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DrupalCon Europe: Solving The financial problem

September 5th, 2017

DrupalCon Europe plays an important role in moving Drupal forward by uniting community members across countries for knowledge sharing, networking, and celebrating. Plus, the event is one of the largest events focused on contribution back to the project. However, with waning attendance and financial losses, it’s time to find a new path forward so it is financially sustainable and provides value to the European community. This blog covers the financial problem we need to solve and it is part of a series that includes:  

  1. The problem we need to solve for financial sustainability

  2. The problem we need to solve to create unique value

  3. Results from a proposal based on community input

  4. A new path forward for DrupalCon Europe

The Financial Problem:

DrupalCon is a human experience. We certainly want to focus on the people in the community: what they want to achieve and what that looks like through an improved experience. However, financially the event needs to at least break even for us to continue providing this special experience. That is why we are starting this conversation by framing DrupalCon Europe’s financial problems.

We know that financially-focused blogs can be downright boring and not everyone feels comfortable reading financial statements. So this post provides several kinds of reports to illustrate the problem and we do our best to spell out where the challenges lay. Feel free to leave questions in the comments and we will answer them.

Last year, the Drupal Association contracted with a new financial planner, Summit CPA. They provide a lot more resources and financial insight than we have had in the past. One of the biggest things we learned last September was that DrupalCon Europe loses money. In the past, we did not include staff costs as part of the event cost, so we operated under the understanding that DrupalCon Europe was breaking even at a minimum. Our DrupalCon team spends 50% of their time on this event. Marketing spends close to 50%, the sponsor sales team spends 30%, engineering spends about 15%, and finance spends about 20%. For DrupalCon Europe, the staff costs add up to $220,000 per event.

It wasn’t wrong to not include staff costs in the DrupalCon budget. It just didn’t give the true picture of how this particular program was performing. As we started our financial turnaround last year, we realized that we need each of our programs to be self-sustaining going forward. Except, DrupalCon Europe is not self-sustaining. That puts pressure on the viability of other programs like Drupal.org, which needs to be properly funded to support everyone in the community.

Understanding Financials Through Comparison

One of the best ways to understand a situation is through comparison, so let’s look at DrupalCon Europe versus DrupalCon North America, which consistently operates at a profit due to several factors. We provide several reports below to help you see the comparison and the post walks you through those comparisons.

You will notice that all financials are in U.S dollars (USD). Since the European community works with different currencies, we felt it was less confusing and less prone to error if we kept our reports in USD.

DrupalCon Reports

DrupalCon North America has a net income percentage of up to 38% and makes up 45% of Drupal Association’s annual revenue. Meanwhile, DrupalCon Europe operates at a loss. For example, DrupalCon Dublin lost $176,000 and had a net income percentage of -18%. DrupalCon Vienna is forecasted to lose over $200,000 even with the programming reductions that we made earlier in the year.

DrupalCon North America Weather Report DrupalCon Europe Weather Report

DrupalCon Europe Financial Challenges

In short, DrupalCon Europe income is lower than DrupalCon North America due to fewer attendees and less sponsor support. However, expense per attendee is higher in Europe. Below is a summary of the main differences that make DrupalCon Europe unsustainable. We invite you to review the Profit & Loss statements and other financial reports so you can have more clarity around these points and possibly find ones we missed.

Greater Expenses than DrupalCon North America

One of the biggest cost difference is related to the convention center. Both DrupalCon Europe and North America are held in this kind of venue due to the attendance size. While DrupalCon Europe has less attendees than the North American event, it is still large enough to require us to be in a convention center.

We looked at moving the event to a hotel, but wifi and catering costs make this option more expensive. Also, hotel-based conferences require a large room block reservation that the Drupal Association would have to financially guarantee, which is a big risk. The European event attendees tend to opt for other lodging options like AirBnB. It’s unlikely we can sell enough hotel rooms to meet the guarantee and will end up paying a large penalty.

By comparing DrupalCon Dublin expenses with DrupalCon Baltimore expenses, you can see that the expense 5710: Facility and Furnishing is $328,000 in Dublin and $129,000 for Baltimore. This is the main expense putting strain on DrupalCon Europe’s sustainability.

It’s also more expensive to send staff and our contracted production team from the United States to Europe for a marathon of an event (up to 10 days).

Less Financial Support than DrupalCon North America

The challenge of funding an expensive, professional event like DrupalCon Europe comes down to two things: smaller attendance and less sponsor support. Here is a breakdown of how these two revenue items differ from DrupalCon North America.

Attendees

Smaller attendance with higher expenses make the event unsustainable. DrupalCon Europe attracts about 1,700 - 1,800 attendees compared to DrupalCon North America, which has over 3,000 attendees. This means there is less ticket revenue to cover costs. And DrupalCon Europe attendance is decreasing each year by about 14% a year on average (if you average in Vienna's forecasted attendance), making it harder to cover costs in the future.

