The Price Is Right: Turning a Profit in the Event Planning Business Learn how to set prices that are high enough to keep your profitable but not high enough to scare away prospective customers.

This excerpt is part of Entrepreneur.com's Second-Quarter Startup Kit which explores the fundamentals of starting up in a wide range of industries.

In Start Your Own Event Planning Business, the Staff of Entrepreneur Media Inc. and writer Cheryl Kimball explain how you can get started in the event planning industry, whether you want to work part- or full-time planning anything from a first-birthday party, bar mitzvah or wedding to political fundraisers and product launches. In this edited excerpt, the authors explain how to determine just what to charge your event planning clients.

Charging enough—but not too much—for your event planning services is key to ongoing business success. It's important for first-time business owners, therefore, to proceed with caution as they begin to estimate the cost of holding events. The goal in pricing a service is to mark up your labor and materials costs sufficiently to cover overhead expenses and generate an acceptable profit.

According to industry expert Dr. Joe Goldblatt, fees are typically determined by three factors:

1. Market segment served. Social events have a different fee structure than corporate events. In the social events industry, planners typically charge a fee for their services, plus a percentage of some or all vendor fees. If you were to break down your event planning fee into an hourly charge, a social planner would, according to industry expert Patty Sachs, make anywhere from $12 to $75 per hour, plus vendor commissions.

In the corporate events industry, however, planners typically charge a fee for their services, plus a handling charge for each item they contract. For example, a planner buys flowers from a florist, marks them up (usually by 15 percent) and charges that amount to the client. Another possibility is a flat fee, or "project fee," often used when the event is large and the corporation wants to be given a "not to exceed" figure. Sachs estimates an hourly rate for corporate planners of between $16 and $150, plus vendor commissions.

2. Geographic location. Fees are higher in the Northeast, for example, than in the Southeast. This difference reflects the variation in cost of living. In addi­tion, areas of the country with well-defined on- and off-seasons, such as the Hamptons in New York or Martha's Vineyard in Massachusetts, for example, base their prices partly on the season involved.

3. Experience and reputation of the event planner. If you're just starting out in the industry, it's reasonable to charge less for your planning services while you gain expertise. A word of caution, though: Don't charge too little just to get the job. Although clients shop around for the best price, a planner who comes in too low with an estimate may be as off-putting as a planner who comes in too high. Your client may question your ability to throw a top-tier event based on the price you have quoted.

So how are the above-mentioned fees-for-service calculated? Most event planners price their fees-for-service (the total cost to the client) using a "cost plus" method. They contract out the labor, supplies and materials involved in producing an event and charge their clients anywhere from 10 to 20 percent of the total cost of the event, with 15 percent being a rough average.

Before you can begin planning an event, you have to know exactly what your clients want and what they can spend. Then you estimate how much it will cost to contract for labor and supplies, add your commission and present the total fee for services to the client as an estimate. Below are some possible per-event expenses:

• Site rental. Depending on the event, site rental fees can be considerable, nonex­istent or anywhere in between. This is an opportunity for you to save money for a client on a tight budget. Perhaps a client wants a scenic summer barbecue. A site at a public beach can often be reserved for practically nothing while tony beach-side clubs often command premium prices.
• Vendors. This category could include a caterer, bartender, decorator, florist, photographer, entertainer or videographer, among others.
• Supplies. Any supplies not provided by vendors or the client will need to be purchased by your company. This can include anything from food to potted trees to table candles.
• Equipment rental. You may need to rent audiovisual or lighting equip­ment.
• Licenses and permits. Some types of events require special permits or licenses, such as a fire marshal permit or a license to use a musical score.
• Transportation and parking. If the event requires you or your staff to travel or requires the provision of transport for attendees or speakers, there may be sig­nificant transportation costs.
• Service fees and gratuities. Hiring temporary help, such as servers, for the event can be costly.
• Speakers' fees. Conferences and other educational or commemorative events often involve speakers.
• Publicity and invitations. A large event may be heavily advertised, but even smaller events might entail the use of fliers. Invitations are also frequently necessary.
• Mailing and shipping. If you're mailing out invitations or fliers, don't forget this expense. Some event planners even ship flowers.
• Photocopying and preparation of registration materials. Any handouts for attendees or photocopying of fliers fall under this category.
• Signage. Any signs or banners designed for the event should be figured into your per-event expens­es.

Once you know which of the above expenses you'll incur, you can prepare an estimate of the event cost and the fee-for-service. First, find out the going rate by contacting three of each kind of vendor and supplier you'll need. Then calculate the costs for each category listed (and any others that might arise), add them up and add a small amount for unforeseen expenses.

When you give an estimate to a client, you may want to present it in the form of an itemized list. Show each vendor or supplier separately, with a brief description of the services they're to provide, and list the price of each service. This strategy is helpful for reminding clients that your company will receive only a small fraction of the total fee for services.