into our industry from completely different backgrounds, and each of them brings their strengths and weaknesses into what we do. Traditionally, race directors are not finance people, but thinking at least about the finance side of event planning, having some discipline and some understanding of the budgeting process is really, really important, though, still. Isn't it?

Sean:

It is. What people don't recognise is that putting on races can be very capital-intensive. Usually, when people say capital-intensive, they're thinking of bricks and mortar. We aren't normally putting up anything made out of bricks and mortar, but we are building temporary villages, temporary structures, and we're incurring a lot of fixed costs. And when I say capital-intensive, it's those fixed costs that I'm referring to. So, to some extent, there's a lot of financial risk in putting on events and it's important that new race organisers understand that, and they at least do some cursory budgeting before they enter into it blindly. Otherwise, there's always a good chance of losing money.

Panos:

In your experience - you've worked with many race directors and you've contracted for many different organisations and races - how strong is the race budgeting game of your average race director? In terms of the bumps that you've seen and sort of, like, the process that goes into them, how well are we doing as a non-finance industry in budgeting?

Sean:

We don't do very well in our industry. Most often, established large events are in the luxurious position of having full-time accountants. Some of the organisations I worked with, like, the Boston Athletic Association and Corrigan Sports. They have in-house accounting and they have a long-established track record. That's not to say that they don't run into bumps in the road or have challenges, but they at least have that expertise on hand. For small events and small race organisations, it's not very common that they have the financial expertise to put together detailed budgets, especially for first-year events. Usually, when you see first-year event budgets, they're kind of laughable because it'll say, "We're going to have 1000 people paying $50 each." So we know what the revenue is and we'll just manage the cost to maintain a profit line and there's not a lot of details. So what happens is, as the reality of the event gets closer and closer, all of these costs start arising and it creates a lot of anxiety for the organisers when all of these unanticipated costs arise.

Panos:

It's interesting because I would have asked whether the flaw in most race budgets you've seen is a lack of technical expertise, or whether it's more of an exuberance of wishful thinking, and you seem to suggest that it's a little bit of both.

Sean:

It's a little bit of both. There's pie-in-the-sky thinking and, on the technical expertise, there's a failure to anticipate certain costs - the reality of the costs - especially if the organisers are coming in from the side of having been participants. I mean, not to knock the participants but participants often think in terms of the tangible things that they receive, so they think of shirts and medals, they think of food and what's in a food tent. What they take for granted is the infrastructure behind all of that. They don't recognise the monstrous costs faced with tent rentals, box truck rentals, and even porta potty invoices, things like that, and permitting costs. A lot of runners are amazed to find out that the police officers aren't working for free, that your local municipality is not donating the police officers and sheriff's deputies to the event, which is very infrequent in this world that we live in today where budgets are tight, including police budgets. So all of those costs sometimes come as a shock. So the runners often take for granted that it's those behind-the-scenes costs that add up to much more than the tangible shirts, medals, and food at the finish.

Panos:

Yeah, I had this chat with-- I did a podcast earlier in the year with a couple of brothers, William and Jeremy Fermo, who just started a race management company in Texas and they said that actually permitting and policing costs was the biggest surprise they got. Actually, one of them is an MBA and they're both the kinds of people who actually sat down and thought hard about the budget, and they were still caught out by this kind of thing. I guess we can agree that rule number zero of all of this is that it's very unlikely you'll get a free lunch with anything. Volunteers are not free. Police is not free. You should expect to be paying for all of these things.

Sean:

Yeah. And you mentioned charities and volunteers, and that's a good point too. Everybody says, "Well, we're not going to have any labour costs because we're depending on volunteers." Well, my response is, "Well, where are the volunteers coming from?" Sometimes, you can be fortunate and you will get members of the community. I like to refer to them as saints who will come out and they'll volunteer their time just for the good of the community. They like events going on in the community. They like being part of something that drives tourism. But the truth is, more often than not, you'll have a charity partner. It'll say on the event website,"Proceeds benefit these organisations." Well, those organisations usually expect, if not a fixed payment, at least a donation at the year end. No one wants to supply 40 volunteers and get a $200 check after the race. So, it's expected that there's going to be a certain equivalency. I almost like to say, "You're crazy if you're not at least budgeting minimum wage, or maybe a little more than that per volunteer hour for whoever's providing those volunteers - whatever charity that is providing them - because if you want them to come back, year in and year out, they have a financial stake in it. So the only reason I like to say we hire charities instead of manpower services is because the charities work better from a PR standpoint and they probably provide the right kind of labour versus if you went to manpower services, it would cost you a fortune and you wouldn't get the right fit for the labourers. But you are essentially contracting these charities.

Panos:

Yeah. And we're gonna be talking a little bit more about that. It's a very common blind spot, particularly for first-year race directors - the whole volunteer thing - and lots of things just dropping off the budget. We'll get into basically how you make sure that you have a full list of items, to begin with, let alone what numbers you attached to them, which is a big thing for first-year race directors. Going back to the budget as a document, I've organised events and, obviously, now, I run Race Directors HQ - different business but still something that also requires budgeting very frequently as well. I get the feeling that budgets-- generally, it's a good idea to treat them as living documents. Is that right? So basically, not kind of, like, you write and forget, but something you go back to and you constantly rework as new data and stuff comes in.

Sean:

Yeah. I refer to it as a working copy budget as opposed to a static or approved budget. So even when an event is mature-- for instance, I just had my board of directors for the triathlon I work with approve my budget. I do have an approved budget, but I will save another copy that becomes my working copy, and I'm constantly going in, adding, and removing information that affects things so that I can at least have a decent chance of anticipating the financial outcome because, after the budget is approved, it shouldn't just be put in a drawer and ignored. You should have a working copy that you can use as a tool to constantly project and react. If you have unanticipated costs arise, you should go back to your budget and see, "Okay, how can I fit these costs in? What other things can I cut? Or what can I do from a revenue standpoint so that I don't destroy my bottom line?"

Panos:

Yeah, we'll be getting into expenses, actually. You have a very good system that we've discussed in the past about this, that I think is going to be very helpful for people. Just to set the scene with a little bit of terminology and lingo here, since we have someone with your education who's going to help us with that, usually, when people look at financial statements that companies issue - you have balance sheet statements, you have cash flow statement, you have profit and loss statements- is the budget more like a profit and loss statement in terms of those three?

