Your Guide to Sponsorship Valuation
The most common question at CHARGE is, “How should I price my sponsorship?” Sponsorship valuation involves determining the appropriate price for sponsorship. Everyone cares about sponsorship valuation because it’s at the core of our mindset as consumers. Buyers hate to pay too much, and sellers fear charging too little.
Sponsorship is a powerful marketing tool. It allows brands to connect with audiences in unique and memorable ways, offering value to both the sponsor and the sponsored entity. However, determining the right price is one of the most challenging aspects of securing sponsorship. This guide will walk you through the essentials of sponsorship valuation, ensuring you can confidently buy or sell sponsorship that reflects the true worth of opportunities.
Understanding Sponsorship
Before discussing sponsorship valuation and pricing, it’s essential to understand sponsorship. Sponsorship is a mutually beneficial relationship in which one party (the sponsor) provides financial or in-kind support to another party (the property) in exchange for access to the latter’s audience. This access can take many forms, including logo placements, naming rights, or experiential activations.
The Importance of Accurate Sponsorship Valuation
Accurate sponsorship valuation is crucial for several reasons:
- Fairness: Both parties should feel that they are getting a fair deal. In addition to setting an appropriate price, sponsors, and properties should be able to justify their sponsorship pricing in their early negotiations.
- Sustainability: Proper pricing ensures the long-term viability of sponsorship programs. When buyers and sellers feel good about pricing, they focus more on the sponsorship’s success and less on readjusting the price in the renewal.
- Market Standards: It helps maintain market standards and avoid price undercutting or inflation. Proper sponsorship valuation supports market stability, discouraging wild price differences between similar opportunities.
Critical Factors in Sponsorship Valuation
Several factors influence the value of a sponsorship. Let’s explore these in detail:
Audience Reach and Demographics
The size and characteristics of the audience are primary drivers of sponsorship value. Brands want to reach as many people as possible, especially those who fit their target customer demographic.
Brand Alignment
The degree to which the sponsor’s brand aligns with the property’s values, mission, and audience is critical. Strong alignment can enhance the sponsorship’s perceived value.
Exposure Opportunities
The number and type of exposure opportunities (e.g., logo placements, media mentions, speaking opportunities) directly affect value. More frequent and prominent exposures are typically more valuable.
Engagement Levels
Audience engagement with the sponsored entity (e.g., event attendance, social media interactions) indicates how likely the audience is to notice and respond to the sponsor’s messaging.
Category Exclusivity
Offering category exclusivity (i.e., no other competitors in the same industry are allowed to sponsor) can significantly boost sponsorship value.
Historical Performance
Past performance of similar sponsorships can provide a benchmark for valuation. If previous sponsors have achieved high ROI, this can justify higher pricing.
Sponsorship Valuation Methods
There are several methods to value sponsorship opportunities, each with advantages and limitations. The most common methods include:
Cost-Plus Method
This method involves calculating all costs associated with the sponsorship (e.g., production, activation, personnel) and adding a profit margin. Several experts recommend that the profit margin be two to three times the total costs. However, you may choose whatever profit margin is appropriate for your industry.
This method ensures that all expenses are covered but may only partially capture the sponsorship’s market value. For example, Cost-Plus does not capture the value of the association between the sponsor and the property.
Market Comparison Method
This method is often described as “checking the comps.” It involves comparing the sponsorship opportunity to similar deals in the market. Sponsors who sponsor multiple properties always do this to ensure that they are paying the appropriate rights fee. Many sponsors (and their agencies) keep a private database of the “going rate” for particular sponsorships in a market.
With this method, it’s essential to consider the context, as differences in audience size, engagement, and brand alignment can affect value. Remember: not every sponsorship is created equal!
Media Equivalency Method
This method calculates the value of exposure based on what it would cost to achieve the same reach through traditional advertising (e.g., TV, radio, print). For example, suppose a sponsor’s logo appears courtside on a television broadcast of a college basketball game. What is the exposure’s value if compared to a thirty-second commercial spot? If the courtside logo appeared on screen for thirty seconds, its value would be the amount a sponsor would otherwise have to spend to buy a thirty-second commercial.
Media Equivalency is powerful because sponsors can compare what sponsorship offers them to advertising. This can be a very useful benchmark, but it may overlook the unique benefits of sponsorship, such as deeper audience engagement.
