Eating out one evening, a R60 burger and an R80 bottle of wine could net your waiter a R14 tip. Had you ordered a R150 filet mignon and a R300 bottle of wine however, she'd get R45, almost 70% more. Yet did it take more effort to carry the filet to the table, or open the expensive bottle of wine?
It makes little sense, but since we've become accustomed to paying this way, few people give it much thought. The same is true of the events industry.Q1: “How do you calculate your fees?”
Many event management companies charge a fixed fee calculated on a percentage of everything booked and bought for the event. And because this fee model has become so entrenched, few clients ever question it.
But why pay your events company more to manage an event with a more expensive entertainer or a pricier venue, and less to manage the same event with cheaper elements?
Events companies should be paid according to what work they do. If it costs R250 000 to manage the event, that is what the client should pay, whether the elements of the event cost R1m or R10m.
This is the management-fee approach, a billing model which gives clients two major benefits over the old-school fixed-fee system.
First, with management fees rather than fixed fees, clients usually end up paying less. Transparency is critical here: the events company should produce a detailed, item-by-item budget listing all costs and charges, showing clearly where your money is being allocated, and what you'll be paying the company for its service.
The second benefit is that with a management fee, you know you're getting the best solution for your event's objectives because services and venues are being chosen on how they will suit the event, not on how they can inflate the final bill.Q2: “What is your mark-ups policy?”
In addition to questioning the events company's fee structure, the money-savvy client should also look into its mark-up policy. Does your events company charge you a mark-up simply because it can, or because the mark-up is justified?
The common practice is to charge a mark-up on each item, regardless of what went into making that purchase, and then to calculate the fixed fee on top of this. I believe however, that clients should only be charged a mark-up for those items which their events company actually manage or add value to. A mere phone call to order something does not justify an automatic mark-up.Q3: “How are you protecting my budget?”
This is the final, tough question. When a project kicks off, it typically burns through money, usually before the events company has received much funding from the client. The company must have the resources to get through this period, spending its own money before the next payment is due.
In many cases however, events companies end up “borrowing” money from another project which is further along in its planning process. This can prove disastrous for your project, especially if you're the biggest client, as you could end up paying for mistakes made on other projects.
You should know how your events company manages its budgets, how your budget will be ring-fenced, and how your funds will be released to pay for the project. And only once the project has been successfully completed, with the client review done, should the profit portion be released into the events company's coffers.
The bottom line is, insist on transparency from your events company, and ask questions, even if they're uncomfortable ones. It is, after all, your money.