Sean:

Yeah. I mean, long term, the organisation may have goals that relate to their balance sheet, for instance. I mean, some organisations have a long-term goal for what they want their equity to be or what they want their cash reserves to be. So they'll call that a rainy day fund. So they will have a long-term goal. But on a day-to-day, week-to-week, month-to-month basis, they're most concerned about looking at the profit and loss of each of their event. If it's an organisation with multiple events, I still advise them to do a profit and loss for each of their events because if you have a recurring annual event, you don't want the losses from one event to be masked by the success of all your other events. You want to see what the outcome of that particular event is because that will lead to decision-making about whether to maintain or alter that event. Do you need to raise the entry fees for that event? Do you need to cut the costs for the event? So each event needs to be looked at as a standalone enterprise.

Panos:

Yeah, that's a very important point. Transparency, generally, I find, for budgeting, is a very important principle to stick to. You don't want to be commingling information because, as you say, it's about the decision-making - right? You need to have the right data to be able to take the right decision.

Sean:

Correct.

Panos:

Now, in terms of other jargon, I guess, when it comes to budgeting, people sometimes refer to the top line, bottom line, gross profit, net profit, and income, do you want to maybe quickly break down those terms for us - because we're going to be using them later on in the discussion - what those things mean?

Sean:

Yeah. In a manufacturing plant, you would have top line revenue, which is the number of widgets you've sold times the unit rate, and there's your gross revenue. You would have the cost of the widgets, so that would be your cost of goods sold, and then you would have operating profit. And then, you'd have all of the administrative expenses that support that - administration, the plant, the marketing. Then, you'd have net profit at the bottom. In the event world, when I teach how to do budgeting for events, I'll say, the truth is we're not manufacturing widgets and we're not manufacturing medals or shirts either. We're manufacturing an experience. So it's really all of those costs that go into that. So it's kind of foolish to think about the cost of goods sold and believe that there's a lot below the operating profit line. So the only thing I'll do is I take all of the participant revenues and registration fees, and that's your gross revenues, including food tent revenues, ancillary revenues, other things you sell, shuttle revenues - all of that goes into your revenue line. And then, I have all of the expenses broken down into three broad categories, and that leads to the operating profit. The only thing I'll have below the operating profit is charity distributions. So, below operating profit, it's whatever you give out of the proceeds to charities that reduce it down to the net profit line.

Panos:

I think we want to spend a little bit more time on this point because I think it's really important for people to understand. And it's not just the jargon here. It's important to understand how to approach budgeting - the principles behind it - because, again, that ties back to decision-making. Actually, like accounting, it looks like it's just conventions, jargon, and how you skin the cat kind of thing, but it actually matters doing it right. Basically, what you're saying is the gross revenue from a race is registrations, merchandise, sales, and all of that kind of stuff, right?

Sean:

Sponsorship.

Panos:

Sponsorship, right. So all of that comes in. And then, really to arrive at the operating profit before all the other admin expenses, office expenses, etc you may have, charity distributions. You actually have to deduct all of the expenses that go into delivering your product, which is a race experience. So you would also have in there, I guess, fixed structures that may last for years on end. So basically, how do you amortise that? If I buy an inflatable arch, what do I put as the expense of that arch for the second year of my event?

Sean:

Yeah, so anything like that is an investment. I mean, I have bicycle racks for my triathlon, buoys, and things like that that are not a one-year expense. Those types of expenses are depreciable assets. So they would go onto your balance sheet as a fixed asset. Then, if they have, say, like, a 10-year lifespan, you would depreciate them over a 10-year basis. There are different approaches to how to calculate depreciation, but straight book line depreciation would be if you spent $10,000 on an arch, you would divide that and you're going to depreciate it over-- let's say it's $5,000 for an arch, and you're going to depreciate it over five years. So you're going to expense$1,000 a year in depreciation in the expense side of your budget. Now, within the expenses, I like to keep things simple for, like, decision-makers at the top level. So even though I might have 30 or 40, line items of expenses, I'll group them into three broad categories. So you'll have your administrative expenses, and that's where you would depreciate those assets - under the administration headings. Then, I have event operations, and that's all of the things that go into the production itself - tent rentals, equipment, rentals, staff, and labour, the swag that goes to the athletes, shirts, medals, things like that, permits, public safety expenses. Those are all operating expenses. Then, finally, marketing. So, the marketing expenses-- the things that go into the promotion and to draw an audience there, I put all of those under marketing. So I like to say the three legs of the stool for producing an event are administration, operations, and marketing. I should be able to group my expenses into one of those three buckets. So there might be 30 line items under event operations, but all of it totals up to my event operations expenses, and that's helpful from a big-picture standpoint because, at the end of the year, the board of directors, the nonprofit board, the owners, or whoever else is involved in decision-making, they can take a step back and see, "Where did our expenses go up? Did they go up or down in administration? Did the operations expenses go up or down? And did the marketing go up or down?" And sometimes, you're doing it not to even necessarily raise concerns that you're spending too much because, "Oh my gosh, our operating expenses went up 30%." Yes, that's certainly a concern, but you might also group the expenses that way because you might want to highlight that we're not spending enough on marketing, so the expenses are too little. The event is growing, and yet your marketing expenses have remained flat for the past four years. That should be of a concern.

Panos:

Yeah. And I guess, as you say, splitting your expenses between those three buckets has-- one great benefit of that is that you can summarise things quite easily, you can track them at a bit of a higher level. And it seems to me that operating expenses, for the big part, are a per-participant-type expense that goes in there like the swag. and all of those kinds of stuff. Is that roughly correct?

Sean:

Well, yes, and no. The truth is probably more. It depends on how you categorise things within the operating expenses. It's a myth that most of your expenses and event production are variable. When people come into our sector with starry eyes about all the money they can make, it's often because they're saying, "Well, we can charge $100 per participant and the cost of a shirt, a medal, and a plate of food for this person is only going to add up to $10 or $20 combined. So we're gonna make$80." Well, what they're not realising is they're talking about the marginal costs of one additional participant. That one additional participant might put up $100 in revenue and only cost$20 in variable expenses. So, yes, it's true that on the margin, that participant is very profitable, but what they're not realising is that the majority of the cost - and I did a study for Runner's World on this - where races get into trouble is because when you look at all of the expenses, it's the fixed costs that will kill you because the fixed costs sometimes can add up into the hundreds of thousands of dollars. I always say, the reason a smart or veteran race organiser obsesses about getting as many participants as they can isn't just so he or she can brag. Yes, it's nice to boast that I have 5,000 or 10,000 or 20,000 participants, but it's not just for bragging rights. It's because that organiser knows that he or she needs to get thousands of runners in order to cover those fixed costs. If they don't get X thousand runners, there's a good chance that they're going to lose money. So when you create a budget from past experience, it becomes very apparent that there is a breakeven threshold of how many participants you need to avoid losing money. And with a first-year event, that's very difficult because, again, there are going to be a lot of unanticipated expenses. But a veteran organiser who's good at budgeting or has a staff member who can help them with doing good budgeting will realise quickly that there is a breakeven and, if we don't get this many participants, we're going to lose money. So it's often less about bragging rights and more about survival when it comes to trying to get a certain number of participants into the event.

