How to Increase Revenue through Event Electric Services
Selecting the Right Business Arrangement
There are three typical business arrangements:
- Self-Operation (also referred to as “in-house”) – Many convention centers provide utility services through their own utilities division. The division is responsible for all aspects of the business; event planning, management and floor supervision, administrative of service orders, obtaining a labor force with all the HR functions included (hiring, firing, training, payroll, etc.) , material purchasing and inventory control, customer service, and probably a great deal more.
- Exclusive Electrical Contractors – Convention centers may choose to have an exclusive contract with an electrical contractor. The choice of contractor is normally the result of a competitive process. The process is characterized by rigorous due diligence which examines all the aspects of operating a service business. Final selection often requires approval of the board of directors. Commission rates range from as low as 12% to as high as 35%. Occupancy and the nature of booked events clearly influence commission value.
- Open (Show Manager’s Choice) – This choice is not as open as the phrase implies. Convention centers must approve the contractor and many already have a list. Sometimes the center will issue a “preferred” list of contractors. The review or vetting process for approval usually covers items like a financial and safety record review and adherence to required union collective bargaining agreements. Most convention centers require a fee or commission on gross revenue be paid by the contractor to the convention center for use of the facility.
There is a tipping point where self-operation of electric services makes the most business sense. It would require a favorable history of occupancy and electrical and revenue per net square foot with reliable forecasts of consistency and growth. As a rough estimate, I believe the tipping point would be an occupancy rate of about 40 to 50% where the majority of the events are trade and consumer shows or conventions with exhibits. Otherwise, the sensible course is to retain an exclusive electrical contractor.
Convention centers contemplating a transition from an Open arrangement to an Exclusive Contractor or Self-Operation will find a more challenging situation. The Open arrangement typically exists in convention centers which are large with excellent occupancy, and well booked with trade and consumer shows and conventions with exhibit floors. This arrangement exists mostly in venues in the Las Vegas and California but exists in a few venues elsewhere too. The Open arrangement is an attractive bonus for tradeshow managers as most contractors working directly for the show pay show management a commission on revenues received from exhibitors. Convention centers too often demand a user fee from whatever electrical contractor the show manager selects, dividing the contractor’s revenue further. There will be controversy surrounding the decision if a center elects to change certain businesses from Open to Exclusive or Self-Operation. I would be prepared for negative publicity from advocacy groups representing event management and tradeshow press about loss of control, poor customer service and high pricing. Research, however. has shown none of these things to be true, in fact quite the opposite.
Selecting the Right Pricing Model
Cost Plus vs. Market Pricing - Most convention centers and/or their exclusive electrical contractors price their services on a market basis. Convention center management recognizes that cost- plus pricing, while simple and easy to justify, is not an effective pricing strategy. Cost- plus ignores competition. A convention center could decide on service prices based on the cost- plus formula and then be surprised when it finds competitors charging substantially different prices. This can unfavorably impact on the profits a center can expect to achieve or put their market share at risk due to high prices. The center either ends up pricing too low and giving away profits or pricing too high and experiencing an erosion of revenues.
Flat Service Fees and the Application of Labor Charges - A typical price schedule sets prices in accordance with different operating voltages and electrical demand (watts) for 110/120 Volt service and in current (Amps) for 208 and 460 Volt service. For the latter, there is a premium placed on three phase service. The prices, of course, vary from city to city and it’s evident that consideration is given to the pricing of regional and national competitors. Rental items such as plug-in strips or display lighting are also priced on a market basis. At first glance of an electric service form these prices appear as a flat fee. It’s the application of labor charges to these flat prices which make things confusing and questionable; often a source of resentment from exhibitors. Hourly labor prices (which are wages, benefits, taxes plus a markup) are high considering the rudimentary level of skill and training required. Some convention centers, the Boston Convention and Exhibition Center, the Javits Center, the Orange County Convention Center, the Austin Convention Center, the Indiana Convention Center and others include labor in the price of all 110/120V, 208V and 460V service. From a customer service view, this is a wise and politic pricing strategy. There is predictability for exhibitors and there is no uncertainty or distrust of labor productivity. The margin risk is all on the convention center. To achieve a flat price model and not put your profit margin at risk, convention centers need to determine how labor expense can be properly applied to the flat fee.
I have seen examples where the application of labor charges become so absurd and excessive that while you may obtain a small measure of revenue increase, you can easily create a very unfavorable customer service problem. Nowhere is this more prevalent than the application of on-site service fees and labor charges. I acknowledge that the installation difficulty increases and profit margins decrease in these circumstances, but imposing charges that cannot easily be explained or justified doesn’t help. It’s all too easy to find your convention center being ridiculed and complaints gone viral on social media for something like this.
