The Flaw With Percentage Based Event Fees

We’ve been up and running now for a few months and done a bunch of events. One thing that is common is paying entry fees to park as a vendor for events or festivals. This is something that is pretty common, and nothing in general we have an issue with at all. Most event organizers charge a flat fee to attend for the day or the weekend. However, we have seen some go down the road of wanting “A percentage of sales” as the event fee. While this sounds like a reasonable practice, there are some inherent flaws with it for both the organizers and you/us the vendor. The hope is that event planners and other food vendors read this and think about the pros and cons we outline below and move more away from this option to a simple flat entry fee.

What Percentage Is Even Reasonable?

This varies and the highest we have seen was 20% “of sales”, the lowest was “whatever you feel is reasonable at the end of the day”. It really spans that range for, but be sure to know what the percentage is. In my opinion anything over 10% based on food costs today is not reasonable, BUT this also really depends on the percentage of “what sales”. What people asking for a percentage seem to forget is all that it costs you and what thin margins you may already have over cost of goods, credit card fees, payroll, etc. Couple that with people already saying you may be charging too much, so what are you to do?

Percentage of “What” Sales?

The first question to ask and we’ve seen it written many ways is what sales number are they even asking for a percentage of? There are really three options but oddly the most common one documented makes the least sense to the vendor but nets the most to the organizer. You definitely need to know which number the planner is asking for a percentage of. Sometimes it’s not even specific as the options below, just “15% of sales” which means you defiantly need to start asking for clarification.

• Gross Sales (most common)
• Net Sales
• Profit (rarely seen)

The problem with Gross Sales is it takes no costs or fees into account, it is straight up the top number of all your sales rolled up plain and simple. So, for example if you offer cash or other discounts (military, combos, etc) at the time of sale, this is not included in “Gross Sales”. This option by far costs you the vendor the most money to the event planner. Net sales on the other hand at least deducts discounts, comps, and other things off the top, which is a little more reasonable, but it still does not include any of your actual costs or expenses to conduct business. Lastly, calculating percentage based on profit will take into account all your cost of goods, discounts, comps, credit card fees, and everything else on the sale. This is probably the most “accurate” number to use, but then it gets complicated.

Here is one example based on a 10% of sales contract and a $12 sale with a 3% cash discount applied to the sale and $6 in cost of goods.

• Gross Sales: 10% of $12 = $1.20 owed
• Net Sales: 10% of $11.64 (3% Cash Discount) = $1.16 owed
• Profit: 10% of $5.65 (Net sales less Cost of goods) = $.56 owed

As you can see there is a lot of possible math involved, and you the vendor need to know what you are calculating, assuming you want to be honest about the check you are going to write.

Here is another example based on a 10% of sales contract and a $12 sale with a 9.75% sales tax ($1.17) and $6 in cost of goods, on a credit card ($.68 in fees) which is based on 2.9%+$.30 of the sale PLUS tax.

• Gross Sales: 10% of $12 = $1.20 owed (sales tax is always a pass through)
• Net Sales is the same as Gross since there is no discounts or comps involved
• Profit: 10% of $5.32 (less card fees and Cost of Goods) = $.53 owed (Note: credit card fees will apply to the sale AND the sales tax when the transaction is processed)

The bottom line here is know which number that are asking for percentage of and know your fees, costs, and discounts before you agree to it. These numbers can add up to a lot out of your pocket compared to an upfront flat fee. The logical thing would be to use profit which is in your favor but not in the organizer’s favor. The reality is “profit” can take into account MUCH MORE than what the example shows like, power, gas, payroll, etc. While it’s the most accurate it’s also the most work. This is why most organizers default to Gross Sales, because it’s easy to calculate, but costs you the most as the vendor. Also remember the organizers are not privy to your books or sales reports.

The Issues For The Organizers

As the organizer using the percentage model, you can’t collect the money until the END of the event vs the upfront entry fee before the event. This causes you multiple issues, but below are just some of the the issues illustrating why organizers should simply not use this method.

• Vendors can leave before you collect payment
• Vendors can simply be a no show
• You cannot audit the sales (you are not privy to someone books or POS reports)
• The payment amount relies on the honor system
• Vendors that outsell others are subsidizing their fees

If you charge a flat fee months before that solves the no show problem, you also know what you are making on fee revenue up front with no guesses. We have heard of vendors leaving before payment was due at the end of the event as well as ones just writing a check that sounds reasonable for the sales that day (without any actual calculations). Lastly, if a vendor is selling 2-3 times more than other vendors (and in a perfect world) they all ran reports and cut checks the more successful vendor paid much more just because they sold more. This in effect means that are subsidizing the other vendors fees to be there. It’s a tax on being more successful at the event vs making the entry fees a fair and level field for all vendors.

These are the main reasons why this method is flawed all around. There is too many variables and honest folks like us will run reports and do real math so we can sleep at night. However, that would be fine if percentage of profit was used vs Gross or Net sales.

Summary

At the end of the day, organizers are going to do what they want, but they should understand the challenges and flaws to both them and the vendors when asking for a percentage of someone sales. It’s not a great practice and leaves both the organizer and the vendors in some very odd places when it comes to which numbers it’s applied to, real reporting vs guesses and the honor system. While that may sound good it really is much more convoluted than just charging every vendor the same flat fee and moving on. Hopefully people read this and think about it going forward. Please comment or reach out if you want to discuss this more.