By Gregg Hollmann, “Party Professional”
Based on my survey of DJs, most don’t create forecasts or budgets. Whether you own your own company or work for somebody else, I strongly recommend that you take the time to create a forecast. The good news is that you don’t need to be a numbers jockey to create a forecast. In this article, I’m going to share a template that I built which you can easily use to create a forecast for the coming year.
“Forecast” refers to a financial model that reflects revenues, expenses and profit. “Budget” refers to the expense side of the equation as in “how much is your business going to spend.” Budget is sometimes used interchangeably with forecast.
Reasons to Create a Forecast
A budget/forecast is a financial road map for the year to come. Without a road map, your business can easily become lost. John Maxwell says “A budget is telling your money where to go instead of wondering where it went.” Zig Ziglar used to say “If you aim at nothing, you will hit it every time.”
Second, a forecast helps to ensure that your business grows and stays profitable. There is no shortage of event professionals who launched a business on the basis of passion, but faltered when it came time to create a sustainable business. Sometimes, passion is not enough.
Third, a forecast is a complement to business strategy. Most DJs do have strategies in place designed to earn more revenues. For example, a DJ may seek to book more weddings at a higher average price point for the coming year. To support this goal, perhaps the DJ has decided to increase advertising, do more bridal shows, or network with wedding planners. These business strategies have corresponding revenues and expenses that can be captured in the forecast.
Fourth, and this is particularly important for those in the DJ business full-time, a forecast helps you to manage cash flow. Cash flow is the lifeblood of business, and you need to be able to anticipate gaps. With the DJ business being seasonal in nature, it’s essential to manage expenses to be able to ride out any seasonal lulls. Sadly, I had one DJ colleague whose business tanked in the off-season and spent February feeding his family peanut butter and jelly sandwiches. That’s not the type of “Peanut Butter Jelly Time” that you want!
The Building Blocks of a Forecast
The forecast template that I will be introducing contains columns for each of the twelve months of the upcoming year, plus a final column that adds up the monthly results into an annual figure.
In this model, revenues are driven by (a) the number of events performed per party type, and (b) the average price per party type. On the template, I’ve listed three party types as examples: weddings, teen dance parties, and family parties (feel free to overwrite these party types with your own). Then, for each I assumed a certain # of performances per month and an average price per event. After entering the # of gigs and average price points, the spreadsheet automatically generates total revenue for the month. For example, total revenues for January of $3,200 are the sum of $1,200 (two teen dance parties at $600 per event) and $2,000 (four family parties at $500 per event).
The next section down the spreadsheet relates to expenses. I’ve categorized them into the four categories: (1) Marketing/Advertising, (2) Supplies, (3) Equipment, and (4) Office Expense. For this section, again you can overwrite the item descriptions to reflect your popular expense items. Then, input your estimated expenses by month into the spreadsheet for January through December. The spreadsheet will then automatically compute the totals per expense category, and total expenses for all categories.
Now that total revenues and total expenses have been computed, the residual amount is profit (Revenues - Expenses = Profit). Hopefully you will generate monthly profits, but there may be sharp fluctuations based upon seasonality or large expenses (such as a major equipment purchase).
Many business owners make the mistake of focusing on growing sales at the expense of profit. The forecasting process allows DJs to get focused on the bottom line and determine how much money they are earning from their DJ endeavors.
Net Profit Margin, listed below Net Profit, is defined as net profit divided by revenues (sales). For example, as shown below in the photo below, this DJ achieved a net profit margin of 43% in January.
Profitability Metrics
There are a variety of financial ratios that DJs can use to track their results. I’ve listed several on the template to get you started:
Average Revenue per Job - As DJs we book a variety of party types with different pay levels. In this budget example, the DJ performed at weddings, teen dance parties and family parties. The average revenue per event was $900 for the year. This figure is calculated by dividing total revenues of $84,600 divided by the 94 jobs performed. If you perform at mostly bars and backyard parties, your average revenue per event will be low. If you perform at mostly weddings, your average revenue per event will be high.
Average Expense per Job - Continuing the example from above, total expenses for the year were $21,190, which when divided by 94 jobs for the year results in an average expense per job of $225.
Average Profit per Job - This figure is important, and represents the average profitability per job. In the case at hand, annual profit of $63,410 divided by 94 jobs equals $675. To those DJs who say, “I don’t leave my driveway for a fee of anything less than X” - they are typically referring to sales. Try to focus on the profits that can be gained every time you leave your driveway to perform at a gig!
Average Marketing/Advertising per Job - This calculation is derived by multiplying total marketing/advertising expense of $6,000 by the 94 jobs performed during the year. In this case, the DJ is spending $64 per job to bring in business, representing 7% of sales.
Knowing how much you pay per job to bring in business can be instructive in appropriately pricing your services.
Qualitative Indicators
At the bottom of the spreadsheet are included some “qualitative indicators” that are important for a DJ / Business Owner to track. In developing appropriate qualitative indicators, think about “business drivers” - what decisions and actions drive sales and profits for you business?
For example, “Networking Events Attended per Month” - a DJ would track this if he believed that networking drives referrals.
Another sample indicator is “# of Wedding Consultations Held per Month.” The higher # of appointments, the more wedding bookings should result.
Another example indicator is “# of Staff Training Sessions Held per Month.” If training staff was important to a DJ business owner’s objectives, this would be a good metric to track.
Finally, I included an indicator for customer complaints/refunds issued as a way to set goals for quality. Again, come up with specific business drivers that are relevant to your business.
Accessing the Forecast Template
Most of you should have spreadsheet software on your personal computers. For Windows-based computers, the program is Excel that uses .xls or .xlsx file types. For Mac, it is Numbers which uses the .numbers file type.
You can access my spreadsheet template for Windows and Mac at the following Dropbox link:
https://www.dropbox.com/sh/c970pa433tw4z0r/AADTfWmTzM5BrT128xF0xJ8Da?dl=0
For those of you without these software programs, I recommend using a free application on Google called “Google Sheets.” You can view (but not edit) the template on Google Sheets by clicking the link below:
https://docs.google.com/
If you would like to edit the template to your taste on Google Sheets, open up Google Sheets and from the file menu, select “Import” - then import the .xlsx template file that can be downloaded from the Dropbox link (note: the .numbers file cannot be uploaded to Google Sheets).
For more information about Google Sheets, visit https://www.google.com/sheets/about
In Conclusion
A forecast is a roadmap for your business. I hope that you will take the template for a test drive and make an effort to forecast your DJ activities for 2016 and beyond.
A few tips: (1) push yourself to set out challenging goals, but don’t create unrealistic “stretch targets.” If you create a challenging but realistic target, you will naturally work harder and this should elevate your business results. (2) If after the first run through the budget, you don’t see sufficient profits, you may need to revise your expenses and spend less. (3) Once you have a forecast in place, monitor your actual results against forecast on a monthly basis if possible; or at a minimum on a quarterly basis. Assess what is going right and wrong in your business strategy, assess the variances, and adjust as needed.
I realize this article is more technical than the typical ProMobileDJ article, so please don’t hesitate to reach out with any questions to [email protected].
For a related article about financial management, see my earlier ProMobileDJ.com article “How DJs Can Use the Profit First Financial Management System” at http://promobiledj.com/2015/04/how-djs-can-use-the-profit-first-financial-management-system
Happy Forecasting!