Another attendee difference is that DrupalCon North America attracts end users who are either leveling up their skills or evaluating Drupal or looking for a service provider. Having end users at DrupalCon attracts Drupal shop / digital agency sponsors who get new business by connecting from this audience. Meanwhile, DrupalCon Europe primarily attracts builders (developers, project managers, designers) from Drupal shops / digital agencies. There are very few end users attending DrupalCon Europe. This impacts sponsor revenue as many Drupal shops / digital agencies do not want to sponsor an event where they are much less likely to get a business opportunity.

Sponsors

DrupalCon North America has about $850,000 in sponsor revenue while DrupalCon Europe has $300,000. There are a few reasons for this difference.

A big portion of DrupalCon North America’s sponsor revenue comes from North American Drupal shops / digital agencies. As mentioned, they sponsor because they can connect with the end user attendees who give them business opportunities. They also sponsor because the event is held in a country where they conduct business.

In Europe, and as mentioned above, Drupal shops / digital agencies are much less likely to get a qualified lead because it is primarily a developer event. Additionally, the Drupal shops / digital agencies in Europe support sales in their specific countries. As DrupalCon Europe moves around, sponsors find that the event is in a country where they don’t do business and therefore don’t want to sponsor.

As for the shops/ agencies who do sponsor, they do so to support the community. It’s simply getting harder for them to invest in the event as they chose to put those funds into marketing or operations. It is important to note that hosting and software companies do find value in supporting DrupalCon since they target the developer audience.

A Study of Ticket Sales Profitability

Another way to see how the income and expense challenges make DrupalCon Europe unsustainable is to look at what the sale of a ticket covers and how much is left over to go towards paying expenses.

Here is a report that shows profitability of the early bird and the regular rate ticket for DrupalCon Dublin and DrupalCon Baltimore. It shows that the profitability is:

DrupalCon Dublin

Early Bird Rate

DrupalCon Baltimore

Early Bird Rate

Ticket Profitability before sponsor income

              -$238.05

                       -$0.36

Sponsor income per attendee

                $188.86

                     $244.15

Total Ticket Profitability

                -$49.19

                     $243.79

DrupalCon Dublin

Regular Rate

DrupalCon Baltimore

Regular Rate

Ticket Profitability before sponsor income

              -$133.87

                     $170.39

Sponsor income per attendee

                $188.86

                     $244.15

Total Ticket Profitability

                  $54.99

                     $343.79

As you can see, we lose money for each DrupalCon Europe early bird ticket we sell. You may ask, why would we ever price a ticket that loses money? It’s a good question. When we priced this we did not include staff costs in the overall event costs. We were operating under the understanding that the ticket was making money. We can see now that when we include the staff costs to the overall event costs, this ticket type loses money.

You can also see that not only does the Dublin regular rate earn $300 less profit per ticket compared to Baltimore, that profitability needs to compensate for the losses accrued by the Dublin early bird ticket sales.

Looking more closely at the report, you can also see that having less DrupalCon Europe sponsor support puts the ticket sales profitability at an even greater disadvantage. 

Clearly, DrupalCon Europe has a financial structural issue to solve for.

Blockers to Financial Solutions

There are a few ways to solve the financial problem. Ticket prices could be increased, we could grow attendance to improve the profitability, we could stay in the same venue each year, or we could cap attendance and have a smaller DrupalCon to control costs. We looked at these options and found the following blockers to each solution.

  • Increase ticket prices.

    • We surveyed the European community and found that there was a strong resistance to increasing ticket prices even if more value was delivered. Many see this event as a community event that should be affordable or free. Many believe they pay through their code and non code contribution and don’t want to pay more in ticket costs. Many also told us they want the ticket price to be greatly reduced.

  • Grow ticket sales revenue by expanding who the event serves

    • Attract more “builders”. Both DrupalCon Europe and North America attract a “builder persona” who work at a digital agency or Drupal Shop (developer, project manager, designer, UX). However, North America attracts builders from end users as well whereas DrupalCon Europe does not. It has been challenging to grow the end user / builder attendee at DrupalCon Europe. Part of the challenge is that when an end user adopts Drupal, the Association does not know. There is no closed-loop system that tells the Drupal Association who is using the software. We have to rely on Drupal shops / digital agencies to provide this information or be our marketing channel. In Europe, several agencies said they don’t want their end user attending so they stay positioned as “the trusted source on how to Drupal”.

    • Attract “evaluators”. In North America, the event has a commercial element, attracting decision makers who want to meet with sponsors and learn more about Drupal. This not only grows ticket sales, but it also encourages the high level of sponsor support in North America. However, DrupalCon Europe attendees strongly request that we don’t include a marketing or commercial focus at DrupalCon Europe, keeping it a purely developer event.