Panos:

And again, back to your point earlier about some people going into race directing with more of a runner background, which is plenty of people, tending to have a little bit of tunnel vision around this and basically just focus on, like, the swag and the stuff that they see as runners and not so much on other things that can sink you, as you say.

Sean:

Right. Because it's those tangible things. I mean, I will say this, it doesn't mean runners shouldn't become race organisers. It's a unique subculture - running, triathlon, cycling - and the more that you understand about that culture and what's important to the people that make up that culture, the better off you are, so it's good to come in with a running, cycling, triathlon background. But initially, at least, when you first come in, often, the error is on the side of thinking that those expenses are the important ones. Really, the variable expenses are not where you're going to get in trouble, especially if you're prudent about, "We're not going to order our shirts six months out if we can avoid it. We're going to wait as late as possible before deciding how many medals we're going to order." Those are pure variable costs. The more challenging costs and the things that add up quickly are tents, permits, police, trucks, and having to hire labour to move all of this. The truth is all of those costs are, for the most part, fixed. In a sense, the box truck doesn't care whether you have 1,000 or 10,000 runners. The box truck doesn't care. The box truck is going to cost $1,500 to rent a Penske 26-foot box truck for a week whether you have 100 or 10,000 runners. Where the races get into trouble is not recognising the dangerous costs of those high fixed costs from those things. There are semi-fixed costs too - porta potties I always point to porta potties and say those are semi-fixed because you don't need a porta potty for every single runner as much as the runners would love for you to have a porta potty for every single runner. There's a big difference if you have 200 people in your race and 1,000 people in your race. There are ratios of how many porta potties you're gonna have depending on your audience size. So maybe, if you going to have 300 more runners than anticipated, you might add a few porta-potties. So those are, like, semi-fixed costs.

Panos:

And in terms of those three buckets that you like to work on, which are administrative expenses, operating expenses, and marketing - I know it's a little bit of how long is a piece of string kind of question - roughly, for a typical race, what percentage of total expenses ends up in its bucket, roughly?

Sean:

Yeah, I mean, for my events, like the-- I just did this event for the triathlon, as I mentioned. Roughly, I want to say about 80% of the expenses are for operations. So it'll probably be, like, 5% to 10%, administrative costs, about maybe 10% to 15%, marketing - it should be higher. If we were healthier, we'd be budgeting more for marketing and promotion. Then, 80% will be in the bucket of operating expenses. So the production costs end up making up the lion's share of the budget. I'm just looking here. I've got a budget. My budgeted production costs for the Door County Triathlon for this year are right on the order of just over 300,000 and about 320,000. So 284,000 of that is operating expenses - actually, 88%. So 88% is operating expenses.

Panos:

So then, what would be an average or healthy operating margin for a race like that?

Sean:

Typical profit margins, the operating profits-- usually, for a healthy event, hopefully, at a minimum, 10%. But ideally, in our industry, we like to shoot for 20% to 30% operating profit margins. So, if you have, say, $400,000 in gross revenue, you'd like to see a profit of roughly $60,000 to $80,000 - 20% to 30%.

Panos:

But that's an operating profit, right? And then you need to take away all of the other admin expenses that we mentioned. Right?

Sean:

Correct.

Panos:

Right. So what would be, again, a typical net profit that professional race organisers would feel happy within the industry?

Sean:

Yeah, probably 20%. They'd probably like to maintain a 20% bottom line profit on the event. But it varies because it's going to depend on the market you're in, whether you're getting additional sponsor revenue on top of participant revenue, and that can make a big difference in swinging the profit line as well. Because if you can cover your costs using participant revenues, all of the sponsor revenues are icing on the cake, if you will.

Panos:

So I had a question about marketing expenses because, to me-- like, I totally understand why operating expenses are sort of above the line and then you have admin below the line. Why wouldn't marketing fit within one of those? Why do you need a separate category for marketing, in a way?

Sean:

Yeah. I think the answer, for me, to why separate all the marketing costs is because you want to be able to quickly ascertain whether you're doing enough from a marketing standpoint. In the industry, there is a tendency for organisations when things are on the upswing in participation to get lazy about marketing because all we need to do is continue sending our newsletters, and maintaining our Facebook page or social media, and we don't need to do a lot of external advertising. We don't need to do targeted advertising on social media. We don't need to advertise in publications because we're going to sell out anyway, and that's short-sighted because, at some point, when participation peaks or starts to go down, you want to be able to point real quickly to the board or the owners and say, "We're not doing enough in terms of marketing and promotion." So, that in and of itself is a good reason to isolate those costs into one bucket. So you can point out that, in the last X number of years, we've only been spending this much on marketing and we really need to step up our efforts. Then, the other reason too is I like to-- like, if you're getting money from a tourism bureau or a business association in your area, they're typically very tied to the tourism that you're driving in the area. Sometimes, their sponsorship is actually nothing but a match. So if you say,"Look, for every dollar you give me, I will spend on advertising to promote this event." Well, when you meet with them next year for renewal, they're going to ask, "What was your adspend last year? What did you spend on marketing and promotion?" If you have that isolated in your budget as a whole category, you can quickly say, "You guys gave me a check for $2,500. We spent$1,000 on marketing and promotion last year."

Panos:

Yeah, I was thinking that maybe you're splitting out marketing because - and this is very pertinent to the times we're going through with a very weak economy and a potential recession on the horizon - the first thing you hear businesses do is they slash their marketing budgets. I thought that maybe you want to have your marketing separate so that, immediately, you can zero that down without necessarily affecting the rest of the delivery of the event, practically, almost, like, having it as a quick win when you need to cut costs.

