How to Estimate the "Expected Value" of Your Sponsorships (to Forecast Revenue More Accurately)

It's human nature to be bummed when a deal doesn't work out, but it especially sucks if you were counting on that money to pay essential bills.

This is why it's critical to start calculating the Expected Value of all your potential sponsorships to have a more accurate revenue figure.

For example, let's say you're negotiating three separate deals and quoted each brand the following:

• Deal X: $1,000

• Deal Y: $3,000

• Deal Z: $5,000

You can assign the following probabilities that each deal will close based on the context and dynamics of each negotiation.

• Deal X: 90%

• Deal Y: 40%

• Deal Z: 15%

Instead of subconsciously banking on $9,000 worth of sponsorships, we can calculate the Expected Value of these three opportunities:

• Deal X: 90% * $1,000 = $900

• Deal Y: 40% * $3,000 = $1,200

• Deal Z: 15% * $5,000 = $750

Total Expected Value (Deal X + Deal Y + Deal Z) = $2,850

This figure is a much more accurate estimation of the revenue you can expect from these three negotiations.

We need to do a more complex example because, remember, you're no longer spitting back one number when a brand asks how much you charge. You're sending packages!

Imagine this scenario where you send three brands three packages each and assign a different probability to each package:

Deal 1:

• Package A: $1,000 (80%)

• Package B: $2,000 (15%)

• Package C: $3,000 (5%)

Deal 2:

• Package A: $3,000 (5%)

• Package B: $5,000 (90%)

• Package C: $7,000 (5%)

Deal 3:

• Package A: $10,000 (50%)

• Package B: $20,000 (25%)

• Package C: $30,000 (25%)

The Total Expected Value becomes:

Awesome, right?

Of course, you may win or lose all three negotiations, too!

However, reframing your expectations and understanding the power of probability will give you more clarity and objectivity when growing your sponsorship business.