Minimum guarantees – they are promises, backed by a contract, that chamber directory publishers make to chambers guaranteeing a minimum dollar amount of royalty to be paid to the chamber upon completion of their chamber membership directories, community guides, maps or other publishing projects.
It may seem like a great deal for the chamber. The chamber knows exactly what the minimum will be, so they can budget accordingly. Plus, they can use the high minimum promised by one publisher as a bargaining chip when other chamber directory publishers are approaching them for their business.
Minimum Guarantees Hurt Chambers & The Industry
But the truth is, minimum guarantees are an outdated practice. They hurt chambers and they hurt the industry. And if you are receiving or demanding a minimum guarantee by your provider, it may only be a matter of time before your chamber feels the negative impact of this way of doing business.
Minimum guarantees inherently aren’t a bad idea. For example, a minimum guarantee that is equivalent to about 10% of projected sales is a reasonable expectation. The problem occurs when chamber directory publishers make promises or are pressured by the chamber or their competition to deliver a higher number, one that is unachievable for the budget of the project or is only achievable if sales meet “best case scenario” goals. There are a lot of moving parts on a publishing project. There are a lot of expenses. Those expenses are funded by sales revenue. If sales do not meet the “best case scenario” goals, and the publisher has promised a minimum guarantee in the form of a dollar amount, there is going to be a problem. The publisher may not be able to cover the costs with the money that is coming in.
Case in Point
Here’s an example. A chamber in Texas that we now work with, was working with an outside publisher to produce their community guide. The chamber was promised a $10,000 minimum guarantee. Before the 2008 recession, ad sales on the project hit $100,000, so everything was fine; the minimum guarantee was in that safe zone of 10% of the projects sales. But in year two of the contract, things didn’t go so well. The economy was in a downturn and ad sales only generated $60,000. But the chamber was still promised $10,000. So now the publisher was faced with delivering a 17% royalty. In year three of the contract, sales dropped to $45,000. Again, the publisher was contractually bound to pay the chamber a minimum guarantee of $10,000. This time it represented 22% of the project’s revenue. The publisher had to pull money from other projects to cover the minimum guarantee, in essence robbing Peter to pay Paul. The publisher ultimately collapsed.
Why Chambers Should Care
You may be thinking, why should the chamber care? They got their money.
Perhaps on one project, it is possible for the publisher to absorb the cost of a publication that did not meet its financial goals. But chamber directory publishers don’t work with just one client. When minimum guarantees are spread across dozens of chamber projects, it places tremendous financial strain on the publisher and puts every one of those projects in jeopardy.
It’s an unsustainable model and no doubt has been at least partially responsible for the collapse of some chamber directory publishers over the years. Countless chambers and their members have been burned by failed chamber directory publishers, leaving chamber publications unfinished, members with no refunds on their ad purchases, forcing the chamber to pay someone to complete the publication, or getting “rescued” by another publisher which potentially sets up further challenges in the future.
So if you are tempted to demand a minimum guarantee, or you are courted by a publisher that promises one, consider the possible repercussions. A better option for you and your publisher is guarantee not of a dollar amount, but of a certain percentage of your publication’s ad sales.Be sure the chamber promotes the heck out of the publication while sales are open to give it the best possible chance of success.
Another option – work with Chamber Marketing Partners where all of your project’s revenue flows directly into the chamber.
With us, you control every aspect of your project. We provide a completely transparent budget so you know exactly what money is coming in and what’s going out. Your members pay the chamber for their ads, not us.
We turn the royalty model around, you pay us a percentage instead of us paying you a percentage. All the profit goes to you and we’re paid for the work we do.
Our model is different, proven and very successful. Contact us to see if working CMP makes sense for your chamber.