Sean:

That's correct too. You'll be able to show the board where the costs are coming from, but there is a bottom line or a minimum you should be spending on marketing and promotion. I mean, you've got to, at least, maintain audience communications, so you should at least still be doing some social media, and email newsletters. You have to maintain a certain level of awareness or you're going to disappear. I mean, I put our expenses for maintaining a website. Anything that's visible to the general public and the external world, to me, all of that goes into marketing and promotion. So my website, my Constant Contact newsletters, I mean, even my subscription tools like Survey Monkey - because I survey the participants after - those to me are all prudent marketing expenses.

Panos:

Okay, interesting. So you'd put your race survey and all of that stuff into marketing. I wouldn't have thought the race survey wouldn't necessarily fall under marketing, but that's how you would treat it.

Sean:

Yeah. I mean, there are some things like-- it's funny. You could put a category under administration called "Dues and subscriptions." So I might maintain a USA Triathlon membership, a Running USA membership, or USA Track and Field, and I would put those memberships under dues and subscriptions under administration. But for Survey Monkey, because it's a marketing tool, I would put that down in the marketing category.

Panos:

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Sean:

Yeah. The best answer is, ideally, they get a hold of either a blank budget from an organisation like Road Runners Club of America, or Running USA, or USA Track and Field, and that gives them guidance. Or even better, they get an organiser, maybe not a competitor but someone out of their market, who is willing to share with them. Here's what our profit and loss statement looked like on our event last year. Now, in a sense, the actual numbers, the participant revenue, the profit lines, those don't matter because that's that event It's like getting a budget for what it costs for your neighbour to build his house. Well, that's of no value because you're building a different house. It is true that your house is going to be different but, at least, if you have the skeleton, it will remind you of all the categories of expenses that are going to crop up. And then, you need to use that really to build from the ground up. So it's funny that people and a lot of nonprofits will say, "Well, we're thinking of putting on a 10K, 5K, or triathlon. How much does it cost to put on a 5K, a 10K or triathlon?" It's a silly question as saying, "Well, how much does it cost to build a house?" How much does it cost to build a house? Well, it depends on what the house is going to look like. So, the only way to know and get an accurate picture is to work from the ground up. You have to go into equipment rentals and what are all the equipment that we're going to have to rent. And you almost need a team to sit and brainstorm and maybe distribute the responsibility of who's going to go out and figure out the equipment rental costs, who's going to go out and figure out the costs for the shirts and the medals, and you build all of that up into a budget. Ideally, the budget itself is dynamic. What I mean by that is you can go in and plug in your participant level. Maybe we're going to have 500 or maybe we're going to have 1,000 and the budget is programmed by someone who is good enough with a spreadsheet so that the budget adjusts. Now, some of those categories like the equipment rentals, as I warned earlier, are not going to adjust. Those are fixed. The equipment rentals are the equipment rentals whether you have 500 or 1000. But the variable costs like the shirts and the medals should adjust up or down depending on whether your numbers are going to go up or down. So, only by doing that can you get an accurate picture of what the likely financial outcome is, and it's hard. It's a big ask to get the committee to do this because, usually, they're just focused purely on operational execution. They've got enough on their plate, especially if people are donating their time. They have enough on their plate just to be asked to go out and fulfil their role to help with the operational production. But it's a big gamble to just put the event on without doing any kind of budgeting or financial projections.

Panos:

And actually, since we're on that point - it's something I wanted to ask later but we can sort of tackle it here because I think it makes sense - let's talk about that breakeven point, which is very important. You touched on it a little bit earlier, but I think it's something that if people go away, starting to focus on one or two things on their budget, I think this is a really, really crucial one, which is as you were saying, that breakeven when your gross profits from all the variable stuff start matching all of the fixed outlays you're going to have. Do you want to sort of, like, again, just lay out a little bit for people?

Sean:

Yeah. So in a finance one-on-one type of class, when they teach breakeven, they use overly simplistic examples. They'll say something, for instance, like, "Well, your fixed costs are $100,000 and your gross profit margin per participant is $50. So for every participant, you're going to net$50. So you need to get 2,000 runners at $50 gross profit margin. This is after they've gotten their food, after they've gotten their medals, and after they've gotten their shirts. You need 2000 participants to cover the $100,000." Well, that's very nice in a textbook and it fits very nicely in a little example box, but the reality is much more complicated because, as discussed, some of your costs are fixed, some of them are variable, some of them are semi-fixed like the porta potties, and there's a litany of costs. It's not as simple as saying that all of your fixed costs add up to $100,000. So usually, what you have to do - and I just did this recently - is you have to put together your detailed budget. Once you're comfortable that you have a detailed budget that you've projected the revenues and the expenses and everything else, and you have it programmed so that you can basically, like a little lever, raise or lower your participation level. And assuming that your sponsor revenues and other things are fixed, you programme this so that you can adjust this lever up or down on the participation. They call this, in financial budgeting, "what if" scenarios forecasting. You start to lower the participation levels. I usually programme my budgets so that I can actually put in, even with an existing event-- what if we took last year's numbers with this year's registration fees for every period? And I have a box where I can make it go 0%, which is flat, or 10% up, or 10% down, or 20% down or 30% down, and I'll set that budget so that I can start pushing the lever down and find out at what point do we go into the red. So I found out from my triathlon, for instance, that after all my budgeting was done, my half Ironman Triathlon cannot drop versus last year's numbers by more than 30%. If it drops by more than 30%, I'm going to have a problem.

Panos:

Right, you're going to start losing money.

Sean:

We're going to start losing money. So I will know. The nice thing is if a lot of-- you talk about registration cycles too. For some events like distance events, like half Ironman, triathlons, or marathons, you might get 80% of your registrations four or five months out because the athletes themselves have to commit to train. So I will probably know by the end of February next year, whether we're going to be in the black or whether we might have to discontinue the event altogether because I'll look at those first two months and know that if my registration numbers have dropped more than 30% versus the prior year, I'm probably going to lose money." Now there are other things you can do. The board president might talk about, "Well, we're going to start slashing costs and doing things like that." But that gets into decision-making about managing the experience as the director. There are certain truisms that I try to live by too, which is, well, you can't-- for instance, I like to say you can't simultaneously raise price and lower the quality of the experience because, if you do that, it's a recipe long-term for disaster. You might get away with it for one season, but you're going to start losing your loyal participants because you've raised price or even just maintain price while lowering the quality of the experience. So that's really less of a budgeting issue. It's more of a customer service issue. It is a marketing issue, for sure. And it's a truism that I've learned in the industry. You see a lot of races that get into a downward spiral of registrations and they violate that rule. They constantly raise their prices to try to hit their budget, while simultaneously cutting costs, including costs that are felt by the participants. They go from quality shirts to no-name shirts. They go from having a smorgasbord at the finish line to everybody getting a granola bar and a banana. The more they do that, the more they're driving away their loyal audience, and it's really unfortunate.

