One of the more difficult tasks sponsorship seekers face is how to price their sponsorship proposal. Too high and you price yourself out of the market. Too low and the sponsorship will cost you more than it’s worth.
What we need is a sponsorship pricing model that represents good value for the sponsor, is fair compensation for our effort and is based on a model we can use over and over again.
Well you’ve come to the right place. This article details a sponsorship pricing model I’ve developed over time that meets all 3 criteria and is easy to implement once you know how.
It’s based on the concept that our primary aim is to help generate leads for the sponsor from our audience, with a percentage of these leads converting into customers. Each of these customers has a value we can calculate and this forms the basis of our pricing model.
Now before we get started I’m going to make a few assumptions about you and your organisation.
- Firstly, you have an audience which the sponsor can market to and generate leads from
- You’re not a charity and you’re not asking for a donation. The sponsor is expecting a return on their investment equal to or better than alternative channels
- Covering your costs is not the motivation – providing value and a return on investment for the sponsor is
- You have qualified the target sponsor and they are an excellent fit with your audience
- The sponsor is expecting a customised sponsorship proposal tailored to their marketing needs
Sponsorship Pricing Worksheet
To help you calculate your sponsorship pricing I’ve created a Sponsorship Pricing Worksheet [DOWNLOAD] which includes all the steps and formulas you’ll need.
The spreadsheet has 5 tabs (located at the bottom left corner of the spreadsheet), 1 tab for each step in the calculation process. The idea is for you to move from tab to tab in the spreadsheet as you move onto the next step in this article.
Step 1 – Calculate your total audience size
When it comes to sponsorship, what you are fundamentally selling is the opportunity for a sponsor to market their goods and services to your audience.
Your role is to help the sponsor generate leads from your audience. And to do that we need to know the audience size.
So the first step in the sponsorship pricing model is to calculate your total audience size. You can calculate your audience size by adding together the following:
- Total social media followers
- Unique return visitors to your website in a 12 month period (you can get this figure from Google Analytics)
- Subscribers (email, podcast, publications etc.)
- Registered members
- Event attendees
Add up all these numbers and divide it by 3 to get your total audience size. We divide by 3 because we want to find the unique audience size and a single person will appear in 2 or more of the groups above.
In our example organisation (a professional association that offers memberships), the counts are:
- Total social media followers = 25,000
- Unique return visitors to your website in a 12 month period = 30,000
- Email subscribers = 5,000
- Registered members = 2,000
- People who attend your events per year = 5,000
67,000 / 3 = 22,333 total audience size.
The total audience size is the number of unique people the sponsor can market to and generate potential leads from. This is what we have that the sponsor wants.
Step 2 – Calculate the customer acquisition cost
Now that we have our total audience size figured out we want to understand how much profit the sponsor could make from a lead we provide and how much it costs to convert that lead into a sale.
The two values we are interested in are:
- Lifetime customer value (LCV)
- Customer acquisition cost (CAC)
Lifetime Customer Value
Lifetime customer value (LCV) is the estimated profit a customer will generate during their lifetime.
In our example, the average customer subscribes to the sponsor’s business publication which costs $1,000 per year and they remain a subscriber for 5 years on average. That gives us a total sales amount of $5,000 for the lifetime of this customer.
Profit margin on sales is 40%. So $5,000 x .4 gives us $2,000. This is the profit per customer.
Customer Acquisition Cost
The customer acquisition cost (CAC) is the amount the sponsor spends to convert a lead into a customer. A good LCV to CAC ratio is 3 to 1. So in the example above, the sponsor should spend on average $666.67 for each new customer on marketing expenses.
The easiest way to get this information is to ask your sponsor. This assumes you’ve developed a trusting relationship with them already, something I encourage you to do from the outset of your sponsorship journey.
However, sometimes the sponsor simply won’t or can’t share this information with you. In this case you’ll need to use existing industry standards to calculate the required figures.
- What products and services does the sponsor sell?
- What is the average profit margin? (typical retail is 25% to 35%)
- How much does a customer spend per year?
- How long does someone remain a customer?
Step 3 – Calculate the price per conversion
Let’s recap the information we’ve gathered so far using our example organisation:
- Total audience size = 22,333
- Customer acquisition cost = $666.67 per customer
We need three more figures before we can begin the price calculation stage:
- Sponsor conversion rate
- Activation effort
- Price per conversion
Sponsor Conversion Rate
Sponsor conversion rate is the percentage of leads who become paying customers. If you deliver 1000 leads and 100 of them turn into sales, the sponsor has a conversion rate of 10%. This rate is very dependent on how effective the sponsor’s marketing strategy and sales processes are.
It’s your job, however, to help deliver qualified leads into the sponsor’s sales funnel and support the process with unique marketing initiatives as part of the sponsorship strategy.
Once again, talk to the sponsor about their conversion rate. If you can’t get this information directly there are a number of benchmarks you can refer to. For example, here’s a study from MarketingSherpa on conversion rates by industry.
Next we want to determine what your activation effort will be. The activation effort is the amount of effort you will be putting into the marketing process on behalf of the sponsor.
When we talk about activation, this is what the sponsor spends above and beyond what they pay you in sponsorship to activate or leverage the marketing opportunities. A typical ratio is 3 to 1. For every 1 dollar they spend on sponsorship, they spend three dollars on activating that sponsorship.
