A PACKAGED DEAL!
Best Practices for Allocating Accurately at the Point-of-Sale
Have you ever ordered a three-course meal at a nice restaurant? Perhaps it came with an appetizer, an entree with choice of sides (loaded baked potato for me!), and dessert…all included as one product and for one all-inclusive price. Packages, as in this example, make selling easier. When there is any sort of complexity within a product lineup, packages help to simplify…and a simplified message makes selling easier. Consumers buy more and profits soar.
In the leisure service industry, packaging is commonplace and implemented in admissions and front gate settings around the world. Admissions operators love packaging…but many accountants do not. They do not accept the argument that packaging yields higher revenue. Instead, they often fight tooth and nail to prove otherwise. From their perspective, it’s easier to “count the beans” (even though without packaging, there will be fewer beans) when the product lineup is presented a la carte. They favor simplicity for accounting over simplicity for the consumer.
It’s a myopic and fiscally irresponsible viewpoint. And yet there is a valid reason for it: Admissions leaders often fail to properly set up packages within the point-of-sale system. Failure to correctly configure package options can create untold headaches for accountants during the daily audit. Reporting suffers, making it more difficult for admissions leaders to justify the effectiveness of packaging. So how can admissions leaders introduce strategic packaging that rakes in the revenue while keeping accountants at bay? They must establish justifiable allocations that are reported correctly within the point-of-sale system. Here’s how that works:
Set Clear Retail Pricing.
* Each product that is included and will be assigned a monetary allocation within the package must have a retail price assigned to it
* For each package, make a list of all products in the package along with their retail price.
* Now, calculate the Total Value of the package (this is simply the sum of all retail prices of products included in the package).
Assigning Allocation Percentages.
* Once you have established the value of your packages, you will need to assign an Allocation Percentage to each of the inclusions. If your Total Value for a package is $60 and the admission component retails for $30, then the Allocation Percentage for admission is 50%. If the Behind the Scenes Tour retails for $20, then its Allocation Percentage is 33.3%. And to finish off the example, let’s say that the remaining $10 represents animal feedings around the park. The Allocation Percentage for this product would be 16.7%.
Calculating Allocated Price .
* Finally, each product included within the package must receive an Allocated Price. This is calculated by multiplying the Retail Price of the Package with each product inclusion’s Allocation Percentage.
* Sticking with the above example, let’s say that the Retail Price of the Package is $49.99. To calculate the Allocated Price that will be assigned to admission, we simply multiply $49.99 and 50%, equaling $25.00.
* For the Behind the Scenes Tour, the Allocated Price would be $16.65 (33.3% of $49.99).
* Animal feedings would receive $8.34 (16.7% of $49.99).
* Notice that each of the allocations adds up to exactly the retail price of the package, $49.99. (Your Accountants will sing your praises!)
This is the most common and generally accepted way of assigning allocations. It satisfies Generally Accepted Accounting Principles (GAP) and keeps accountants in their corner. Most importantly though, reporting allocated dollars for packages affords leisure service industry leaders an accurate picture of packaging. And that is essential if we are to measure admissions performance effectively.