Panos:

Yeah, I guess it's that death spiral that you're trying to save things. You think you're doing all the right things, but you're sort of, like, digging a bigger hole for yourself, I guess, in the long run. It's interesting because this breakeven number is a very important number. It's almost like your Northstar budgeting-wise because it's an easy-to-digest number. As you say that, if I get 793 participants, assuming all the economics and everything are correct on the budget, I break even. And then if I get 794, I'm in the black, which is awesome. Now, when you face this situation which, unfortunately, many people have over the past few years and many people will in the future because not every race ends up being a success where you're lagging your breakeven points. What kind of corrective measures would you take? Would your thinking be, "I need to cut costs"? Because you clearly can't just magically increase your entry fees, particularly, mid-race? So, are you cutting costs? Are you throwing more marketing expenses at the problem? What are you doing at that point?

Sean:

Yeah. Well, in a sense, it's all of the above. You are trying to market and, in a sense, steal market share because if the overall size of the pie is shrinking - which in distance running and in triathlon, the pie has been shrinking now for quite a few years - the only way to grow is to steal participants or for your competitor to disappear and then you steal those participants, or you shut down your event and your competitor gains those participants. But definitely do marketing and maintain awareness that you're still around. In terms of expense reduction, this is a very sensitive issue and what I like to see is another way of looking at expenses besides fixed variable and semi-fixed is transparent and non-transparent. In other words, what expenses are tangible to the participants, and which ones are not? If I take my staff out to dinner on Thursday of race weekend and we have a big party, and it cost me $1,500, that is a transparent expense to the participants. They don't benefit from it. They don't see it. I can make all the arguments in the world about how it benefits the participants - that my team is harmonious, they like working together, and they're back every year, but the reality is it is an easy to eliminate expense, so I'll cut an expense like that. Then there are expenses that are-- I don't like to use the term polarising, but they're only of consequence to maybe a minority of the participants. If you ask your audience how many of them were very intent that you should have a live band on a big stage at the finish versus how many of them are just happy that you have nice music playing in the background, probably, the majority don't care and you can cut the band and the stage next year without many participants even noticing because, as long as there's background music, they don't necessarily care that there's a stage and a band. Where all of them start to take notice is we're going to eliminate the drawstring goodie bags. Well, that affects every participant. All of the ones who are repeat participants will notice and they all will feel that. If you reduce the quality of your medals, we're going to go to a lesser-quality supplier or we're going to go from a branded T-shirt to a non-branded T-shirt, those are tangible reductions. No. Board members and owners will quickly say,"Nobody's going to do our event because we're using this brand of shirt or because we're giving out a drawstring bag or because we're doing a three-dimensional medal." They're right in a vacuum. They're correct that one reduction by itself is not going to drive away all of your audience. What they need to be careful about - the event directors - is it's all of those reductions collectively. If you make that argument about the food menu, the medals, the shirts, whether you use tattoos or sharpies for the marketing, the triathletes, all of those expenses collectively add up. Even though no participant is going to say to you, "I'm not doing your triathlon anymore because you didn't give me a body tattoo. You just gave me a Sharpie and wrote the number on me." I mean, no participant is going to say that. I like to say it's the collective aspect that you've taken an event from a 5-star race down to a 2-star race, and the participants do notice that. So they do notice the aggregate impact of all of those reductions and that's where races get into trouble because behind the scenes in the boardrooms are an accountant, a treasurer, and owner, and some board members concerned about the financial outcome, and they start chipping away at all of these different aspects of the event. The more they chip away at all of these aspects, the more they're unwittingly reducing it from being a four or 5-star event down to a 2-star event. And even though they're correct in a vacuum about any one of those individual reductions, they're wrong that, collectively, the participants don't notice. The participants do notice. They just don't necessarily verbalise it and they're not going to send you a laundry list of all the things that they feel that you got chintzy about. So that will long-term have a have an impact. So you have to be careful about which things you reduce. You try to find ones that are not going to drive away your audience or find a fence with a majority of your participants.

Panos:

Absolutely. And I think one thing that I see mentioned-- it's a comment that sometimes race directors make as well, but you see it in other businesses as well. You bring up a point or there's a discussion in our Facebook group about something and a race director would go,"Well, no one has complained about this." The fact that no one complains doesn't mean that you haven't actually given someone a reason to feel disappointed by your event or something. Like, very few people complain. If you see complaints, it's the peak of the iceberg, but someone might do the event, then go back home and think,"Oh, that wasn't quite what I expected." I think this whole budgeting is interesting. Like, from all angles, I see all episodes converging back to this thing about how important the race experiences. And even on the budgeting side, we see this. You're a business person. You would think that you're a numbers person, and in these circumstances, you would be all about, "Oh, yeah, you cut this, you cut that and everything's fine." But even you appreciate the fact that, in the end, you're just damaging the product long term and you just cannot do that for any number of years. You shouldn't be doing it for a year, to be honest.

Sean:

No. I mean, I'm having this very exact debate right now with the board president of my triathlon because we've seen falling numbers in our long-course triathlon for a number of years. People are not doing half Ironman and Ironman distance events as much as they were five or six years ago. So, as the numbers are falling, the question is, "How does the organisation react? Do we just start cutting costs?" And I've pointed out, the irony is, they're wanting to raise rates because we're in an inflationary environment. We haven't raised rates significantly in a number of years. So there's a desire to raise rates while simultaneously reducing expenses, which is to say cutting. Those arguments about "They're not going to notice on the medals, the shirts, or what have you, the food at the finish," those arguments are being made and I've said, "Collectively, they do matter to the audience and it violates one of the first rules which is don't raise price while reducing quality or portions." I mean, we've all seen restaurants do that. You go into your favourite restaurant and the prices have gone up, but they've reduced the portion or they've substituted and the quality isn't the same as it was. Where the mistake is made is thinking that the audience is naive because they're not going to verbalise that. Well, you may not verbalise either and say,"My favourite restaurant is using a lesser cut of meat and they've switched from brioche buns to some cheaper quality buns." No one's gonna say that. They're just gonna say, "Yeah, the food's not as good as it used to be." That's what the audience says. And what the audience says in our industry is, "Yeah, that used to be a 5-star event, but it's just not the same." They maybe can't verbalise or pinpoint exactly where you've cut, but they sense it and they notice it collectively. That's where the owners in the board presidents can be naive at times - assuming that the audience isn't going to notice. So the question is,"What costs are truly unnecessary and extravagant?" Cut those first before you start cutting into the bone because, if you cut the fat, yes, but once you start cutting into the flesh and into the bone, you're gonna hurt the body of the event.

