For owners of young events it can be incredibly challenging to make realistic financial projections. However, if you’re hoping to secure investment, borrow from the bank or simply want to stay in business, it’s a necessary exercise.

Whether you want to put together the business case for your brand new project or make a multi-year forecast for your existing event business, here are 5 top tips to help you get started.

Related: 8 Ways to finance your event idea

1. Don’t rely on the ‘x% of the market’ theory

When assessing the viability of a new venture it can be tempting to look at the overall market and assume you will be able to claim a certain percentage as customers.

I have personal experience of falling foul of this forecasting technique. 10 years ago I opened a sandwich shop. I scoped out the premises by observing how much footfall it had. In one hour, around 200 people passed by. I naïvely presumed that I would be able to tempt around 5% of these people to stop for a sandwich, giving me at least 10 customers an hour. How wrong I was!

As it turned out, most of the people passing my shop were firmly focused on reaching somewhere else (a big Sainsbury’s) and my average conversion rate was more like 1%. You won’t be surprised to hear my business didn’t last very long.

So, what should I have done? Well, the first mistake I made was assuming all these people passing by were potential customers. My shop was actually quite niche, offering calorie controlled food, so it certainly wouldn’t have appealed to everyone, like beefy builders, for example (I did get a few of them and they were always disappointed to find I didn’t sell bacon sarnies!)

To really assess your target market, you need to drill right down to draw up your customer ‘persona’. Once you’ve identified your target demographic, you’ll need to calculate how many people in this demographic fall into your event’s catchment zone.

Your catchment zone will vary depending on the type and size of your event. For example, people will typically be prepared to travel further for a festival than for a club night. Look at your competitors and do some market research to determine how far people will realistically be willing to travel to attend.

2. Work out the cost of reaching your customers

How far you can cast your net will also depend on your marketing budget. Although you now have an idea of market size, it’s important to think about how you will drive awareness amongst your target audience before you can confidently put a figure on your reach.

For example, there might be 100,000 teenagers in the catchment area of your young people’s festival but if you can’t afford a big marketing campaign, with print, radio, PPC and social media ads, how many of those will you realistically be able to reach?

For consumer events, it’s worth setting up a test campaign on Facebook targeted to your demographic. You’ll be able to see how many people could potentially be served your ad in their news feed and how much that is going to cost – how big a campaign can you afford?

For B2B events, you’ll need to consider the readership of trade websites and magazines in your industry and how much it will cost you to advertise.

Once you have this information you can put a realistic figure on your potential reach i.e. I can advertise my event to 22,000 targets. But remember, not all of these people will convert into attendees or even become a lead (i.e. respond to your ad by visiting your website). Estimating the number of leads and your likely rate of conversion (ticket sales) comes next…

3. Estimate your sales conversion rate

Let’s assume your marketing strategy is focused around Facebook. The average click-through rate for a Facebook promoted post is just 0.79%, which on a campaign served to 2,818 users equates to just 25 people taking action (clicking through).

Now it is time to determine what percentage of these ‘leads’ you will turn into ticket buyers. A good conversion rate is considered to be 5% – but whether you achieve this (or higher) will be down to the quality of your website, your sales copy and the overall persuasiveness of your offer.

There are many factors that influence conversion rate and optimising your site for maximum conversions will be an on-going job. Download our guide ‘How to Double Your Ticket Sales with Conversion Rate Optimisation’ here to discover methods for doing this.

You’ll want to factor a gradually improving conversion rate into your long-range financial forecast to take into consideration your optimisation endeavours and (hopefully) a growing marketing budget as revenue increases. You’re unlikely to achieve 5+% in the beginning, so it’s wise to make a more conservative estimate. The median conversion rate stands at around 2% but rates differ depending on industry. Any research you can conduct around average conversion rates in your industry can help you make more accurate predictions. (Here’s some handy research into conversion rates for different industries by Smart Insights).

If you have already been running your event you can use Google Analytics to look at the traffic and conversion rate your site has historically been achieving – or, if your event is hosted on Eventbrite, you can access sales and attendee reports from your dashboard. This data will form the basis of your financial projections.

4. Calculate how much each customer is worth

Once you understand the cost of securing a sale, you can work out how much profit a customer represents.

Let’s say it costs you £5 in advertising to make a sale and the average sale will be two tickets at £20 each (total value £40). This leaves you a gross profit of £35. Then you must deduct any fees charged by your payment gateway or ticketing platform and postage costs, if applicable.

You should already have a thorough understanding of how much it will cost you to run the event and have drawn up a written budget document. How many tickets do you need to sell to break even? How many to make a profit?

Related: How to get your event budget planning right

5. Detail your growth drivers

When making financial forecasts, startups often make the mistake of picking an arbitrary figure to estimate annual revenue growth. “Let’s say we’re going to grow at a rate of 2% an event, that’s a low figure, that sounds reasonable.”

Before you put any figure on future growth, you need to have a clear understanding of how you will stimulate that growth. It’s not enough to rely on growing reputation and word of mouth.

Build a driver-based model that shows how marketing investment will get you more customers and your revenue will grow accordingly. Bear in mind that more attendees means you might need more event staff or a bigger venue. Scaling up requires investment, so don’t forget to take that into consideration in your calculations.

Related: Understanding and managing cash flow for fast growth events

Conclusion

Making a financial forecast can certainly seem daunting and it is unlikely to ever be 100% accurate, but it can help you be more realistic and make more sensible business decisions.

A useful Excel template for making cash flow projections can be downloaded for free from non-profit business association SCORE.