Transcript Profitable Event Registration Pricing Via ODPR Method

Profitable Event Registration Pricing
Via ODPR Method
Dr. Godwin-Charles Ogbeide, PhD, MBA
Associate Professor of Strategy & Hospitality
IUPUI, Department of Tourism, Convention & Event Management
E-mail: [email protected]
Pricing in the Public Sector
• Prices of public sector goods and services will depend
on the market situation and the objectives of each
organization. These might be:
– Profit maximization: Pricing set to produce a total revenue
which will maximize profit
– Break-even pricing: Pricing set to produce a total revenue which
covers total costs
– Social cost/benefit pricing: Pricing set on the basis of the good
things that people get from owning and using the goods or
services. It could be lower than market price (partial subsidy) or
at zero price (total subsidy)
Ogbeide’s Desired Profit Rate (ODPR)
• The ODPR method can be used by many business
organizations to decide on the price (rate) of their
product/service to be sold, based on the organizations’
desired profit rate
• This method is a little similar to Hubbart formula, but
unlike Hubbart formula it could be used to establish the
rate of individual product or service such as the price of
a cup of coffee, registration fee, or the average rate of
collective products such as the average daily rate of
hotel rooms
Ogbeide’s Desired Profit Rate (ODPR)
• Another contrast between the ODPR method and the
Hubbart formula is that the Hubbart formula is based on
return on investment, while ODPR method is based on
the desired profit rate
• In order to use ODPR method of pricing, the following
variables must be known or predicted:
– Total fixed expenses
– Estimated operational cost
– Estimated demand (i.e., # of products or # of attendees)
– Desired profit rate
ODPR Steps
There are three main step for using ODPR
• First, compute the desired profit from a given desired
profit rate
• Second, compute the desired revenue
• Third, compute the registration fee (or the price/unit)
ODPR Formulae & Steps
Step 1 Formula:
Desired Profit = (total expenses + total operational cost) X 20%
1-20%
Step 2 Formula:
Desired Revenue = total expenses + total operational cost + desired profit
Step 3 Formula:
Price per unit = desire revenue ÷ estimated demand
Ogbeide’s Desired Profit Rate (ODPR)
• To illustrate the use of ODPR method, assume an event
manager hope for a 20 percent profit before tax in an
event she is planning. If the following situation applies
to the event, the potential minimum fee for the event
can be computed:
– Fixed expenses = $525,000
– Estimated operational cost based on previous year’s =
$1,500,000
– Estimated attendees = 10,125
ODPR Formulae & Steps
Step 1 Formula:
Desired Profit = (total expenses + total operational cost) X 20%
1-20%
= ($525,000 + $1,500,000) X 20% = ($525,000 + $1,500,000) X 0.20
80%
0.80
= 2,025,000 X .20
.80
Desired profit = $506,250
ODPR Formulae & Steps
Step 2 Formula:
Desired Revenue = total expenses + total operational cost + desired profit
Desired Revenue = $1,500,000 + $525,000 + $506,250 = $2,531,250
Step 3 Formula:
Price/unit = desire revenue ÷ estimated demand
Price/unit = $2,531,250 ÷ 10,125
Price/unit = $250.00
Hence, the minimum fee for the eevent = $250.00
Profitable Event Registration Pricing
Via ODPR Method
Dr. Godwin-Charles Ogbeide, PhD, MBA
Associate Professor of Strategy & Hospitality
IUPUI, Department of Tourism, Convention & Event Management
E-mail: [email protected]
Telephone: 317-278-3515