By Gregg Hollman – Party Professional
Most mobile DJ businesses exhibit seasonality. According to Investopedia, “seasonality is a characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one-year period can be said to be seasonal.”
Examples of highly seasonal businesses include accounting firms (tax season), retailers (holiday shopping season) and ski resorts (winter ski season). The DJ business is also seasonal. In this article, I explain the main causes of DJ seasonality, ways to measure it, and helpful methods for managing seasonality and cash flow.
Typical Drivers of Seasonality in the Mobile DJ Business
1. Service specialties; for example, “wedding season,” “mitzvah season,” and “company holiday party season.”
2. Weather tendencies that affect the scheduling of parties
Speaking with many DJs, there are times of the year when money is abundant and others when money is tight. For our DJ company, January and February are typically our weakest months due to the cold weather in the Northeast. November has historically been a wildcard month. We’ve had some really great Novembers but also some lemons.
Seasonal fluctuations in business cause variations in cash flow, which is the life blood of a business. Periods of low or negative cash flow, if not anticipated, can damage or even shut down a business. A particularly toxic combination that I’ve seen some DJs suffer: a seasonally weak winter party season followed by a large tax bill in April. To avoid this scenario, you are well-advised to make quarterly tax payments and set up a reserve for any additional taxes due.
3 Ways to Measure DJ Seasonality
I suggest the following three methods to measure seasonality:
1. Divide the average sales of your strongest quarter by the average sales of your weakest quarter.
In the case of my company, in 2016, our strongest quarter was the second quarter (April - June) while our weakest quarter was the first quarter (January - March). Our strongest quarter was 2.3 times higher than our weakest quarter. Track this ratio from year to year.
2. Divide the sales of your strongest month by the sales of your weakest month.
In the case of my DJ company, in 2016 our strongest month was May and our weakest month was January. Our highest sales month was 4.3 times higher than our weakest month.
Note: For #1 and #2 above, you could also similarly measure the ratios of net profit. However, net profit is more variable by nature due to monthly changes in operating expenses which may cause the ratios to be high and distorted. Revenues, on the other hand, tend to be more stable.
3. How many months during the year did expenses eclipse revenues, resulting in a net loss?
If your business regularly loses money during a particular month, then surely you have a very seasonal business model. Fortunately for our DJ company, we perform at a variety of different party types and have never incurred monthly losses. For the cold winter months, we typically limp through with an assortment of family parties, bar/club work, and deposits on future bookings.
9 Strategies to Manage DJ Seasonality and Cash Flow
1. Modify your business mix to include non-seasonal lines.
Bar/club, karaoke, trivia, senior citizen events, schools, and kids’ parties all represent possible service additions that can keep cash coming in during the lean winter months. Some DJs even set sail to spin on cruise ships to the Caribbean! Taking the diversification concept a step further, you could develop new business lines (related or unrelated to the events business). For example, DJ Mark Brenneisen of CSGI - Total Entertainment Music of Queensbury, New York sells vacations to Sandals Resorts.
2. Increase your deposit rate during weak periods.
If normally you collect a 20% deposit for bookings, why not increase it to 30% or even as high as 50% in the off season? Most clients will not object. Of course, you’ll earn less on the back end of these jobs. An extreme variation of this technique is to offer discounts for pre-payment. (Note: I don’t recommend this, as it tends to create cash flow problems in the future.)
3. Schedule major equipment purchases.
During high season when you’re flush with cash, purchase equipment or otherwise put money into a separate account allocated for equipment purchases to be made in the future. If you don’t trust yourself from raiding the reserve to pay normal bills, then set up a bank account at a financial institution that is located in an inconvenient part of town.
4. Use deposits to fund equipment purchases.
Let’s say that you were hypothetically planning to add 70-inch flatscreens to your show. You could purchase them now and then try to book parties. which entails a cash outflow and some risk. Or alternatively, you could book parties with the new screens, and then use the deposit money towards purchasing them. This is equivalent to a real estate developer who accepts deposits on a new development before actually breaking ground on the construction.
5. Consider using a line of credit or credit card to cover cash flow gaps.
During high season, you can then use your extra cash to pay down the credit line. This credit line can be arranged with your local bank. Alternatively, you can use a low interest rate credit card to carry some short-term debt. Be sure to pay off the balance as soon as you are able to. For high-priced fixed assets (such as vehicles, video walls, etc.), it is typically best to use long-term financing that corresponds to the life of the asset.
6. Embrace the down time.
Rather than try to scrape through seasonally weak periods, embrace the free time to take a vacation or re-charge your internal batteries. After a super fun ski vacation to Vermont last winter, our family is heading to Lake Placid this February for another vacation. The off-season is also a great time to focus on high return on investment projects like continuing education, planning/budgeting, training your DJ staff, creating videos and organizing your music crates. Borrowing a line from the business coaching world, it’s crucial to spend time “working on your business” rather than “working in your business.”
7. Fund larger purchases with weekly savings programs.
DJ Fox Feltman of BTA Entertainment in New Bern, NC, recently described a creative way to raise a savings pool. For each week of the year, put aside a dollar amount equivalent to the week number. So in week #1, you set aside $1. In week 20, $20. And in the final 52nd week, you’ll put aside $52, still a very reasonable amount. This program raises $1,378 with very little pain, enough to fund your trip to a DJ convention in the off-season or purchase some new gear!
8. Pay your bills on time.
Late charges, while small on an individual basis, can add up over time. It’s not inconceivable that you could be giving away thousands of dollars in a given year due to a lack of financial organization.
9. Shop smart for DJ gear.
Our local DJ association, the New Jersey Disc Jockey Network (NJDJN), has developed relationships with equipment retailers that routinely save me hundreds if not thousands of dollars per year on gear purchases. Shop smart on gear and you could potentially save 5% - 20% versus careless equipment curating. Finally, avoid impulse and ego-driven equipment purchases that don’t generate a positive return on investment.
There’s no need to be overwhelmed with the winter blues. Navigate your way through the coming seasonal lull with some of the techniques described here. Before you know it, wedding season will be back at your door. Best wishes to all for a prosperous 2017!