Separate Electric Service Order Forms for Different Class Events – On Line Access Control -There are other methods related to the service pricing and the presentation of the pricing schedule which can be used, especially with a self-operation arrangement, to increase revenue. These methods are practiced mostly by the electrical contractors who work in the Open arrangement previously described. There appears to be a real “tradecraft” in their practice. There are many reasons related to security for making all on-line service orders access controlled. Access control also all permits convention centers to make price changes based on the type of event or prior history of the event; certain industry sectors are less price sensitive than others, prior event history may show that certain service or rental items are ordered more than others, certain type of events may have more late or floor orders than others, etc. In all cases, the pricing adjustments should go up, not down and the small incremental changes will serve to increase revenue and margin. Most importantly though – don’t overreach.
Knowing and Acting on Your Pricing Power
A comparative analysis of competitors’ pricing models and schedules is a very worthwhile research project. Generally speaking, if a company doesn't have much pricing power then an increase in their prices would lessen the demand for their products. In this circumstance, demand elasticity would be seen in certain exhibitors choosing not to exhibit, or a reduction in the size and complexity of exhibit booths, or worse - an event manager re-locating to another city and venue because of high prices.
Take the time and follow these steps:
- Obtain as many electric service forms from competitors as you can. These can be regional competitors or national competitors competing for the same type of events, say annual meetings for medical field associations.
- Compare a factor that characterizes the standing of your competitors’ business, say market share for medical events.
- Do a correlation analysis and see if there is a correlation for competitors with higher priced electric services and market share. No doubt you will see no correlation.
- Do some anecdotal research:
- Have any shows left or decided to go elsewhere because of electric service prices?
- Have any large notable exhibitors complained and reduced the size and complexity of their exhibit because of you electric service prices?
- Decision time - Make a side by side comparison on a table and calculate the average and the median prices. If you are lower, raise your prices gradually. Remember, don’t overreach.
Drilling Down on Productivity- Tracking the Proper KPIs
It’s painstaking information to obtain but a great deal of your margin stagnation and loss may be in problems with your field supervision and the planning, materials and procedures used for installation. You can validate observations and opinions by electing to track certain KPIs such as:
- On an exhibit hall basis, track Labor Hours per billable item for each show and for each month. Make comparisons between each exhibit hall and explain the differences if you can; one show may be more complex than another, move in time for one could be less, etc. If standardized installation procedures are used among field supervision, then over time these differences due to the character of different events will become less important.
- Track revenue, cost and profit per billable item for each event and by month and make this a topic in every event planning meeting.
- Track full electric order fulfillment by what day they are completed during an event move in phase. Installation becomes more difficult closer to the event opening
- At some point set productivity targets on the KPIs and hold field supervision accountable.
- Make field supervision personnel changes as necessary
Add New Products and Services
Here are a few examples of things that have worked:
- Sale of extension cords of differing lengths
- Sale of spare light bulbs. Carry a ready inventory of common retail display lighting
- Rental of high-wattage light fixtures with a high color rendition index (above 80). If your center hosts fashion, textile, gift, automobile or art shows, then an investment in this type of lighting may be a worthwhile expenditure. The lighting is normally suspended from overhead lighting truss or catwalks. The price point for rental units is high ($ 325 at the Sands in Las Vegas and $341 at the Javits Center). Sales volume is also very high. At Javits this lighting comprised 8% of total annual electric revenue
One More Thing
Structural Changes to Electric Service Work Jurisdiction – There is a silent conflict that exists between two trade groups and their work jurisdictions which impedes the ability to increase productivity and profit for electric services. The conflict is between electricians and carpenters or stage hands (who assemble exhibit booths). In most exhibits, there is some placement, dressing or connection of electric cables to devices which are integral to exhibits or attached such as a video screen or exhibitor owned display lighting. The connections referred to are simply devices using a straight stab plug to a power source supplied or an extension cord. Electricians generally win the argument. That means that electricians normally have to re-visit the exhibit booth sometime after the base power is supplied. At this point, the aisles are crowded with freight, other tradesmen and exhibitors. It’s time-consuming, so the time to fulfill an electric order is increased and productivity declines
Two convention centers have recognized this and wisely changed these rules, the Boston Convention and Exhibition Center and the Orange County Convention Center. In both cases, the service order forms state that electricians are not required to be used for electric distribution within the exhibit booth; General Service Contractors or EACs (carpenters) or exhibitors may do that work themselves.