Panos:

Yeah, absolutely. Otherwise, anyone would be doing it. There are no easy answers when it comes to this. I guess the only other avenue, assuming you've dealt with all the imperceptible costs - all the behind-the-scenes stuff. You try to be as lean as you can there. I guess the only other way out of this is to focus on growth and that means marketing. In terms of marketing, I wanted to ask, is the cost of acquisition or something like that a metric that you also keep an eye on? So basically, how much do I need to pay to get another person to sign up to the event? Is that a number you follow?

Sean:

No, I myself haven't. I mean, I've heard the phrase"Cost of acquisition" and I'm definitely looking at that more because I'm seeing some of my competitors fall away. But I think it's a common mistake and I've made it where, when you're relying on the same audience to show up every year and you're relying on them and their word of mouth to bring in new participants, the foolish thing is to assume that your event has widespread awareness. The reality is, more often than not, it does not. And you never know when someone somewhere in your region is going to take up running, or take up triathlons, or take up cycling and you want to be one of the first races that they see. Fortunately, with social media, we have these tools. You can go through Facebook and Instagram, and you can put your ad, geo-target, and then interest-target it in front of someone who is either committed to or starting to develop an interest in your sport. Those are great tools that we didn't have 10-15 years ago. I haven't measured the cost of acquisition. I mean, it's difficult to do that. You can put values. I know, on Facebook, you can put a value on click-through rates and things like that, and that's definitely worth learning about. So I'm learning how to use those tools. But historically, I haven't used cost of acquisition to measure added participants. I do ask in the surveys, though, after the event, "How did you hear about the event?" And one thing that hasn't changed, even with social media, is word of mouth. Word of mouth is still-- the first answer will be, "I've done this event before." So repeat participation. But still, today, the second most common response is word of mouth. So word of mouth is still stronger than anything else. That's why I like to say the most important form of advertising is to give this year's participants a great experience because they're your best source of advertising. We live in an industry where there's infrequent participation. It's kind of like being in a restaurant. They might only go out for an elegant dinner once a year. You want them to choose your restaurant. So you need to maintain top-of-mind awareness. But more important than that, you need to maintain your reputation because it's that reputation that will get discussed over tracks or water coolers, and someone says,"I'm thinking of doing a triathlon or a road race. You really should do that half marathon in that city. That's a great one." That, to me, is more important than anything, but I am putting more money into trying to do acquisition through Facebook and other social media.

Panos:

Yeah, I mean, in the end, as you say, the most important thing is to have a great product and word of mouth. If your product is great, it's going to drive a lot of your growth, to be honest. I mean, most people hear about great events from other people.

Sean:

Correct.

Panos:

I want to touch a little bit on-- we've discussed expenses, I think, pretty thoroughly and the revenue side of things is pretty straightforward for the most part - entry fee, sponsorship, all of that stuff. The one thing that I think, maybe, merits a couple of minutes is in-kind sponsorship because in-kind sponsorship, most of the time, is not just straight-out cash. You can just add to your budget. You're just getting stuff. And many people just completely sort of, like, think that that shouldn't be part of any kind of budget. It's like, budget is the cash I'm getting and then maybe I'm getting some stuff on the side. What's your treatment of in-kind sponsorship on a budget?

Sean:

Sure. For most in-kind sponsorship, I do a journal entry and I do recognise it at market value, and it's important to do that for several reasons. First of all, if it's truly a donation of something in-kind that you need - whether it's medical services, or it's Gatorade, or it's food items donated by a grocery store, or it's printed event guides from a local print shop - if it's something that you would have bought, then you should account for it and you should account for it at market value. It's important to do that to accurately reflect your true position in terms of revenues and expenses. Now, it really won't affect the bottom line but, for instance, if I have$10,000 in donated medical services from my hospital partner, they'll do some cash and they'll donate medical services, well, I recognise the cash is cash but the medical services are hugely important too. So I'll do a journal entry of crediting in-kind sponsorship for $10,000, and then I will debit medical expenses under my operations for $10,000, which means I've added $10,000 in revenue, $10,000 expense, and of course, it washes out at zero. It affects the bottom line zero. So it doesn't affect the bottom line. But the truth is that donation does affect the bottom line to the extent that it happened because, had they not donated it, I would have had to spend $10,000, hiring these medical workers to staff my event. So there is legitimate value there that should be accounted for. It's important that the board, owners, and other decision-makers recognise my efforts at landing sponsorships, not just in terms of cash, but also in-kind. All too often there's too much concern about, "Well, we only placed in importance on cash. If it's not cash, we really don't care." Well, that's a foolish statement because if I land Gatorade and I get a signed contract from Gatorade to be a sponsor, that might be worth more than some of the cash sponsors. I mean, I might get a cash sponsor at $2,000 but the donated value of the Gatorade might be $8,000. And if it's something that I legitimately would have bought, then it's important to recognise that as such. So, really, when I look at how I'm doing in terms of overall sponsorship, it's cash sponsorships plus in-kind sponsorships that reflect the true level of sponsorship support I'm getting. It can get out of hand. Sometimes, you'll get somebody who says, "Well, we're going to donate lollipops to your goodie bags," and the value of these lollipops at retail value is $2,000. Okay, well, you maybe won't recognise that. As much as it's appreciated, you were not planning to put $2,000 worth of lollipops in your goodie bags. So although it's an appreciated donation, the truth is it's a promotional item that a lollipop manufacturer is putting into your bags as a generous act and you would not have bought those. So in that case, you don't put it in there. But otherwise, everything else-- and a lot of things get overlooked. I mean, dumpsters. I used to forget to put the value of the dumpsters in every year, and I finally asked the local supplier who was donating that service, "What would this cost?" Well, it was over $1,000. So, it's important to recognise that. So it's important to us as an organisation to recognise these sponsors for those donations because if they're budget-offsetting, then they need to be recognised and treated as such. That is a major sponsorship. But it's also important too that we recognise not just that sponsor, but we recognise the individuals who are landing those sponsorships, whether it's the race director or someone else, that we not only account for how much cash they brought in, but how much in-kind donations they brought in.

