Merchants of Dirt Episode #9
Learn how to apply the principles of a profitable racing to your budget and attempt to put the fun back into race budget fundamentals.
Key Take Away #1: Putting the fun back in race budget fundamentals
How good are you with money?
Better yet, how good are you with managing the money your races need to run?
Race budgets are tough when you’re first starting out, especially if you are bootstrapping your event with a bankroll of less than $1,000 in your pocket.
Often the difficulty lies in precisely predicting the total cost of an event when you cannot control how many people will show up.
As the saying goes, “if it was easy, everyone would do it!”
But just how much does the average racing endeavor cost?
To understand the answer, you need to first gain an understanding of how a race budget works, and know how to apply those fundamentals to a budget that makes sense to you and your business.
This includes accounting for all of your expenses, realizing where all your revenue is coming from, and measuring your expectations against some goals.
Key Take Away #2: Determine your expenses
One of the first things you for each of your events is get your hands around the three (3) key factors in your expenses: initial, fixed, and variable costs.
Initial Costs: These initial costs or “capital investments” are a one-time expense needed to buy equipment and/or supplies for your race.
Fixed Costs: Often referred to as operating expenses, these are costs that you cannot lower and may be obligated to pay before your event will be allowed to move forward.
Variable Costs: These are variable costs that have different amounts from race to race.
Key Take Away #3: Determine your revenues
Next, you need to figure out how much revenue you need to make in order to just break even.
Having a break-even point figured out will be one of your first metrics in determining the success of a race.
Before we can worry about breaking even, we need to determine where our revenue is going to come from.
Revenue can come from more than registration fees alone.
You could have money already saved away that you can use to finance your event.
This is often called “personal” or “out-of-pocket” financing.
However, when it comes to bootstrapping your race, your main sources of revenue are going to come from only four (4) places:
- Pre-registration sales
- Race Day registration sales
- Sponsorships or in-kind donations
- Personal savings or loans
When it comes to bootstrapping, you should think back to the principles that were laid out in Principles of a profitable race, that suggested that if you start small, your races can potentially earn a large profit.
This, in turn, can fund your growth into the next race, and allow you to build bigger and bigger events over time.
Key Take Away #4: Determine your targets
Now you need to write down some goals based on those numbers.
Goals that deal with measuring the success of failure of your budget are called targets.
For your race, you should focus on these targets as good indicators of how you are doing:
Maximum Expenses: A limit to how much you are willing to spend on your race. You should always have revenue targets and constantly monitor how much you need your business to make, versus how much is does make each race.
Break-Even Point: How much revenue do you need to equal the cost of your expenses. Your break-even point is an important revenue target that you determine by taking your price per registration (price), and dividing it by all of your costs for producing, marketing, and selling your race (expenses).
Sales Goals: How many registration sales to you need to be successful.
Profit Goals: How much of a profit do you want your business to make. A good way to factor in your profit goal is to think about how much additional money do you need to build the exact same race again — if all your prices and expenses were the same. Take that number, and add it to your total expenses for this race. Subtract your break-even goal. That is your Race’s Profit Goal.
Whatever the result of your accounting, the point is to have metrics that you can use to make intelligent business decisions with.
If you do not measure anything, how can you know if you are succeeding?
That is why you create targets.
It will also keep you from building something too big to manage or too complex to control.
And Know you know.
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