Charge accounts

Meetings & Conventions - Charge Accounts - April 2000

April 2000
Shirley Mertz

Profit taker: Under the direction of Sherley Mertz, CMP, Nationwide Insurance's meetings and travel department made $4.5 million in 1999.

Charge accounts

How some planners are turning their corporate meetings departments into profit centers

By Cheryl-Anne Sturken

Shirley Mertz, CMP, is not one to shy away from a challenge. Last year, when her employer, Columbus, Ohio-based Nationwide Insurance, merged its meetings and conferences unit with its corporate travel department, the veteran meeting services manager was handed the challenge of her professional life running the new unit as a profit center. In prior years, the meetings department operated as a shared-services unit, with departments allocating a portion of their budgets for meeting services.

Profit margin results for 1999 were an impressive $4.5 million, based on fees charged to internal clients as well as preferred vendor savings and other negotiations. It was by all accounts a solid first-year performance. But Mertz has more ambitious plans for her department. “We didn’t reach our revenue objective. We can do better,” she insists. “Last year was our first year, and we probably didn’t establish our rate structure properly. This year’s rates are much more accurate.”

Running a meetings department as an internal profit center is certainly not a new concept. At the Atlanta-based conference planning department of MCI WorldCom, the telecommunications monolith headquartered in Clinton, Miss., the practice is working well. But for others that experimented with the idea in the early 1990s, such as Ford Motor Co., AT&T and The Travelers Insurance Co., it was less successful; all have since scrapped their programs.

Still, for every meetings department that steps up to the profit-making challenge and ends up walking away, there is another willing to give it a shot. Currently, Chicago-based insurance giant Conseco and BellSouth Wireless Data in Woodbridge, N.J., are among the firms pursuing plans to reposition their departments as profit centers.

Why profit?
Meetings departments, like accounting or marketing, traditionally are cost centers. Why go for profit? For many planners, including Mertz, the move begins as a demand by upper management looking to justify meeting costs. “The objective of our department is to be a zero-based department in essence, to pay for ourselves, with a small profit,” says Mertz, who also is president of the North Vancouver, British Columbia-based Insurance Conference Planners Association. Sharon Shively

Other planners have been proactive in planning for profit, justifying their existence and much more. Last year, Sharon Shively, CMP, manager of trade shows and events at BellSouth Wireless Data, turned the company’s premium merchandise program into a solid money-maker. By locking in contracts with quality merchandise vendors, for items such as baseball caps, golf shirts, cups and bags, and aggressively marketing the program’s services over the company’s intranet to all departments, Shively managed to pull in enough business to realize a 15 percent profit. Meanwhile, the company got quality merchandise at competitive prices. This year, Shively hopes to work the same magic for the meetings department, which now handles 150 events annually.

“What I see as a money-making department is one that saves the company money and at the same time delivers a good product at a good price,” says Shively.

Not everyone agrees. “How can a meetings department possibly operate as a profit center? All you are doing is moving money around the company,” insists Sheryl Richert, manager of 3M Co.’s St. Paul, Minn.-based corporate meetings management department. Richert speaks from experience. Several years ago, the 3M meetings department tried charging back for its planning services (the department’s staff of 14 handles some 600 events a year) but eventually pulled the plug. “It was just too much paperwork,” says Richert.

Martha Fetter, manager and senior meeting planner of conference services at Hartford, Conn.-based The Travelers Insurance Co., agrees. “I am a corporate meeting planner, not a profit center. I’m saving the company money through my negotiation skills.” Travelers disbanded its profit center structure in the early 1990s, citing it as too cumbersome to operate.

The way Richert sees it, any well-run meetings department can prove its salt by tracking expenses and savings against standard rates. Says Richert, “The savings we bring in for the company through our preferred vendor contracts more than pays for our overhead.”

Breaking even
For John Hulka, group manager of hospitality services at Hoffman Estates, Ill.-based Sears Roebuck & Co., breaking even is a sweet enough deal. Several years ago, Hulka caught management’s ear when he proposed keeping all off-site meetings business some several million dollars worth in-house. At the time, that business was outsourced. “Show us it won’t cost the company any money,” was management’s response. Hulka did.

To figure out what he needed to charge, Hulka put Sears’ off-site meetings business out to bid at eight meeting planning companies. When proposals with fees of 8 to 22 percent rolled in, Hulka had the ammunition he needed. He proposed bringing that business in-house and charging a 4 percent fee on all land-based functions. “I showed management that I could hire two planners at $40,000 a year, give them benefits, and by charging half of what the nearest competitor was charging still save the company a lot of money,” says Hulka.

Last year, his department handled 120 off-site events, totaling $6 million in meetings business. The 4 percent he earns on that, says Hulka, gives his department a solid break-even performance. “I am very comfortable breaking even. I don’t need to make money to prove my worth,” he says.

In 1996, Pamela Varnon, manager of meetings and travel at San Antonio-based Kinetic Concepts Inc., a national medical equipment-rentals corporation, took a hard look at the profit concept but decided against it. At the time, KCI did not have an internal meetings department. “If you start charging people for something you get a rebate on, you come under a lot of scrutiny. And then you have to ask, would it really be in anyone’s best interest if you became a profit center?” she says.

Instead, Varnon sold her bosses on the idea of creating a strong meetings department and marrying it to the company’s contracted travel department, Rosenbluth Travel, which had been handling meeting requests. Some meetings were outsourced to other companies, even Rosenbluth subsidiaries.

The way Varnon saw it, the company stood to save a tremendous amount of money if it held on to its meetings-generated commissions while leveraging buying power. “If you have 300 people going somewhere for four days, that’s a lot of hotel, car and air commissions,” says Varnon. “I told them, ‘You are spending money and losing what you could be gaining back.’”

