Calculating the Return on Investment (ROI) for a VIP Suite
Is the cost of a VIP Suite for a high school or small college really worth the investment?
Answering the question is dependent on a number of variables but most important is your school’s ability to sell access or sponsorship. The critical step is to determine how much to charge and if your customer base is willing to pay your price for access to a VIP Suite.
To help answer the question we provide the following example of investing $140,000 for a fully operational 10’ x 40’ VIP Suite with restroom and luxury features. This investment in your infrastructure includes design, construction, and installation. A very reasonable, and code compliant, capacity for a suite of this size is 48 people at one time.
As with any investment you must look at the time required to realize a return. We believe a reasonable time frame for a VIP Suite to begin showing a profit is seven (7) years. If seven years is acceptable to your organization you will need to generate $20,000 of revenue per year. Your options for selling access are many. The most obvious is selling sponsorships.
Here’s an example of how you might offer a variety of sponsorship packages priced to generate a minimum of $20,000 on an annual basis. You can offer one package or any combination.
Is your school capable of selling four sponsorships at a price of $5,000 annually for access to a VIP Suite and seating? Or 24 – $1,000 sponsorships? Maybe you can sell for more or less. It is up to you to determine the right price. If the price is less then your time frame for a return will lengthen. If you can sell for more then your time frame shortens for a return.
Speaking in financial terms you can think of this $140,000 investment as an annuity. In today’s market an annuity generating 5% interest every year would be considered a good investment. If you can forecast a 10’x 40’ VIP suite at your school generating revenue of $15,000 to $20,000 a year the return is 10 to 14%. And the answer is a definitive YES to the question; is a VIP Suite worth the investment? If, in your judgment, the annual revenue were less than 5% of the cost, which in this example is $7,000, we would not recommend moving forward with a VIP Suite based strictly on an ROI analysis.