Monday, October 3, 2011

Per-Capita Ticket Revenue: The Canary in the Coal Mine

This week, TRG's own Will Lester and Amelia Northrup are contributing to the Arts Marketing Blog Salon on Americans for the Arts' ARTSblog. This article by Amelia was originally posted as part of the salon, which previews the National Arts Marketing Project (NAMP) Conference in November.
Usually when organizations consider their ticket sales, they look mainly at total revenue. After all, revenue is what keeps an organization running, and total revenue is the 50,000-foot view of how well an organization is doing.  However, when considering how to optimize ticket sales, calculating and analyzing per-capita revenue becomes a critical measurement.

Yes, “per-capita revenue” sounds boring, complex and technical, but stick with me—the reality is that it allows you to zoom in and see how tickets are selling on a season-by-season or show-by-show basis and that’s actually pretty useful.

Let’s break it down:

What is per-capita revenue?
In laymen’s terms, per-capita revenue is the average price paid for a ticket. You can calculate per-capita revenue for an individual performance, a series of performances or an entire season. You can also break per-capita revenue out by group tickets, single tickets or subscription/membership purchases.
How is it calculated?
The formula for calculating per capita revenues follows:
Per Capita Revenues =     Total Sales Revenues                                     
                                             Total Unit Sales 

And (most importantly) why should you care?
To get the most out of your pricing strategy, you should anticipate demand for a given show or series. In other words, you want to get maximum revenue for every show, whether it’s a “hot” show that can command a premium price or a not-so-popular show that needs a little price stimulus to fill the house.

That’s all well and good, but how do you tell which shows are hot and which are not? Everything you need to know is in your sales histories—those detailed reports that track the number of tickets sold and the revenue associated with each paid admission.  And how do you know if your pricing method works?   Per-capita is the proverbial “canary in the coal mine” when considering whether your pricing strategy is working for you.

Consider the case of “Typical Theatre Company” below.  (This could be Typical Museum or Typical Festival Attraction—the principles are the same.)  Typical Theatre, a client of TRG Arts, diligently tracked the number of tickets sold and associated revenues for one full season. TRG developed this graph showing the relationship between per-capita revenues and the number of tickets sold per show.

What this chart tells us is that the more tickets were sold for a show, the lower the average price paid (or per-capita revenue) was.

But wait. Per-capita revenue should rise as demand rises, right? Reason tells us that an arts organization should be making more money per person as a performance gets closer to selling out. Here, however, per-capita revenues are decreasing as we sell more seats, which means we’re missing out on potential revenue.

So, why would this be happening? Rarely is there just one reason.  Rather, per-capita revenue might drop as total sales volume rises because of some combination of factors, including:

Inventory management:
Depending on where the premium-priced and cheap seats are (or, in the case of an exhibit, when viewing times are set), per capita revenue will vary based on the order and manner in which your box office sells tickets. When the theater starts to fill up, people start buying further and further back, which is usually where the cheaper seats are in the house. By making smart decisions about where to place price sections and, as importantly, controlling when seats are released to go on sale, you can curb dropping per-capita revenue and reverse it. 

How much and when an arts org discounts tickets affects per-capita revenues as well. If your org is not tailoring its discounting to how “hot” the show is, you may gain sales volume (good), but on cheap seats (not so good).
Many organizations fall prey to “week-of-show” panic, offering deep discounts as the performance draws nearer, so per-capita revenue take a nose-dive during the time when ticket sales traditionally surge. Organizations that habitually offer deep discounts near to the show’s opening train patrons to buy later and pay less.

Many organizations will “paper” their house, or offer complimentary tickets to try to make it look fuller. (This should not be necessary if proper scale and inventory management strategies are in place.) Nothing drives down per capita revenues like frequent and extensive comping.

The bottom line on per-capita revenue:
  • Per-capita revenue is a valuable diagnostic tool.  The facts you need are readily available.  It’s worth the time it takes to pull unit sales and associated revenue into a spreadsheet or chart to assess how your pricing strategy is working for you. 
  •  Use your sales histories to understand and anticipate which programs are going to be blockbusters—or not.  You may hope sales will happen in a certain way but studying the data is the only way to be certain.
  • Start thinking about how your performance space is scaled and how you are filling seats or space in exhibits for each show date. Remember that good inventory management can improve the perception of success, as well as lead to greater revenues over time.

Have questions on how to chart your per-capita revenue or confused by what you’re seeing here or in your own per-capita chart? Leave a comment.

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