  • Hold a smaller event to control costs.

    • We researched this over the past few months. Looking at a 1,000 - 1,200 person event, venue options that can meet our event needs are still too expensive. And after testing the smaller event concept, we found that many community members were dissatisfied with this direction.

    • For DrupalCon Vienna, we controlled costs by making the program smaller by reducing the Monday trainings and summits. We also eliminated other elements like the DrupalCon t-shirt. Despite these changes, we are still operating at a loss due to decreasing attendance. Many expressed they understood why we needed to make these changes, but were unhappy with them. We are grateful to the Drupal Austrian community for bridging this gap and hosting summits and trainings on the Monday before Drupalcon Vienna.

Staff Capacity

This part is a bit sensitive because I’m talking about staff. They gave permission to have these details shared with you.

Last year, when the Drupal Association reduced its staff to bring our expenses in line with our revenue, we eliminated work to match the smaller team capacity. After living with that reality for a year, we can see that we did not do a good job with DrupalCon.

The DrupalCon staff consists of Rachel Friesen, Director of Events, and Amanda, Gonser, Program Manager. Rachel is an operational wizard, who is committed to excellence, and cares deeply about delivering a special experience that meets our community’s needs. Rachel has incredibly streamlined the way we produce DrupalCon from site selections, budgeting, space planning, vendor management, sponsor support, marketing oversight, and so much more. She moves an army of people ranging from the board, staff, vendors, sponsors, and community members through a process that ensures that everything gets done on time with the best possible planning. I am always impressed how Rachel goes the extra mile (er, kilometer), to hear and address everyone’s needs and ideas. It is truly a balancing act.

Many of you likely know Amanda from the DrupalCon emails or you are one of the hundreds of volunteers who work with her. Amanda is high energy, bubbly, focused, and moves hundreds of people through a process that allows everyone to contribute in their special way; track chairs who pick sessions, trainers, local volunteers who create the local experience, a troupe of event photographers, room monitors, social media volunteers, and more. As with all people management, Amanda not only gives volunteers a structure to follow, but she invests time with them to foster relationships. We can not produce DrupalCon without our amazing and generous volunteers and they deserve a meaningful experience.

While producing DrupalCon, many people want to try new things like add a new program to DrupalCon five months before the event or create a new sponsor package. There are certainly great ideas that can level up the experience. Unfortunately, Rachel and Amanda simply do not have the capacity to entertain many new ideas. That’s frustrating for both of them because they want community members to realize their ideas. It’s equally frustrating to the community members. In the end it can create a lose-lose situation.

Over the year, we noticed that Rachel’s and Amanda’s calendar is booked every hour throughout each day. When we talk, they have little time as they run from one meeting to the next. It’s a frenetic pace. We moved to Jira this year and their burndown charts show that they can not complete everything they need to do within a sprint. This pace and high levels of stress are causing health issues.  

Amanda did a capacity study. It showed that she is scheduled to do over 69 weeks of work in a year (and that doesn’t include sick or vacation time). Just a reminder, a year has 52 weeks. Rachel is in a very similar situation. We looked at which work we could eliminate, but at this point there is nothing. Naturally, the situation is untenable and must be addressed immediately.

Given how small our team is, the only way to address this is by adding another staff member or contractor. This means expenses will further increase for DrupalCon Europe. We can go this route, but in the end what this tells me is that we do not have the right operational model to support two DrupalCon per year - let alone the ability to scale back up to three per year.

I want to pause and thank Rachel and Amanda for pushing through this challenging time. Please join me in thanking them. I also want to thank the other Drupal Association staff for going above and beyond to make DrupalCon a special experience. You support Rachel and Amanda in so many ways to deliver a great event for the Drupal community.

Additionally, it can not be said enough how special our volunteers are. They contribute their time and talent while already having full lives that include jobs, family, friends, and other interests. Volunteers could choose to do many other things with their free time, yet they chose to create DrupalCon for all of us. Thank you.

Summary

Phew! That was a longgg DrupalCon financial overview. Thanks for hanging in there. I hope sharing all that data and insight helps answer some of the questions we’ve seen in past blog comments and on Twitter this past year.

As you can see, solving DrupalCon Europe’s sustainability is critical, not only so this event can exist into the future, but so it doesn’t put strain on the sustainability of Drupal.org, which is clearly imperative for the project’s viability. We need to answer the question “how do we balance creating a valuable event with the financial realities of event production and the realities of staff capacity?”

But before we get into solutions, let’s look at what the community wants DrupalCon to achieve.

Our next blog in this series will be about the other problem to solve: How can DrupalCon Europe provide unique value?