Notes on venue management strategies and case studies.
Businesses with multiple venues and music options can benefit from not only finding the right talent fit for the rooms but the right talent fit for the ecosystem as a whole. Community building can help push the entire location into creative overload. Jeremy Larochelle talks about how this happens from a top-level in this video.
The increased speed of the vaccine rollout has given many in the live events industry an overly optimistic outlook regarding the swift return to pre-pandemic packed shows. The primary focus thus far has been on how venues need to adjust to “The New Normal” and if they can balance new health mandates against their already razor-thin margins. While the vaccine may relax some of these mandates and allow operators to increase capacity, it does not address the shift we may be facing in the macro-economic demand curve of live events.
In December of 2020, The Washington Post found nearly 12 million renters would owe an average of $5,850 in back rent and utilities by January of 2021. According to Mark Zandi, chief economist at Moody’s Analytics, that could equate to almost $70 billion in unpaid debt – “a painful amount that renters, landlords and utility companies will have to sort out.” The US government has been working to provide relief for this housing crisis. Just last week, newly elected US President Joe Biden extended the federal eviction moratorium, which is set to expire on Jan. 31, through at least March 31. In addition to this pause, US Congress had provided $25 billion in rental assistance through their December 2020 stimulus package with Biden asking for an additional $25 billion in his future bill.
These cash infusions will chip away at that growing $70 billion debt, but will ultimately come up short and relief will take time to trickle down to concert fans. Likely falling at a time when venues start to re-open at more profitable capacities. This “perfect storm” could leave venues across the country looking to pack their houses against a large portion of their consumer base conflicted over purchasing concert tickets or catching up on their physiological and safety needs. And as Maslow has taught us many will opt to catch up on those basic needs first.
This conflict is not a new phenomenon. There are always demographic segments facing the choice of want versus need. However, businesses usually adjust their marketing approach to capitalize on the segments free of that conflict. This is not the case today where a disproportionate percentage of the entire world population has been shaken by the economic impacts of the pandemic. This leaves venue owners to fight over a very small percentage with the necessary disposable income to fork-over.
How can concert promoters face this challenge? First, it is imperative that the majors such as Live Nation, AEG, and NIVA begin to focus their lobbying efforts on getting that second $25 billion round of housing assistance passed. Without it, the suggested rental shortfall is just shy of $50 billion and growing. This would, in essence, double the time for the collective concert fan segment to catch-up on their basic needs and be able to regularly support live events. Second, the industry will have to accept that the supply/demand curve will shift when we return to operations. With fewer fans with adequate resources to attend shows, the only solution is to reduce the price of tickets. Promoters, suppliers, artists, and managers will have to work together to find that new equilibrium and then adjust as the consumer pool emerges from its COVID-catch-up. Ultimately, we will return to those pre-pandemic levels. However, it is going to take time and compassion for concert fans to get there.
In a previous post, I explained the vital importance of ancillary income for your club or venue. This income stream covers everything non-ticketed such as VIP, lawn chairs, bottle service, merchandise, food, and beverages. You can only sell your customer one ticket but multiple ancillary units. This makes the latter a key component of your venue’s profitability.
That is unless you unknowingly fix them.
Let’s take a hypothetical club that holds 1,000 people and assume that each person pays $20 to get into the facility. This leads to $20,000 in income. Let’s also assume that the venue only sells the ancillary value stream of alcohol. Now let’s look at two scenarios.
Scenario One – 21 plus only club:
In this scenario, you only allow persons 21 and older into the venue. For simplicity, let’s say 80% of those patrons drink and the average drink costs $10. This leads to an additional $8,000 in income for your venue. If you have one show per week, this leads to an additional $416,000 per year.
Scenario Two – 18 plus club:
In this scenario, you have a mix of 50% persons aged 18-20 and 50% persons aged 21 and older. Using the same assumptions above, we now have 80% from only 500 fans buying drinks. This has cut our ancillary income in half to $4,000 per night or only $208,000 per year.
You just “fixed” your ancillary sales and unknowingly cut your additional profitability in half. If you continue this trend, you do so further reducing your daily, weekly, monthly, and yearly profit. A 75% underage to 25% drinking age mix leads to only $2,000 per night of ancillary income, which is just $104,000 per year. You are leaving $312,000 on the table.
Hopefully, these numbers demonstrate the importance of understanding how your ancillary revenue stream relates to your customer mix. With this understanding, you can now look for ways to adjust these variables in favor of profitability. Here are a few options for the scenario above.
Adjust the Customer Mix: This starts with understanding your market demand and business objectives. If alcohol is a main ancillary driver and your market has a healthy collection of 21 plus patrons to pull from, simply making your club 21 and older might be the best option. Otherwise, you will have to put in place ticketing and operational procedures that limit the non-drinking age patrons to an established percentage or adjust one of the other variables to make up the difference.
Add Additional Revenue Streams: Introduce non-restrictive ancillary options such as VIP, food, and merchandise options that appeal to your underage clients.
Pricing Strategy: Charge the 18-20 year-olds a higher entrance fee to counteract the loss you will incur from their lack of ancillary purchases. The best way to do this is to look at your historic bar sales to establish a baseline for the number of drinks purchased per each patron. If you find this to be two drinks per person, then you need to tack on a premium of $20 per ticket (based on the assumptions above) for each underage patron.
