Sponsorship Pricing Basics

I work for a broadcast station that takes a lot of pride in creating original content and selling sponsorships rather than a more traditional advertising platform.  I prefer blazing a new path versus taking the established one... however, this does create questions in regards to how to price these opportunities.  I wish there were an easy answer -- a magic wand I could wave -- that would make the right number appear out of thin air, but I'm afraid it's just not that simple. 

That said, it's not rocket science, either, and there are some definite rights and wrongs.

Getting sponsorship pricing wrong

First off, don't try to add up the value of each of the benefits, as sponsorship really is a case of the whole being worth more than the sum of the parts. You're not selling benefits, you're selling marketing opportunity, and a comprehensive opportunity is going to provide a valuable platform for sponsors -- much more valuable than the sum of the benefits a la carte.

Trying to price as some derivative of the potential equivalent media value of the logo exposure is also not going to work. Equivalent media valuation was debunked almost 20 years ago and only the industry's dinosaurs put any stock in that as a measurement tool. Given its lack of credibility, basing your pricing on media equivalencies is building a house on very shaky foundations.

Finally, if you're looking for some kind of formula, you can stop now. There is no formula for pricing. Anyone who says there is a formula is trying to sell you their formula.

Getting sponsorship pricing right

There is no formula, but there is a methodology, and here are the basics...

First, calculate your baseline fee. This is NOT what you'd charge for a sponsorship, but the keep-your-backside-out-of-a-sling number -- the number that keeps you from selling too low for it to be worth it. This is the number for everyone who has ever sold a sponsorship for less than it cost to deliver, or not enough more that it was worth the headaches -- and we've all been there.

The starting figure I like to work with is:

3 x (cost to deliver benefits + cost of sale + cost of servicing) = baseline fee

I generally also do the red zone fee, which is the fee at which you may be getting into the not-worth-it territory:

2 x (cost to deliver benefits + cost of sale + cost of servicing) = red zone fee

Note: For both of these, the "cost of servicing" is your budget for adding value to the relationship -- providing extra benefits, sponsor training or networking, or other extras. Best practice is to budget at least 10% of the gross value of the sponsorship -- including any in-kind – for servicing. For this exercise, put your starting cost of servicing at 10% of the cost to deliver benefits plus the cost of sale, as it will grow appropriately as you multiply your baseline fee. If required, you can make minor adjustments later.

Then you apply market influencers to your baseline fee. These include:

• What the market will bear -- You need to do some research, use your network, and if you are inexperienced, get feedback from trusted colleagues outside of your organisation.
• Lead time before the event -- Short lead time doesn't give the sponsor long enough to implement the leverage plan that will turn the opportunity you're selling into the results they need.
• Other activities in the marketplace that may be sucking up sponsorship money (i.e., Olympics, World Cup).
• Uniqueness of what you offer and its position in the marketplace.
• Issues or trends that make what you do more or less appealing -- for instance, if there has been a string of scandals in a particular league, the price you can charge for a team sponsorship may be lowered as a result of the perceived risk.
• Economic situation and trend.

You will also be able to charge more if you provide creative leverage ideas to the sponsor and if you are creative with the benefits you provide. Sell only logos on things, tickets to things, hospitality, and some kind of official designation and you commoditise yourself -- reducing the amount you can charge.

There is more to it than that, but you've got the basics.