How to calculate sponsorship fees

June 1, 2020

Determining the sponsorship fee you seek for an event is quite a balancing act. The fee being asked is usually best termed the ‘investment,’ which sounds better to a prospect. It is a crucial factor in the success of a sponsored event and can be difficult to calculate. In simple terms, a good formula is to calculate the cost of the organizing the sponsorship event – and double it.

This may seem a rather crude way of working out a fee, but it is practical in reaching a starting point for a suitable asking price. The 100% margin should cover all the costs of running the event additional to the costs of seeking and servicing the sponsorship. The formula worked out on this basis is:

Total investment asked = cost of providing the benefits offered
+ sponsorship admin costs
+ sales costs
+ servicing costs
= total cost to deliver the package
+ 100% margin
= sponsorship fee

Cost of providing benefits

You can determine the cost of providing sponsor benefits by itemizing all the items in the package offered to each category of sponsor. Include the direct and indirect costs of staff because this is a real cost to your organization before, during and after the event. Typical costs comprise:

  • Analysis and research into your captive audience composition, eg members, event attendees, stakeholders, influencers, and their demographics, interests, spending habits, etc. (Ideally for large events you would use AI to target potential sponsors, and would have already used it to analyze various key factors as discussed below.
  • Production of sponsorship proposal documents
  • Office costs, including software
  • Venue hire
  • Accommodation and travel costs to sell sponsorship packages
  • Sales staff time for selling sponsorship based on the number of x hours at $y per hour (include indirect costs such as superannuation/pension plan/sick benefits/insurance
  • Same for support staff
  • Transport – vehicles for sales staff and for senior administrators
  • Tickets for sponsors and their guests
  • Hospitality, food and beverages, waiters, set up and hire of corporate boxes
  • VIP parking passes
  • Event programs for sponsors and guests
  • Other printing
  • Signage and banner production and erection
  • Apparel for officials, media and sponsors
  • News media and social media promotion program – advertising, direct mail, social media activities
  • Event website with sponsor area and email list for event-related promotions
  • Publicity program – PR consultants, production costs, cost of celebrities, photography
  • Media monitoring, and also evaluation at completion of event
  • Legal costs for contract preparation and ongoing consultation
  • Administration costs – stationery, equipment, telephones, faxes, taxis, couriers
  • Staff time for servicing sponsorship based on x number of hours at $y per hour.

AI is transforming the sponsorship process

By developing a suitable algorithm, AI (artificial intelligence) can help sponsors measure activities such as brand exposure, audience and customer engagement levels and conversion rates. In addition to identifying new opportunities, AI can help measure the results of sponsorship investments much more scientifically.

Previously, sponsorship ROI has been difficult to measure accurately. People had to search for, track, and manually count the number of brand or logo exposures that brands (or logos) would attract from being associated with the sponsee’s results. Such ROI measurement has been labor-intensive with dubious accuracy. It is difficult to manually identify and track all media outlets that would report on the sport or other event.

Algorithms needed for AI use

An algorithm is a set of rules or instructions that a computer program follows to solve a problem or perform a task. In the context of AI-based data tracking, algorithms can be used to analyse and process large amounts of data, identify patterns and trends, and make predictions based on that data.

Scientific approach

To design an algorithm for tracking brand exposure of a sport sponsorship, you would need to define the variables you intend to track, identify the source data that will deliver the variables (for example the live broadcast of the sport event), and then develop an algorithm that will be able to recognise the brand logo or name, analyze the context of the mention (eg, was it positive or negative?), and calculate the duration of the mention. For example, an algorithm could be designed to analyze user behavior on a website, tracking which pages they visit, how long they stay on each page, and what actions they take (such as clicking on links or filling in forms.

By analyzing this data, the algorithm can identify patterns in user behaviour and predict actions most likely to lead to conversions, such as purchasing a product or signing up for a newsletter. Through automating the process of data analysis and prediction, AI algorithms can provide insights that would be difficult or impossible for humans to identify on their own. This ultimately leads to better-informed decisions and improved business outcomes.

