The spooky economy has everyone scrambling to pull in revenue, and many rental operators are turning to discounting to hold on to business. According to the 2009 Event Rental Forecast, developed by Special Events Magazine, 13 percent of rental operators are cutting prices to adapt to the current rental market, more than double the number who used that strategy last year. Their decision reflects their worries about the economic outlook. Nearly 90 percent of respondents say that the uncertain economy is one of their greatest challenges in 2009--again, double the figure from 2008.
Yet cutting prices recklessly can be cutting your own throat. "Every discounted dollar directly reduces your gross margin but has zero effect on reducing costs," notes Marshall Bauer, president of Sonoma, Calif.-based Wine County Party & Events, in a column in the January issue of Special Events. In some cases, "You have in effect said to your organization, 'Let's now do twice the work we would need to do if we booked business at full price.'"
CUTS THAT COUNT
Discounting does have its place, Bauer says. Operators in highly seasonal markets, for example, might find that discounting draws new clients in the off season. Discounting may also yield a valuable distinction in markets that offer clients a wide range of rental options, Bauer says.
Bauer urges rental operators to take a hard look at how discounting affects their bottom line before taking the pricing plunge. His Rule No. 1: "A certain percentage increase in revenue must occur to justify your decrease through discounting your gross margin dollars."
To read Bauer's column, see the January issue of Special Events.
To see more on the 2009 Event Rental Forecast, see the February issue of Special Events.
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