In our example, the customer acquisition cost is $666.67 per customer. If we use the standard ratio of 3 to 1, the activation effort is 25%. You get 1 in every 4 dollars spent acquiring the customer.
Price Per Conversion
The price per conversion is what we expect to receive per conversion and is the fundamental unit we will use to develop a price for our sponsorship proposal. In our example the price per conversion is $166.67 ($666.67 x .25) and the sponsor will be covering all the hard costs.
However, this price may not accurately reflect the activation effort required. If the sponsor wants you to do more of the marketing work, cover the hard costs (signage design, merchandising, graphic design etc.) or simply doesn’t have the internal skills or capacity then you’ll need to adjust the activation effort accordingly, which will then affect the price per conversion.
Step 4 – Calculate the starting price
Now that we’ve got our price per conversion sorted out, it’s time to calculate our starting price. To do that we need to work out how many leads we can generate for the sponsor from our audience.
The way I like to do this is first segment our audience based on their level of engagement with our organisation. The higher the engagement level the more likely they are respond to marketing messages and therefore the more leads will be generated.
For our purposes we’ll create an “engagement funnel” that represents each of these segments.The engagement level grows stronger as we move down the funnel but the size of the segment gets smaller and smaller.
To calculate the starting price first we need to divide our audience into the engagement segments. Using my personal experience and heuristic I’ve divided the audience like this:
- Passive followers – 52.0%
- Active followers – 26.0%
- Subscribers – 13.0%
- Members – 6.5%
- Evangelists – 2.5%
You should update the spreadsheet to reflect your audience engagement levels.
Next we need to apply a lead generation rate to each engagement level. This is the percentage of each segment we estimate will become a lead for the sponsor. The percentage will increase as the engagement level increases.
Once again, should update the spreadsheet to reflect your audience.
In the example organisation, the total number of leads generated is 3428. When you multiply this figure by the sponsor conversion rate (8%) we get a rounded sales count of 274. This is the number of sales we estimate the sponsor will generate from our audience leads.
The final step in the calculation is to multiply the sales count by the price per conversion.
Starting Price = 274 x $166.67 = $45,666.67
Marketing to your Audience
Each of these audience segments should be marketed to in different ways to maximise the leads we help generate for our sponsor and to speed up the conversion process.
Let’s look at each audience segment and list some example marketing initiatives for the sponsor.
Passive Followers – these people know about us and may follow us on social media but they don’t yet actively participate in any offline or online activities. At this stage our aim is to build brand awareness for the sponsor by cleverly integrating their brand with our communications.
- Advertising (online and offline)
- Public relations
- Search engine optimisation
Active Followers – these people are actively engaged with us and are open to a two-way conversation. This can be as simple as a like on social media post, response to a survey or attendance at a local event. At this stage we can be a little more direct and aggressive with our marketing options.
- Social media posts
- Sponsored content
- Surveys and polls
- Invitations to events
- Demonstration and displays
Subscribers – these people have given you permission to actively market to them by supplying their details.
- Email remarketing
- Marketing automation
- Special offers
- Exclusive content
Members and Evangelists – these people have made a financial commitment to our organisation and evangelists actively promote our organisation.
- Member only events
- Sponsor presentations
- Networking opportunities
- Cross promotion with other sponsored properties
Step 5 – Prepare your final price
Ok. this is it. The final stretch. With the starting price calculated from the previous step we’re now ready to prepare the final price.
Up until this point we haven’t included the intangible benefits of sponsorship. Often referred to as the “halo effect”, these intangible benefits give sponsorship the advantage over other marketing strategies.
- Audience loyalty
- Activation opportunities
These all form part of the value proposition of your sponsorship opportunity.
We also haven’t discussed the impact your sponsorship will have on the sponsor’s existing leads (not from your audience) and customers. The sponsor will be able to leverage your sponsorship to build favor with their existing leads and customers.
To take these 2 factors into consideration, we’ll add 2 multipliers:
- Added Value Multiplier – the positive effect on existing sponsor leads and customers. I recommend a value between 1 to 1.4
- Halo Effect Multiplier – the positive effect of your intangible benefits. I would recommend a multiplier between 1 and 2 depending upon the level of awareness and positive feelings towards your brand
For our example, I’ve set the added value multiplier to 1.2 (we will have a moderate effect on existing leads and customers), and 1.5 for the halo effect multiplier as we have a high standing in our niche.
The starting price is then multiplied by the added value multiplier and then the halo effect multiplier to arrive at the final price.
Final Price = $45,666.67 x 1.2 x 1.5 = $82,200.00
Step 6 – Putting it all together
Now it’s time to put it all together.
With the sponsorship price finalised, you can now complete your sponsorship proposal with a range of customised marketing initiatives, designed to meet the sponsor’s objectives that represent an excellent investment opportunity.
When delivering the sponsorship proposal to the sponsor make sure you reinforce the benefits:
- A ready-to-go and engaged audience
- Qualified lead generation
- Higher conversion rates
- Speedier conversions
- The halo effect and intangible benefits
Well there you have it, my guide to putting the right price on your next sponsorship proposal.
Happy sponsorship seeking… Cheers, Kym.