Buying digital assets are fun. Finding new ways for your team to engage fans and connect partners is an essential part of a sponsorship plan.
But we can’t get too enamored with the asset, we have to keep in mind the financial implications of buying and implementing these assets.
This week on The Inches podcast Rich Franklin and I dive into how you can make sure your activation pencils out financially for your team. This is an interesting discussion for both of us, as although we have a great relationship…Rich is a buyer and I am a seller.
You can listen to the full episode HERE. Below is a quick overview of the episode:
What Does Penciling Out Mean For Your Team
Each team should have a number (usually a percentage) for how much in fulfillment you plan on spending. A common number I hear from teams is 10%, meaning the cost of the asset & fulfillment should not be more than 10% of the total package value.
This is a good starting point. Your goal in sponsorship is obviously to bring in profit to your team. While this profit calculation for the team includes your salary and other items, 10% is usually a great number to ensure you are on the right path.
Every team will have a fulfillment threshold that fits their goals. Make sure you have one for your team. This will help you evaluate the asset you are looking at and whether it makes financial sense to move forward on an activation.
As A Vendor, It’s Our Job To Know This And Provide Value
Many times I see this as a vendor and it hurts. Charging a price for activation that pushes vanity metrics.
An example: Buying something where the vendor pushes “Fan Engagement” as the main metric.
These drive me inexplicably crazy. The way I see it, my job as a vendor is to prove exponential value to you as a customer. If sponsorship revenue is the goal, it is my job to reach your 10% threshold for fulfillment to value ratio.
At SQWAD, that is our goal. We’ve built our pricing to fit most market prices for the package value so our customers can fit within that threshold. Again our goal is to bring massive value to your team.
When working with vendors, make them walk through the penciling-out phase. If they can’t walk you through how they can bring the value to help you reach your threshold, think twice about working with them.
Can This Asset Pencil Out Across Multiple Partnerships?
A great point that Rich brings up is how an asset can pencil out for your team if you look at the asset across multiple partnerships.
Sometimes a sponsor will come in and want the digital asset all for themselves. That is fine, but it will cost a high price to be the exclusive partner. This is how most look at activating an asset.
But we’ve seen success in breaking that 10% fulfillment threshold into multiple partners.
For example, let’s say you implement a Scratch & Win asset and the presenting partner doesn’t want/ can’t pay a high enough price to fulfill that asset cost at 10%. You can then go to other partners and sell “prizing” on the asset to other partners.
While the branding is mainly the presenting sponsor, the other partners see value in having their prizes or coupons on the platform.
Most times you can actually gain more revenue on the asset by breaking it up like this. The key is taking some of the risk and calculation in these two ideas: Will a sponsor pay more for the exclusive rights OR should I push for a title partner with other partnership assets?
This though could be the way you can pay for an asset and still have it pencil out. Don’t just look at the one-shot partnership here.
What Is The Lifetime Value Of This Asset And The Partnership It Opens?
Another great point by Rich is not just looking at the one-year, one deal that an asset brings…but the lifetime value it produces.
Sometimes we need to look at multiple years in order to see the full value of an asset we buy. Sometimes it is ok for it to not hit the 10% threshold in the first year if we know it will lead to more revenue down the line.
One team did this masterfully in their thinking of our platform with our scoreboard trivia asset.
In the first year of the activation, it didn’t quite pencil out in the revenue they built. But they understood that they could build this asset into a multi-year deal with the partner. While in the first year it didn’t pencil out…it did when that asset led to a multi-year partnership for even more money.
You can finance and amortize the cost of an activation out for a few years if you can build a larger sum for the lifetime value of the asset and the revenue it brings in.
Overall, you should be looking to make sure the activation pencils out to your threshold of profit, but don’t discount it because it doesn’t pull in the revenue for one deal.
Make sure you also look long-term at the effects it has toward multiple partnerships and the lifetime value those partnerships can bring in with the activation. But in that process hold your vendor to the standard of understanding and explaining how this will pencil out financially for you and your team.
If a vendor can’t speak at a high level on that profit and how their product helps you get there…you should probably look for a new vendor.