The key is to remember that you are in business to maximize your shareholder wealth and that venue profit potential is fixed by its capacity. For every underage patron you let in, you cannot let in a legal drinking age fan who would (most likely) contribute to additional income for your business. As a manager, it is your responsibility to find ways to maximize the profit potential by controlling your customer mix, your products offered, and your pricing strategies.
Photo by Krizjohn Rosales from Pexels
In a recent post, I stated: “5,000 plus people trying to enter through less than four security lines is a safety concern in my opinion.” I want to use this post to help explain that statement and why I believe it.
I am fascinated by the science of management and even though the business of rock and roll may seem anything but. Venue operations math can help us develop ways to enhance the concert experience for fans, artists, and venue owners. One of these concepts is through the use of queuing theory.
Queuing theory is the mathematical study of waiting lines or queues. The formula may appear complex. However, there are a number of calculators online that will help you get the answers you need without understanding some pretty heady math that looks something like this from Portland State University.
Let’s move past these formulas and focus on how this can apply to your concert venue operations.
Part of the concert customer’s experience is entering the venue. This includes driving to the property, finding parking, and then going through security to gain entrance to the facility. This last element (security screening and entering the facility) present a unique challenge in that the operations team must weigh the customer experience of waiting in line against the demands of the security team to properly vet each patron. Part of establishing that balance is pinpointing how many security lanes you need per: (1) the venue capacity; (2) the arrival rate of guests; (3) the average security screen time; and (4) the cost of “x” amount of lanes, which can include equipment, such as screeners, and personnel.
You could achieve these results by speculating but guessing wrong could impact your operations in a few ways. For instance, your fans would likely end up waiting in line too long if you are underequipped. This could lead to lost consumer confidence and ultimately dipping revenues as word spreads about this negative aspect of the fan experience you provide. On the other hand, over equipping can lead to increased overhead and less profitability for the venue. Another unsustainable outcome. Luckily, there is a baseline to be found for virtually any venue and it is attained through a queuing theory calculation.
Let’s say that your venue’s capacity is 5,000. You open doors two hours before the show and a VIP lane an hour before that. You also know that a good chunk of your fans do not make it in on time due to traffic, family emergencies, etc. Taken together, you can estimate it would take four hours for the bulk of your customers to get through the gates. Your security team ensures that they can vet the average patron in 45 seconds or less and your observations say they are correct. Let’s place this information into our online queuing theory calculator.
We start by selecting the M/M/C model for a single queue with “C” amount of servers. Next, we need to average the number of people coming in per hour. To keep things simple, we will stick with a discrete probability. This means that we just divide 5,000 people by four hours, which is 1,250 patrons coming through the gates per hour. That is highly unlikely, but at this point, we are just looking for a baseline. We can adjust per our observations at a later time.
Place 1,250 under Arrivals/ Hour, which is Lambda in the calculator. Since your security team estimated they can vet each person in 45 seconds, that equates to 80 patrons per hour. Place 80 under Services/Hour, which is Mu.
Now let’s pick security lanes. Place four under the Number of Servers (C) and click Calculate. You will receive the following warning. “The queues will tend to infinity as Lambda is greater or equal than 4 times Mu.” This is telling us that you do not have enough servers to operate efficiently. It is NOT telling you it can’t be done. Rather, it is saying that there will be a back-up of the line. Remember, we are looking for a balance between customer experience, safety, and cost from which to start our ops planning. Further trial and error by selecting servers reveal that the optimal number of lanes is 16 based on these variables. At this level, your customer would walk directly into one of those lanes and spend (on average) 1.782 minutes waiting in line and another 45 seconds being screened. For a total service time just shy of three minutes. That is where you find the best customer experience at the lowest operations cost for a safe entrance into your venue.
Remember, this is your starting point. It is not saying anything less than 16 lanes for this size venue will fail. Rather, it is telling us that any number of security screeners below that will lead to a back-up of your line. I used a more advanced Excel calculator to find the average time your customer would wait if you only had four open lanes and found it to be between 27 and 30 minutes. This gives us a window. At four lanes, your customer could wait a half hour to get in while 16 lanes could lead to a zero wait time for the majority of your guests.
It is now up to you and your team to determine the balance between how long you want those customers to wait against the cost and logistics of adding more lanes. To do this you must take into account the price of additional screening stations (equipment and manpower) and if you have enough entrance points to accommodate their use. You could then analyze your open doors’ timeframe and how the line flows. Do more people come in at a certain time? Do you find that a large percentage of your clientele do not make it before the show? Finally, you could survey your customers about their experience. Did they have an issue waiting in line longer than 10, 15, 20, or 30 minutes? With this additional data, you are now more equipped to strike a balance between cost, customer experience, and the safety of your guests.
It all starts with queuing theory.
Without the budget to hire an entertainment manager or buyer, smaller clubs may assign the task to one of their regular entertainers. Is it a bad idea – not really, just watch out for these three things.
I wanted to demonstrate how data, research, and math can help venue managers and marketers book concerts.
To do that, I took research on music adoption from The Verge and consumer behavior experts. Then, applied some rudimentary math skills to demonstrate how one could likely pinpoint eras of music that would better align with a concert venue’s marketing strategy.
Works Cited:
Ong, T. (2018, February 12). Our musical tastes peak as teens, says study. Retrieved from https://www.theverge.com/2018/2/12/17003076/spotify-data-shows-songs-teens-adult-taste-music
Solomon, M. R. (2019). Consumer Behavior: Buying, Having, and Being (12th ed.). Hoboken, NJ: Pearson.
