by Lucia Franco, Account Executive with The Garrity Group
You never know where a business lesson will surface.
During this year’s New Mexico State Fair, while I was waiting for the Ferris wheel to make its 360° turn to load up the next round of riders, I started talking with the ride operator.
He told me he had been traveling for more than 15 years, operating roller coasters for hundreds of fairs all around the United States. He talked about the assembly, disassembly, transportation and safety of roller coasters. That led the discussion to profitability of roller coasters.
When it comes to roller coasters and revenue, he said, there is an industry wide rule of nines - three roller coasters will lose money, three will produce a profit and three will be neutral. The three profitable roller coasters generate so much money they cover the losses from the three roller coasters that are in the red.
He wouldn’t specify which roller coasters were which, but he implied that the profitable roller coasters should be easy to spot by ticket prices and wait lines. Over 200 feet off the ground, I attempted to group the roller coasters below me into the three categories. The spiraling line in front of the looping Ring of Fire told me which one was bringing in the green.
Where else does this rule of nines apply? It can apply to many businesses across a broad spectrum of categories. For example, many restaurants actually lose money on promotional items that get people in the door but are cashing in on high profit-margin items such as $3 soft drinks that cost 15 cents to produce. These are referred to as loss-leaders.
In large universities, small sports programs frequently are subsidized by the larger, profitable sports, according to Forbes.
In the NBA, over ten teams claimed financial losses last year, but the NBA is still a highly profitable organization due to power teams like the Los Angeles Lakers that raked in $115 million in the 2016-2017 season alone, according to ESPN.
In the realm of public relations, Tom Garrity will often talk about the three different clients: clients, clients that breakeven on costs, clients that provide a profit.
All successful business owners should be aware of where they’re losing money, making money, or breaking even. Something to think about when you buckle in for your next ride on a roller coaster.
Lucia Franco is an assistant account executive with The Garrity Group. She is an avid sports follower who combines humor and quick wits to make for comical sports commentary.