If you’ve ever found yourself thinking, “Why is that centerpiece so expensive? I could purchase it myself for half the price!” you’re not alone. Destination management companies regularly deal with this type of price objection, evidence of a disconnect between the’s perception of what is being sold and the planner’s perception of what is being bought. This is especially true with the traditional "bundled markup" method of pricing. But there is no mystery to the math. Here's the formula:
A + B + C = the selling price of the centerpiece
A = the cost of the centerpiece from the DMC's floral vendor
B = the cost of overhead (all of the professional planning service required, from initial RFP to on-site delivery to post-event invoicing)
C = the DMC's profit
The key is to understand that you are not paying for just a centerpiece; you are paying to have the right centerpiece designed, created, and delivered to the right table at the right time of the right day of the right event. Of course, a centerpiece is just one example of thousands of DMC product offerings. In all cases, the DMC's markup (what is added to the vendor cost) is overhead plus profit. Profit is the smallest portion of the markup. If you don't want to, or can't, pay for the service value that a DMC offers, then you probably shouldn't be using a DMC.
You should know that DMCs can be flexible with regard to the pricing model in order to meet a client's needs. For example, in the "cost-plus" model, the DMC and the client agree on a percentage that will be added to the DMC's costs (i.e., vendor cost + overhead cost). This model offers more transparency than the markup model. Other alternatives include the "management fee" model, in which the client pays a professional services fee, either as a flat rate or calculated as a percentage; and the "bundled line-item" model, in which each item is marked up as in the centerpiece example, but more detailed pricing information is provided.
Should You Use a DMC?
• YES, if you don’t have the time, or don't want to do everything yourself but DO have the budget
• NO, if you want to do everything yourself and DO have the time and expertise
• NO, if you don't have the budget
Always clarify upfront what pricing model your DMC is using and request a different model if necessary. But do allow your DMC to cover its costs and make a fair profit; if you negotiate prices too low, they will not be able to deliver the service level that you need. Think of it this way: “Expect to pay for the level of service that you expect to receive.”
Grant Snider, DMCP, is president, JPdL Destination Management Toronto and Niagara, and is the 2012-13 president of the Association of Destination Management Executives International.