How to make a corporate hospitality return on investment.

The first question that you should be asking yourself when approaching a corporate hospitality event is, ‘why am I doing this’? Forget the intangible benefits for a moment, like staff engagement, building client relationships. Corporate hospitality has got to pay. Ultimately you run an entertainment budget to see a financial return on your investment.

Speculating to accumulate is a perfectly acceptable ploy and you mustn’t forget the end-game, no matter how ugly talk of money may seem. That’s the advice of a number of entrepreneurs who have made it a key part of their overall growth strategy.

The question is then, how do you make it worthwhile?

This is where it can get a little more complicated. There is no set answer and to an extent it depends on the industry you’re in. After all, there are higher expectations in some, such as the media. It also depends on your objectives – for example, are you looking to achieve increased market share or profit growth?

Your average profit margin is also a factor – spending 5% of your profits from one particular client won’t amount to much if your margins are 10% and the client only spends £10,000 with you in total. You’d probably stretch to a good bottle of champagne. Increase it to 10% of profits and you can start thinking about a low-key day or night out at £100- a-head.

You need then to be sensible about what a client is worth to you and avoid the temptation to dismiss the expense as ‘worth it for the relationship’.

You may wish to apply a formula something like the one the ReaD group use.

“If we spend £1,000, we like to see £5,000 back, over and above what they’re already spending.” The REaD Group, which tracks house movers and the deceased to ensure direct mail companies don’t send inappropriate or incorrectly addressed mail.

So if an event is costing £500 per head and a client normally spends £25,000 that needs to increase by £2,500 to deem the spend a success. The priority is to make the best possible event and then make sure that the numbers add up.

That said there’s no point in doing it on the cheap.  If you are going to entertain then make sure you do it well so that it is memorable. Of course, you should shop around to get the best price, but don’t cut corners. Remember the event will reflect on how your clients see you. It is much better to buy two good tickets to a show or a concert for your client’s favourite band then to spend the money on cheap seats in the ‘gods’ so that you can also give them a pre-show supper.

Setting a budget

At recruitment consultancy CBS Butler, managing director David Leyshon says his account managers and sales executives are required to submit corporate hospitality / entertainment budgets via the annual business planning process. “These budgets are then compared to the forecasted revenue streams for the respective accounts during the validation process. We generally expect a return on investment of at least 20 times cost for established accounts and a multiple of 10 for new customers. However, there is always leeway on this metric where a solid business case can be given, such as where key relationships need to be maintained or long-term potential exists.”

Additionally, the company’s marketing team carries out an annual survey to determine actual return on corporate hospitality spend by customer, so as to track predicted against actual performance. “A brief report is prepared and the findings are fed into the budget validation process. This has proved exceptionally useful, particularly in ‘pulling-in the- reins’ where little value has been generated.”

Mistral Internet uses its extensive database to help control budget. It logs the event, date, customer attendee, budget per person and actual cost (accounting for the fact that you sometimes have no-shows which raise the cost-per-head), plus prior and post-event comments. The system enables sales people to analyse individual clients and companies and what they did as a result of the event. Equally, if somebody sends an email or letter of thanks after the event, the comments are added to the system.

Getting the right mix

According to all the entrepreneurs we spoke to it makes sense to bring existing and prospective clients together. “You’ll find that existing clients say things like ‘these guys are great’ – and they don’t have a gun held to their heads,” says Roy.

The REaD Group’s office has a top-50 clients list, based on profit. Some are spending not far shy of seven figures, he says, and inevitably those are the ones receiving the most attention. “Having said that, there’s an argument that there’s more potential in ones at the bottom, so we look to get a mix.” And such is the demand to attend the company’s golf day, Roy claims he had to turn at least 30 or 40 away last year.

Mistral bases its invites on a spreadsheet with data on what clients are spending, when their contract is up for renewal and what is in the pipeline. It also has a top-100 client list to draw from. “You have to use corporate hospitality with everything else,” adds McClure. “First you have to find the prospects, get close to finalising the deal and put in the leg work, then use entertainment.”

Don’t get desperate if key clients or hot prospects are unable to make it though, warns Tom Atkinson CEO of Cash Simply. “Make sure the spaces are filled with the right people. It’s all too easy to fill a late space with a third-tier player who drinks too much and spoils the day for your influential guests.”

Handling the event

At each of its events, Mistral tries to ensure at least one director attends in addition to the sales staff “as guests like to see someone from the board there”, presumably because then they don’t feel lured into a sales pitch.

If a client does bring up the subject of contracts or business, Roy suggests it’s best to ask if they’d like to set a date to talk properly. “Certainly when I’ve been invited to events I want to watch the races or play golf,” he says. “But as you feel obliged to talk to your hosts, you inevitably fear shop talk. In my opinion you need to treat the relationship with a fair amount of respect.”

Even if you don’t attempt to ‘sell’ on the day, there are ways to prepare, says CBS Butler’s Leyshon. “While no set objectives are stipulated, we do make a policy of ensuring our staff are allocated defined customers and that all are very well-briefed beforehand. And while we never actively encourage business talk we do expect staff to have come away from the event with ‘next steps’ and a follow-up plan to build on the relationship.”

Access all areas

After the event, it pays to have some idea of the period in which you expect to see a response. To keep its hospitality cost-effective, recruitment company CBS Butler aims to cover costs with increased profits from a given contract within a month, says Leyshon, which means maximising the goodwill engendered by an event in the immediate aftermath.

Roy believes in striking while the iron is hot too, but suggests you view it as an annual thing where the benefit could be seen in the next month or eight months down the line. “The thing you notice most in the aftermath is increased access. Calls are more readily taken and conversations more readily had,” he says. “It can be hard for sales guys to achieve a 5% upturn in revenue, although we usually see the £250,000 gross revenue return we expect from the golf day within three months.”

Leyshon believes it helps having his marketing team, who control the entertainment budget, carrying out regular follow ups in-house to establish whether customers attending the event have been contacted and progress made.

Cash Simply’s Atkinson says writing to thank attendees for coming and asking for referrals can generate extra business. “Just give them a call if they don’t call you first. My experience is that they will contact you to say thank you, and that is an easy time to sell.”