These tips can help you in pricing a tour while still offering an outstanding value for those that are traveling with you.
We always want to provide “goodies” for our group members, and we may need extra party and promotional assistance in pricing a tour. Our trips need to make a profit as well, but we can’t have our planning seem like a bureaucratic buying process.
We can either put together our own trip, or we can ask a tour operator to quote us a net cost for an entire package. In both scenarios, we need to ensure we are making a profit on our trip, but you cannot act like a sales shark with this process.
(For more advice on this topic, pick up a copy of Traveling Tribes.)
How Many Tour Participants Do We Price Upon?
How can you tell how many people are going to join the tour? Ten, twenty, 30 or more? We don’t know. But we do know that we will have to make assumptions, and cost the trip on the minimum number of participants. So when pricing a tour, be modest and go with the minimum, not the maximum.
Book the Maximum, Price for the Minimum
Try to book in advance with the maximum number you think will be joining you on your trip, but price for the minimum. For example, book a motorcoach for 40, but price the tour based on 20. When you get the additional 20, you will make the profit.
One factor of costs are the variable costs. These are meals, hotel costs, entrance fees and other costs that relate to each tour participant. Another cost is fixed costs. These are those that relate to the tour project as a whole, and don’t change with the number of participants.
The numbers break down like this:
Variable Costs:
Hotel at $86 net per night/room x 3 nights = $258 total per room
Divided by 2 persons in the room = total hotel cost per person $129.00
Tax on above room, if at 7% = $9.03
Breakfast, 3 mornings at $8.50 = $25.50
Welcome cocktail party, estimate 2 drinks at $5 per drink = $10.00
One half day city tour at $35, One full day excursion at $55 = $90.00
Baggage porter at $1 in and $1 out of the hotel = $2.00
One theatre evening, tickets at group rate, per person = $25.00
Total Variable Costs Per Person: $290.53
Fixed Costs:
Motorcoach charter, 40 seats, at $650 per day x 4 days = $2,600.00
Promotional costs—flyers, paid ad in town newspaper = $400.00
Tour escort’s expenses, variable from above, if not complimentary by suppliers = $454.03
Total Fixed Costs Per Tour Project: $3,454.03
Putting It All Together:
Per Person variable expenses = $290.53
Each person’s share of the $3,454.03 fixed expenses, if assuming 20 participants = $172.70
Total Net Costs Per Tour Participant $463.23
We now know that if we have 20 people join the tour, it will cost us $463.23 per person to operate this tour. The next question is how much are we going to mark up these net costs and what are we going to charge each person? Let’s assume we wish to mark up the per person net price of $463.23 by 15%, the add‐on would be $69.50 per person, and we arrive at a total sell price of $532.73.
We may round it up or down, arbitrarily deciding to sell it at $530 or $535, or even drop our profit and sell it at only $499. (Note: a markup of 15% does not yield a 15% profit. The profit will be 13%. To make 15% you would divide the costs by .85, thus selling it at $545).
No Law on Markups
There is no “law” that we have to mark it up 15% when pricing a tour. If we feel $499 is not a sellable price, we may have to rethink the mark up or adjust the content of the tour—perhaps drop to a less expensive hotel or other similar adjustment. On the other hand, if the itinerary is sufficiently distinctive, maybe we don’t need to be competitive in price. Another way would be to price it on 25 expected participants rather than 20 if we really can sell 25. Note that if we were successful at selling 20 at a $69.50 markup per person, our organization would earn more than $1,000 on this trip. This would perhaps give us a little extra money to do something special for the participants, like pay for a reunion party.
The Secret Source of Revenue
The secret is that we would earn an extra $172.70 per person on each additional traveler above 20 that joins the group, plus the $69.50 markup. If 10 additional participants join, they add a total of $2,667 extra to the organization. Why? Because the first 20 people who joined have already paid for the fixed expenses of $3,454.03. Tour participants #21 through 30 pay us the same trip cost as everyone else.
However, we do not have to pay out their share of the fixed expenses ($172.70) since the first 20 participants have already covered it. Pricing a tour is indeed a slippery slope, but if one understands the basics behind it, one can adjust prices upward or downward to meet the financial needs of the organization.
