Most competitions that lose money were priced on hope. The prize looked great, the ticket price felt right, and nobody worked out what happens if it doesn't sell out. Here's the arithmetic to do before you buy a prize, with a worked example.
The rule
Never run a competition you couldn't pay out if it sold one ticket. Pricing decides how much you make. Your cash reserves decide whether you can honour the prize when sales are slow.
The four numbers
- Prize cost. What you pay, not the retail price: the item, delivery, any insurance while you hold it, and any VAT you can't reclaim.
- Ticket price. What one entry costs.
- Ticket cap. The most tickets you'll sell. It sets your upside, and it sets the odds you're advertising.
- Sell-through. The share of the cap you'll realistically sell. Plan for 60%, hope for more. Sold out is a bonus, not a plan.
The costs people forget
- Card processing. With a typical Cashflows rate card it works out at roughly 2.4% + 23p per order. That's an estimate for planning: your actual rates are set after Cashflows reviews your business. The pence are per order, not per ticket, which matters a lot for cheap tickets (see below).
- Platform fee. On Giveawayz it's a percentage of ticket sales that depends on your plan: 3% on Starter, 2.5% on Growth, 2% on Pro and 1% on Enterprise. It's invoiced to you separately, never taken from a sale.
- Fixed monthly costs. Your plan's subscription and your card processor's monthly fees. Spread them across the competitions you run each month.
- Free entries. Postal and online free entries take places in the draw but bring in no money. Most operators see few, but allow for them.
- VAT. Ask your accountant how it applies to your entry fees before you set prices. This example leaves it out.
A worked example
A prize that costs you £4,000, tickets at £2.49, a cap of 3,000, on the Growth plan. Assume people buy three tickets per order on average.
| 60% sold | 80% sold | Sold out | |
|---|---|---|---|
| Tickets sold | 1,800 | 2,400 | 3,000 |
| Ticket sales | £4,482.00 | £5,976.00 | £7,470.00 |
| Card processing (2.4% + 23p per order) | £245.57 | £327.42 | £409.28 |
| Platform fee (2.5%) | £112.05 | £149.40 | £186.75 |
| Prize cost | £4,000.00 | £4,000.00 | £4,000.00 |
| Left before other costs | £124.38 | £1,499.18 | £2,873.97 |
The break-even point is 1,746 tickets, about 58% of the cap. Below that, this competition loses money. At 60% it barely covers the prize, which is why 60% is the number to test against.
If 60% isn't comfortable, you have three levers: a cheaper prize, a higher price, or a bigger cap. A bigger cap only helps if you can genuinely sell more tickets. It also lengthens the odds you're advertising.
Why cheap tickets and bundles matter
Because card processing charges pence per order, a single cheap ticket is expensive to sell:
- One 99p ticket on its own costs about 25p to process, around 26% of the sale.
- Five 99p tickets in one order (£4.95) cost about 35p, around 7%.
Bundles and sensible minimums keep the per-order pence from eating your margin. Remember that a bundle discount also lowers your revenue per ticket, so run the numbers with the bundle price, not the single price.
Five mistakes that sink new operators
- Pricing from the prize's retail value instead of what it costs you.
- Planning on a sell-out. Plan on 60% and treat anything above it as profit.
- Ignoring per-order fees on cheap tickets, as above.
- Moving the closing date to sell more. If your terms don't clearly allow it, changing it after launch is a problem under the CAP Code, and it's exactly the behaviour the DCMS Voluntary Code targets.
- No cash buffer. Your prize has to be honoured whatever happens to sales.
Check your own numbers
Our calculator shows what you keep from ticket sales after card processing and the platform fee, for any price and number of tickets, using the same typical rate card. Take your prize cost off that. Inside Giveawayz, the competition builder does the whole sum once you enter what the prize costs you, and uses your own card rates once you've saved them.
New to all this? Start with our guide to starting a prize competition business.