Panos:

Yeah. Because as you say, when those in-kind donations are one-for-one offsetting a cost item that you need for the race, it is cash in a way because you wouldn't have to spend the money to purchase that expenditure as good as cash.

Sean:

Precisely. Yeah. And it's important too to give an incentive to the race organisers to try to get items donated. Sometimes, it's hard. I mean, I have a sponsor and I get $1,000 credit from a pizza place. Well, that's significant because I would have spent $1,000 to feed my lifeguards, to feed my volunteers, and to feed my staff. So that is genuine in-kind savings. So it's worth giving me the incentive to ask. Some things are hard. Boards will naively say, "Do you think you can get someone to donate the porta potties?" Well, no, because the majority of the porta potties clients-- I mean, outside of the construction industry, the majority of their clients, for special events, are nonprofit events. If that vendor donated their units for free to every nonprofit, he'd lose money every year and be out of business. So there are some things that you have a hard time getting donated. But then there are some things that you can be surprised and you find someone's willing to donate something that you would have spent money on. So you want to recognise the value of that?

Panos:

Yeah. Because, I guess, when you go to a pizza place and you say, "Come on board as a sponsor," and they say, "Okay, I'll give you free pizza," which as you say, you're going to need to feed your staff, your team, and volunteers. There's an incentive for them because advertising a pizza place has some value. Advertising the guy who rents out the porta potties means nothing to your participants. So why would we ever donate that stuff to you - right? And in fact, I would go one step further because I feel I want to make this point because in-kind sponsorships, as you say-- you mentioned the board, but I know many junior race directors who take this attitude look down on in-kind sponsorship quite a lot. And actually, I would say it's the kind of thing that will, particularly in the first years of the event, build your sponsorship portfolio. And if chosen wisely and they offset costs, as we said, it is as good as cash and it has the added benefit that it's easier for the pizza place to give you $1,000 worth of pizza, rather than give you $1,000 because it doesn't cost $1,000 to the pizza place to produce the pizzas. Right? They would more easily do that.

Sean:

Yeah. And to go back to our discussion about breakeven earlier, the truth is, to the extent that some of these fixed costs can be donated, you're lowering your breakeven. Maybe you no longer need 500 participants because of all the donations the organisers have landed - the in-kind donations, not cash, but in-kind. Now, your breakeven is only 300 people to turn a profit. And so, it would be naive to say that those don't matter as much as cash. They matter exactly as much as cash at whatever we would have spent on them.

Panos:

Absolutely. So I want to sort of circle back to a brief mention we made up volunteers earlier in our discussion. I think that the point was put across back then, but I want to sort of go over that ground a little bit because it's one of those very commonly misunderstood areas, again, primarily by people who haven't organised events before, which is the cost of volunteer. So do you want to break down a little bit how people should think about the cost of staffing, feeding, and everything that goes into having a volunteer force on race day?

Sean:

Yeah. The truth is the staff and the operations committee, the people who lead the areas of the event, typically cannot do everything themselves. They're going to need volunteers. There's just too much going on - too much interface. The staff can't single-handedly run a food tent or hand out all the medals at the finish. Trying to do so will exhaust you. So you need charity groups to typically get involved and help with making an event happen. You need volunteers. And the volunteers typically come from local nonprofits that will have a stake in your event - sometimes, just one or two nonprofits. I mean, I used to work with a Turkey Trot where all of our volunteers came from the YMCA and the Boys and Girls Club, and that raises an important point. It's good to have diversified risk in terms of where those volunteers are coming from. If you have two charities that you're working with, it'll reduce the risk if one of them which is in transition, or their development director is changing, or they have somebody who's been out sick and now the volunteer recruitment has been kind of sidelined. You don't want your event to suffer because of that to the extent that you're working with multiple charities. You'll diversify your risk in terms of staffing and making sure you have adequate staffing for that event. I always like to say we would go through cycles where we were having trouble getting the YMCA to follow through with their volunteers, and that was fine because the Boys and Girls Club would have volunteers, and then the Boys and Girls Club would struggle and the YMCA would be doing more of the heavy lifting. That's just for instance, and it varied by community. In some communities, we'd have the YMCA doing the heavy lifting and another is the Boys and Girls Club. So working with multiple charities is a good best practice to reduce risk. But then in terms of what are the costs, I like to say, if you can strive to compensate your charity at an average rate of$10 per hour per volunteer at a minimum - and that's 10 American dollars. It's going to vary obviously in other countries. If it's above slightly above minimum wage, it's probably worth their time. So if you're asking a nonprofit organisation to staff a water bottle handout or a water cup handout at a run or triathlon, and if they're going to need to have all 10 people there for about five hours, it's going to be about 50 labour hours, a decent donation would be $500 to be worthwhile. Now, somebody's gonna say,"Well, we don't do that we only pay $200 for those charities." I'll say, "Well, how long have those charities been with you?" Well, it changes almost every other year because the charities have scheduling conflicts and they can't make it. Guess what they're not telling you. What they're not telling you is it's not worth their time. They don't want to spit in your face and tell you that your donation was paltry. But if they find a reason to not be available the next year and every other year you're changing charities, you might start to consider that maybe the problem is the amount that you're donating. And, again, a lot of events make that mistake because they think,"Well, we get volunteers and we don't pay for our volunteers." In the end, you pay for your volunteers. Those volunteers are not getting paid. They are indeed a volunteer, but they're most often volunteering on behalf of an entity, and you can really do it in two ways. One is, basically, a contractual arrangement where you're saying we need 10 volunteers for five hours. We'll pay $500. Bring your boy scouts and their parents and staff our water station, and they agreed to it. And if it's worth their time and money, they'll come back every year. And if you do a good job of rewarding them - do additional things, give them T-shirts, give them box lunches, and they have a good time - they'll be back year in and year out. That's a contractual arrangement. Some charity arrangements are open-ended. So for instance, in the triathlon that I mentioned that I direct, we have some contractual charities - about 20 of them - that are working on fixed fee arrangements like that. But then we have two charities - the local parks department and the Friends of the Parks and then the other group is the YMCA - and those are more open-ended. They're both providing charities. They're both providing labour to make the event happen, but there's really no certainty of what they're going to get because they are the official charities. What that means is, at the end of the year, depending on how the budget shakes out, they're going to get a cut of those net profits we've been talking about. In some years, they've gotten zero. In some years they've gotten $50,000 depending on the ups or downs of our financial outcome. I try to avoid any kind of scenario where we have more than one year where we're down in the low five digits where they're getting less than $10,000. For the amount of work that they put into it, I like to see them get 10,000 American dollars or more every year. I tried to do what I can to try to get it back up towards $15k, $20k, $30k and beyond so that it is worth their time. But to some extent, that's out of my hands depending on what's happening in the market.