Today, Varnon’s staff of three works closely with three on-site Rosenbluth travel agents handling 300-plus events a year. Departments are charged back the actual cost of the meeting, and the meetings department’s costs are allocated to departmental budgets. Savings, says Varnon, are “well over $100,000 year.”

Words from the wise
Creating a profit-generating meetings department isn’t easy. Those who have done it share the following advice.

Name a price. Running a profit center means bringing in hard dollars dollars that more than offset expenses. Knowing what to charge one’s customers is crucial. Keep in mind that the meeting planning charge is above and beyond a meeting’s actual line-item expenses, such as hotel, airfare and speakers. Specifically, it puts a price tag on a planner’s professional time.

Mertz designed a rate structure based on the various meeting planning services her department provides. For example, full-implementation meetings from initial site research to complete on-site handling command a higher rate than finding a speaker or providing only contractual help. Likewise, rush meetings are charged at a higher rate than those with a three-month lead time. Every rate structure includes a minimum of five hours of built-in consulting time.

Some corporations prefer to charge a flat fee. During the 1990s, when Evelyn Laxgang, CMP, headed up the global events division for Schaumburg, Ill.-based Motorola, that department charged 15 percent of the meeting bill, whether it was a one-day seminar or a turnkey international meeting. Laxgang now is director of the company’s strategic programs and events. (Motorola’s current global events team declined to be interviewed.)

Market yourself. Mertz’s main tool: the company intranet. “It’s free, and everyone reads it,” she says. The meetings department’s site includes a roundup of services offered and expertise available, and touts the preferred vendor programs. “The company has not mandated that [departments] use our services. If they did, we wouldn’t have to worry about promoting ourselves,” says Mertz.

Poor marketing, says Martha Fetter, created a handicap for Travelers’ meetings department when it operated as a profit center. “The divisions and the departments within the company didn’t even know we were offering our service. We had to be our own publicity center, and that alone was a full-time job,” says Fetter.

BellSouth’s Shively developed a separate Meetings Express site on her company’s intranet that assistants can access for help with planning smaller meetings. “[Meetings Express] offers guidelines and advice, but the ultimate objective is to advertise our resources and get them to come to us for their needs,” says Shively.

It also is critical for planners to stay on top of company news. Every time Nationwide snaps up a company, Mertz, marketing kit in hand, calls on the newcomers. “I introduce myself, tell them what services we can provide for them and how they stand to save money using our buying power,” she says.

Know your competition. At Nationwide, outsourcing is prohibited. If a department does not use Mertz’s services, its only option is to have a secretary do the planning.

“We want to stay close to the secretaries,” says Mertz. “They are a powerful group of people. We want them on our side.” Mertz makes sure her department gets invited to secretarial functions so planners will have the chance to tout their services and expertise to the competition directly.

Laxgang’s competition at Motorola was independent planners. “Imagine I’m making a proposal to a division, and they are looking at my proposal and seeing that it is priced higher than an outside firm that gets a commission from the hotel,” recalls Laxgang. “Those numbers are green dollars to management. They don’t see them as staying in-house.”

Expect resistance. The toughest challenge in operating a meetings department as a profit center, says Mary Wiseman, CMP, is convincing employees to pay for a service they once used for free. “They feel that because you are internal, they shouldn’t be charged for using you as resource,” says Wiseman, a meeting and event coordinator with The Saint Paul Cos., an insurance and financial services company in St. Paul, Minn.

Several years ago, The Saint Paul Cos. tried running its meetings department as a profit center, but then switched to a system that offered a combination of internal planning and outsourcing options.

Get it in writing. When the request for meetings assistance comes in, Mertz recommends planners assess the seriousness of the requesting department to commit meetings business.

Begin by having the requesting department fill out an official meeting request form, with information such as number of attendees, location, and food and beverage requirements. Respond with a general dollar estimate in writing, and have a decision-maker from that department sign the estimate.

“Obviously, the estimate can be adjusted,” says Mertz. “You are trying to give them a basic idea of what the program is going to cost. If they still are interested, set up a meeting time to really delve into specifics.”

This cuts down on idle meetings requests and discourages the department from fishing for resources and ideas, only to walk away and have an assistant handle the project.

Optimize record-keeping. At the end of the year, a department’s ability to document total savings is a tremendous credibility tool with management.

Operating as an internal meetings department also offers a great opportunity to create a top-notch meetings history database, which pays dividends both internally and externally. According to Mertz, “We show the vendors our buying power, which in turn translates into great contracts, and we show the departments that those deals are passed along to them.”

HOW TO DO IT

Turning a cost center into an internal profit center is no small feat. David Springsteen, CPA, partner at Withum, Smith & Brown, an international accounting and management consulting firm based in Princeton, N.J., answers some critical questions.

David Springsteen Should I do it? Selling your services to other departments can be a nightmare. You have to balance the administrative cost with the money you expect to make. Selling your services to the company’s clients, however, would be one way to generate income.

How should I get started? First, develop a budget and a forecast. Ask department heads what they budgeted in the past for meetings, and convert that into a revenue stream.

What skills does my staff need?They must be entrepreneurial willing to sell, collect and provide a great service.

How should I charge? Charging a percentage of the cost of the event can be dangerous; there’s no incentive to save. A fee for services might make more sense.

Can I overcome internal resistance? The best way to win people over is to let them negotiate. If using the meetings department is mandated, employees might become frustrated, especially if they feel they are being overcharged.

How will I know if it’s working? In 12 to 18 months, you should be at least breaking even.

C.A.S.