Outcome-Based Method
This approach bases valuation on the expected outcomes for the sponsor (e.g., increased sales and brand awareness). We sometimes call this value-based pricing. It asks, “How much would the sponsor be willing to pay for the sponsorship if it achieved X dollars in total sales?” It requires thoroughly understanding how sponsorship impacts the sponsor’s business goals.
Steps to Determine Sponsorship Pricing
- Identify Assets: List all the “tangible assets” you can offer to sponsors. Tangible assets include banners, marketing material inclusions, website links, access to mailing lists, and social media shout-outs.
- Evaluate Audience: Analyze your audience’s size, demographics, and engagement levels. Gather data through surveys, social media analytics, and event attendance records.
- Benchmark Comparisons: Research similar sponsorship deals in your industry. Look at what competitors are offering and at what price points.
- Calculate Exposure Value: If appropriate for your sponsorship, use the Media Equivalency Method to estimate the exposure value you can provide. Consider the cost of reaching the same audience through traditional advertising channels.
- Adjust for Intangibles: Factor in intangible benefits such as the value of the property’s brand, brand alignment, sponsor clutter, ambush protection, and category exclusivity. These elements can significantly enhance the sponsorship’s worth.
- Set Pricing Ranges: Every sponsor has a different goal and budget availability. If a property develops pricing ranges, it offers potential sponsors flexibility. These range from basic packages with minimal exposure to premium packages with extensive benefits.
- Test and Refine: Pilot your pricing with a few sponsors to gather feedback. Use this information to adjust and refine your pricing strategy.
Common Pitfalls to Avoid in Sponsorship Valuation
Overpricing
Setting prices too high can deter potential sponsors. Ensure your pricing is competitive by regularly reviewing market trends.
Underpricing
Conversely, underpricing can undervalue your assets and limit revenue. Always base your prices on thorough valuation.
Ignoring Audience Data
Make data-driven decisions by regularly updating your audience analysis. Sponsorship value highly depends on current audience metrics, like demographics and psychographics.
Lack of Flexibility
Be willing to negotiate and customize packages. Flexibility can make your sponsorship opportunities more attractive to potential sponsors.
How Should I Price a Sponsorship?
There is no wrong method of sponsorship valuation as long as you have a reasonable basis based on facts. In the Sponsorship Success Method, we coach our members to be comfortable with the pricing conversation with sponsors. If the property can articulate the data points supporting pricing (like audience size or exclusivity), the sponsor feels comfortable that the “wild guess” method was not employed.
However, certain pricing methods work better than others. Here are a few common categories:
Properties Having Television or Streaming Exposure.
Many sports are televised, which lends itself to the Media Equivalency Method. However, it is also appropriate to combine pricing methods. For instance, we would use the Media Equivalency Method to capture most of the value of a sponsorship relationship. However, we would temper our pricing decision after comparing the property to similar sponsorships—the Market Comparison Method.
Small Events Without Television
Events like charitable galas, 5k runs, and food festivals fall into this category. The most accessible method for event owners would be the Cost-Plus Method.
Specialty Events With Unique Audiences
Academic conferences or trade shows fall into this category. Here, the most important element of sponsorship is access to a unique and valuable audience. If you sell services to the veterinary industry, then sponsoring a veterinary conference would put you front and center before your otherwise hard-to-reach audience. In this case, we would use the Outcome-Based Method. With industry knowledge, we could estimate the potential sales that a sponsor would garner from the sponsorship.
Substantial Title Sponsorships or Naming Rights Partnerships
We have two recommendations for this category. First, for sponsorships with rights fees over $500,000 per year, we recommend employing the Media Equivalency, Market Comparison, and Outcome-Based Methods. These partnerships usually have substantial benefits packages, and sponsors enjoy value on multiple levels.
For example, the naming rights sponsor of an NFL stadium gets exposure on television, radio, in-stadium, and from daily traffic. Additionally, the rights package usually includes hospitality, access to the team, and other related benefits. These complicated partnerships require a comprehensive review of their dollar value.
Second, we recommend that the property or sponsor receive a third-party sponsorship valuation from an independent agency. Using an independent agency provides an objective take on a value that validates the price and creates more comfort with the partnership.
Conclusion
Sponsorship valuation is a complex but essential process. By understanding the key factors, employing effective valuation methods, and avoiding common pitfalls, you can set prices that reflect the actual value of your sponsorship opportunities. Remember, accurate valuation ensures fair deals and builds long-term, sustainable partnerships with sponsors.
By following the guidelines in this expert’s guide, you can confidently navigate the world of sponsorship pricing and maximize the value of your sponsorship deals.
We wish you sponsorship success!