Panos:

Well, of course, the other thing that people shouldn't forget is that volunteers also need food, right? I've seen some budgets where you put in the donation to the charity and then you completely forget that people are going to be there for 5, 6, or 10 hours and they need to eat.

Sean:

Yeah, and they often forget the people who are out in the field working intersections or water stations. If you have a sustained event, I like to say to board members and owners to follow the golden rule. And what I mean by that is the owners or organisers will say, "Well, we're already paying that charity to staff that station. We don't really need to feed them to do it." Now they'll say that and they're not intentionally being cruel or malicious, but I will say they're unwittingly being cruel and malicious because I'll turn the question around and I'll say, "If you were there with your spouse and your kids for 4 hours from 10 in the morning till 3 in the afternoon, would it bother you that we didn't even offer you a bottle of water and a box lunch? Of course, it would." So follow the golden rule. If that's the minimum that you would expect if you were out there as a board member working, then that's the least we can do for our partner charity. Yes, we are paying them to be out there. That's the value of their time. But if they're there for a sustained amount of time and if they're there over a meal period, whether it'd be breakfast, lunch, or dinner, the least we can do is get food to them. So that's a line item I've fought with my board on at times because it's tempting to say,"Why are we paying this much? We have to have box lunches and a driver to deliver them and to cost all that up. Why are we doing this when we're already paying them?" Because they're out there for five hours in the middle part of the day, in the heat, working for us. And if any of us did that, the least we would expect is a box lunch. So if that's the least that you would expect, then you need to do that for that person.

Panos:

Yeah, indeed, absolutely.

Sean:

Golden Rule.

Panos:

Golden Rule. 100%, yeah. I want to think that, as you say, people don't do it maliciously. It's just one of the many details that you have to think about. Somehow, because it's volunteers, I mean, I guess it may not be obvious to people. But after this, I hope it's obvious to everyone that people need to eat and volunteers are people too.

Sean:

Yes, precisely. Yeah. And even public safety. I mean, to be honest, I purposely-- one of my line items in many of my budgets is beating the Public Safety Committee. Sometimes, they'll drive boards and owners crazy because, "Well, why are you feeding all these police officers for these planning meetings? I mean, they're gonna get paid on race day." They are, but a lot of times the lieutenants or whoever I'm working with - the Public Safety Committee, the EMS people - they're not getting paid extra to drive over to City Hall, sit in a conference room, and talk about the event that I want them to staff. They're not getting paid anything extra for doing that. So in a sense, the least I can do is buy them lunch. So a lot of times, I'll intentionally have those meetings during the lunch hour and I'll cater in a lunch. I'll bring in subs, if nothing else - some sandwiches or pizza or something - so that at least they got a free lunch out of the deal, and it helps with attendance, I will tell you that.

Panos:

Yeah, absolutely. I think it's common sense. First of all, some of these people will be-- even if they're paid for the day or whatever, they may be at a place in the course where it's difficult to get lunch or whatever, but the bottom line is you get a builder in to look at the plumbing or whatever and you offer a cup of tea. If they're gonna be there for three or four hours painting your house, you're like, "Can I kind of get your sandwich or something?" It's a courtesy kind of thing and it's something that people appreciate. I'm sure these people are going to think higher of you, higher of the event, and they're going to be happier to come back. And just the cost-- as you were saying earlier about churning charities, just the cost and the effort to be finding a new charity every year, sitting down, the whole thing, like, that alone is just a false economy. Just buy them a sandwich, keep them happy - whatever keeps them happy. Don't have to do this thing again, year after year with new people. It's completely dumb.

Sean:

Yep. Yeah. And that's exactly how we look at it. I mean, we try to treat our volunteers well. The other thing to recognise is that this person who's working for you, they're not the one benefiting individually. That money - when you cut that check after the event - is not going to them. Now, they may not be donating their time directly to your event, they're donating their time to their Boy Scout troop or to their church group, or to their whatever. They're themselves not getting paid, so they're giving you five hours of their time. The least you can do is give them a free shirt and a free box lunch so that they feel appreciated.

Panos:

Absolutely. And on that note, I would like to thank you very much, Sean, for this amazing discussion. I'm pretty sure that it's, like, full of little tips that even people who are seasoned in building their own budgets are going to find useful - definitely very helpful for the people who are just starting out. In case someone would like to maybe reach out to you-- you offer services to raise beyond budgeting but maybe someone wants to get in touch to discuss anything we may have talked about today, is there any way they might be able to do that?

Sean:

Yes, of course, they can reach out to me through-- my email is director@fall50.com. That's the only event that I own. I'm a freelance event director but I do own and direct one event - The Fall 50 They can go to fall50.com or email me at director@fall50.com. It's been wonderful to talk to you about this. I love event planning and organising, and it's always fun to talk about it.

Panos:

Super. Well. I'm gonna thank you again, Sean.

Sean:

All right. Thanks, Panos.

Panos:

And I want to thank everyone listening in. I hope you enjoyed this and we'll see you all on our next podcast. I hope you enjoyed today's episode on building a race budget with SRSE Sports' Sean Ryan. You can find more resources on anything and everything related to race directing on our website, RaceDirectorsHQ.com. You can also share your thoughts about building a race budget or anything else in our Facebook group, Race Directors Hub. Many thanks again to our awesome podcast sponsor, RunSignup for sponsoring today's episode. And if you enjoyed this episode, please don't forget to subscribe on your favourite player, and check out our podcast back-catalogue for more great content like this. Until our next episode, take care and keep putting on amazing races.