Compliance

Facts & Figures

Facts & Figures - Why They Mean So Much

My family and I attend a really small church. It is the only church I’ve ever attended.

I love it!

Each week, we have a gentleman that reads the “statistics” for the week. This week, he said attendance was 17; attendance last year, 21. This caught my attention.

Due to the COVID-19 pandemic, I have grown accustomed to this year’s attendance being much lower than last year’s, but this week the gap had narrowed. I was curious why the numbers were so low last year. Why had the trend of such a large gap broken?

Data can be so valuable. While there will always be anomalies, the trends we can evaluate with accurate, meaningful data can almost always help us make better business decisions.

Recently, I was evaluating a spreadsheet a client created to monitor marketing costs. The highlight of the spreadsheet was a break-even figure. Essentially, the client had made some assumptions and determined what needed to happen to pay for their marketing costs. While there are no guarantees that their assumptions would play out as planned, I was encouraged that they were doing something to evaluate their marketing efforts. Given the global pandemic and the impact it has had – and will continue to have – on our economy, I got to thinking about how important these types of analysis will become. I had a few thoughts of other things that might be useful.

Percentage of Revenue

A common method of evaluating marketing costs in general is after-the-fact, as a percentage of revenue.

In the Tribal casino industry, the inclusion of free play in “marketing costs” is a great discussion point. In my experience, if free play is excluded, this is usually between 5-15% of total revenue. If free play is included, I have heard of this being as high as 25-30%. Obviously, every jurisdiction is different and there are factors that will not allow a single “right” answer of where this needs to be. That is not to say, however, that you cannot set a goal.

This leads me to my suggestion. I think most of us capture marketing costs before spending the money; and many of us probably pay attention to how those costs relate to revenue. What I don’t see often is clients proactively setting revenue goals based on marketing costs. In other words, if we know what our marketing costs will be and we know we don’t want those costs to exceed 10% of revenue, we can back into revenue goals (as it relates to marketing, at least). Then you can compare those revenue goals to revenue goals as they relate to other areas of the operation.

Return on Investment (ROI)

I have to assume my colleagues get tired of me pushing ROI. I have just always thought it is a great measure of success, especially when it comes to marketing. Marketing is a big investment. It will always be a big investment. So much so that I think some people just write it off as a necessity and do not do the analysis to see if the marketing efforts are truly working. To be fair, it is a little bit tricky in the casino industry. But not impossible!

The biggest pitfall, in my experience, is the assumption that all revenue generated is a direct result of marketing. Marketing strategies should boost revenue, making the implication that there would be some revenue even if no marketing efforts took place. That boost in revenue is what should be considered in comparison to the marketing costs. The boost is truly the “return” of your efforts. I have to assume your marketing strategy includes a combination of promotions, advertising, player incentives, and attractions. As modifications on these elements take place, use a reasonable baseline projected revenue that you can assume would occur without any marketing strategy. Not only will this create a ROI that can be evaluated immediately, keeping that baseline moving forward creates a solid foundation for trending and ongoing analysis.

Side Note -

ROI is typically used to evaluate investments in stocks and bonds. I stand by my proposal to use the logic in the casino industry, but the investment world will expect to see a 10-15% ROI. There are so many variables in the casino industry, it may be unfair to say what a “good” ROI might be. Many would argue you’re just looking for a positive number.

Consistency, though, is the key. The basic calculation is (Return – Investment)/Investment, then turn that into a percentage.

The “investment” piece seems pretty straightforward. Include all costs necessary to complete your marketing strategy. Do you include free play? Just be consistent!

The return may be a little trickier. The return should be the aforementioned boost in revenue. However, given the cyclical nature of the casino industry, you might have to use a different baseline for the second quarter than you do in the fourth quarter. It is possible to use the same baseline, but just then you’ll want to compare second quarter ROIs to second quarter ROIs, not second quarter to fourth quarter ROIs. Again, just be consistent! That consistency will allow you to be confident in your decisions based on the results.

Plan Ahead

The spreadsheet I mentioned earlier was for a three-month marketing strategy. Most folks I work with plan anywhere from a month in advance to as much as six months in advance. Like everything else, this will rightfully vary depending on a lot of factors. However, the concept of planning ahead is necessary. I would argue sticking to that plan is not as necessary.

There is no sense making a plan if you do not intend to see it through. I’m not suggesting making a plan just to call an audible. What I am suggesting is if you are in the middle of your marketing strategy and the projected revenue is not close to what you anticipated, your ROI is abysmal, and/or a global pandemic hits, it is NECESSARY to make changes.

Clearly, I am being a little dramatic here, but I’ve seen too many times when clients push through with a failing promotion because that is what was planned. At times clients stick with the plan only because they don’t know how to evaluate “success”. Sometimes I see clients recognizing the plan is failing, but don’t know when to bail on the plan.

Plans are good. Things going as planned is even better. But when things do not go as planned, it makes sense to do something different. Evaluate how your strategies are working throughout the plan.

Do not wait for the three months to be over before you make changes.

As a final point...

Turns out, a year ago we had two families from our little church take a vacation the same week. That closed the gap and created the anomaly.

These things happen. It is not a problem.

The problem is when the anomalies happen and we don’t notice – or even worse, don’t care.

There is no silver bullet as each casino and marketing strategy is vastly different. That said, if you find yourself in need of tools to help you with this type of evaluation, let’s talk about it!

I’d love to hear from you!

Doug Parker
MBA, BA Accounting
Supervisor, Finley & Cook
dparker@finley-cook.com

A little bit about me…

I enjoy taking complicated information and simplifying it.

After 9/11, President Bush addressed the Nation. He said many Americans were asking what was expected of them, and he said to “…live your lives and hug your children”.

I’ve always appreciated the simplicity of that. I try not to over-complicate anything in my life and I do my best to help and encourage others to do the same.

Other than God, my family is the most important thing in my life. I love spending time with my wife and four kids in any environment.

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