How Much Does it Cost to “Make” a Ticket?
Let’s start answering that question by asking a different one.
How much does it cost to make a sandwich?
Let’s say that you buy bread, condiments, meat and cheese for about $2 and each time you turn on your sandwich press, it costs you $.50. Ignoring labor costs for a moment, it costs you $2.50 to make a sandwich. If you sell it for $6, you’ll probably end up with a profit after you pay for everything else a business needs (rent, marketing, paper goods, etc.).
So if you sell 100 sandwiches in a day in your sandwich store, your Cost of Goods should be 100 x $2.50, or $250 for that day. Those are real, actual dollars that leave your bank account, paying someone else that are the result of selling something.
Now suppose you sell 200 sandwiches instead of 100. What happens?
You’re still paying $2.50 to create each sandwich, but there are more of them. So 200 x $2.50 is $500. Compared to the first day, an extra $250 has left your bank account as a result of the extra 100 sandwiches that you made and sold to people. Of course, you don’t mind because you’re making more money to compensate, but you would have extra costs as a result of the sales.
So what about tickets?
I don’t mean the physical item (which costs a little bit, but it’s ignorable). I mean the admission. How much does it cost to “make”?
In the sandwich example, we can tell how much it costs us to make the extra sandwiches because we can see that we will have to pay somebody some amount of money that we otherwise wouldn’t have had to pay them. (This is called a “marginal cost” if you’re interested.)
Let me say that differently: if the 100 extra people had NOT come into the sandwich shop, our meat, cheese, bread and condiment bill and our electricity bill would be lower.
So let’s do the same experiment. Suppose that we sell 100 tickets to a show one day and 200 tickets to the same show the next day. What extra costs did we have the day we sold the 200 instead of the 100?
In most cases, the answer is so small that we can round it off to zero.
Look at it differently. If a guy walks up to the box office one minute before a show starts and buys the very last seat in the house, how much did it cost us to serve him? How much extra money left our bank account because he showed up?
Zero, or so near that we shouldn’t even worry about it.
Once you really understand that, you can start to understand how the economics of live entertainment work.
If you’re interested in reading more:
- Measure Success Using Revenue Per Seat
- Price Has Nothing to Do With Costs
- Gross Potential Means Almost Nothing