You would be well advised to engage an IT consultant to develop a suitable algorithm to enable AI. This would be an up-front cost for your organization, but you could use or adapt the software for future sponsorship activities. Your nearest sponsorship association could advise you on how to find a suitable consultant.

Also, AI can take a wider perspective by helping to monitor social media for potential issues, such as controversial statements or bad behavior from sponsored athletes or stars of other types of events. AI can analyze potential issues early, and enable action to be taken (or prepared for) to reduce or prevent damage and protect brand value and organizational reputation.

Computer vision

One exciting capacity of AI is in automatically recognizing the content of images and video data sourced from or created by smartphones, social media and websites, and describing them accurately and efficiently. This is called computer vision. All of those billions of photos which are posted to social media every day can now be analyzed in detail, and that means you can measure the performance of your sponsorship marketing efforts in visual media.

Computer vision surpasses human capabilities once the model is trained and tuned. As a  computer system, it can work many times faster than any human. So where a human, working at peak capacity, may be able to review approximately 1,500 images in a best case working day (8 hours), a computer vision system would process in excess of 30,000 images in the same time period.

AI can automate the process of analyzing data and identifying potential sponsorship opportunities, but human input is still required to make the final decision on which sponsorships to pursue. Similarly, AI can help track and analyze the effectiveness of sponsorship investments, but it still requires individuals to interpret the data and make strategic decisions based on the results.

Be very mindful of your potential sponsor’s needs

The worst way of calculating the necessary fee is to think only of yourself – to work out what you need to run the event and put that amount to the sponsor. You must understand where the sponsor is coming from and offer them value for money at a level they perceive is competitive in the marketplace. This means you have to compromise. They need to feel that what you offer is better value with a better ROI than other sponsorship opportunities available to them.

Once the broad fee level is established, you need to check that it is set at a realistic market rate. Compare the cost of similar sponsorships in the marketplace to ensure the package is competitive. It is worth joining your nearest sponsorship marketing association to keep in touch with trends in sponsorship fees.

The value of the benefits can be adjusted up or down to suit the sponsor’s budget. If the margin isn’t enough, more benefits can be offered so the fee can be increased to make the event viable. At the same time, you need to ensure sponsors feel they have gained value for money.

Never allocate all your benefits up front; keep some in reserve to call on during the negotiations if you need to. Later you can offer them to the major sponsor as a bonus, which will impress them.

Wise sponsorship seekers keep a proportion of the fee aside to pay for bonus promotional activities to increase the return for the sponsor. Around 10-15% of the fee is a useful amount to keep in hand for this. Many don’t think of this, but they can get great mileage from this to help the sponsor get better value for their investment – and that means the sponsor will be a lot happier. This is especially important if you want the sponsor to renew for a recurring event.

Generally it is better to seek one major sponsor rather than offer several smaller sponsorship packages because the servicing commitment for several sponsors can create a heavy workload and soak up too much of the sponsorship funding.

There is no problem with issuing up to about a dozen major sponsorship proposals at a time as long as they are customized to the needs of each recipient.

Kim Harrison

Kim J. Harrison has authored, edited, coordinated, produced and published the material in the articles and ebooks on this website. He brings his experience in professional communication and business management to provide helpful insights to readers around the world. As he has progressed through his wide-ranging career, his roles have included corporate affairs management; PR consulting; authoring many articles, books and ebooks; running a university PR course; and business management. Kim has received several international media relations awards and a website award. He has been quoted in The New York Times and various other news media, and has held elected positions with his State and National PR Institutes.

Content Authenticity Statement. AI is not knowingly used in the writing or editing of any content, including images, in these newsletters, articles or ebooks. If AI-produced content is contained in any published form in future, this will be reported to readers.

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