Is Your Tourism Business as Profitable as it Could Be?

The key to a successful, sustainable business lies in your pricing strategy. If your services are priced too high, you risk losing customers to competitors. Too low, and you might be barely breaking even.

At ResBook, we understand that determining the right price for your tourism experiences can be challenging. That's why we're here to guide you through the process and help you develop a pricing strategy that works for your business.

Understanding Pricing Strategy

A pricing strategy is the method you use to set the prices for your tourism offerings. It should take into account your operating costs, market conditions, local competitors, and the profit margin you aim to achieve. Different strategies can be applied depending on your business goals and the nature of your services.

Here are five popular pricing strategies:

1. Value-Based Pricing: Price your services based on their perceived value. If your experiences consistently receive high ratings and glowing reviews, customers are likely to be willing to pay more for the premium experience.
2. Competitor-Based Pricing: Set your prices based on what similar operators in your market are charging. This ensures that your prices are competitive, giving you a better chance of attracting customers.
3. Cost-Plus Pricing: Calculate your total operating costs and add a markup to determine your selling price. For example, if it costs you $100 to deliver a service and you want a 10% profit margin, you would price it at $110
4. Seasonal Pricing: Adjust your prices according to the time of year. During peak seasons, when demand is high, you might increase your prices. Conversely, you could lower them during off-peak periods to attract more bookings.
5. Last-Minute Pricing: Offer discounts on services that haven’t sold out close to the date of delivery. This can help you fill remaining spots, ensuring that your experiences run at full capacity.

The Psychological Edge

Psychological pricing is a tactic based on the idea that certain prices can influence consumer behaviour. For instance, setting a price at $99.99 instead of $100 can make the product seem significantly cheaper, even though the difference is just one cent.

Other strategies, like "buy one, get one free" or displaying the original price next to a discounted price, can create the perception of getting a deal, encouraging customers to make a purchase.

How to Price Your Tourism Services: A Step-by-Step Guide

1. Analyse Your Financials

Begin by reviewing your Profit and Loss (P&L) Statement to understand your current financial situation. This will help you determine your total operating costs, including both fixed costs (e.g., rent, insurance) and variable costs (e.g., wages, fuel, meals). Understanding your costs is crucial because it sets the baseline for your pricing.

2. Calculate Your Costs and Desired Profit Margin

To calculate your service price using the cost-plus method, use the following formula below. This formula ensures that all your costs are covered, and you still make a profit.

 *amend room(s) to tours for tour providers.

3. Conduct Market Research

Research what your competitors are charging for similar services. This will give you an idea of the market rate and help you position your pricing accordingly.

4. Factor in Value-Added Services

If your offerings include additional perks, such as complimentary refreshments, free parking, or exclusive access to certain sites, you can justify charging a higher price. These extras add value to the customer experience and differentiate your services from those of competitors.

5. Build in Agent Commissions

If you work with agents who make bookings and receive commission in return, you’ll need to build commission into your retail pricing so that the net amount you receive after paying the highest commission rate is still profitable (net rate + commission amount = retail rate). Agents will sell at the retail rate and will pay you less their agreed commission percentage. The retail rate can be in your brochure and on your website for bookings, which gives you a higher profit margin for direct bookings.

6. Adjust for Demand

Consider adjusting your prices based on demand. During busy periods, such as holidays, you might increase your prices. During slower times, offering discounts or last-minute deals can help attract more customers.

7. Mind Your Discounts

While discounts can help boost bookings during low seasons, be cautious not to overuse them. Frequent discounts can condition customers to expect lower prices and devalue your offerings.

8. Regularly Review Your Pricing

The tourism market is dynamic, and your pricing should be too. Regularly review your prices in comparison to competitors and adjust as needed to stay competitive.

By carefully analysing your costs, understanding your market, and choosing the right pricing strategy, you can ensure that your tourism services are priced competitively and profitably. Remember, pricing is not a one-time decision—it requires ongoing attention to ensure your business remains sustainable and profitable.

At ResBook, we're here to help you navigate the complexities of pricing so that your offerings bring you the profit you deserve.

'Are You Selling Yourself Short?' Webinar

Watch an engaging webinar to evaluate whether your tourism products are priced to meet your business goals. 

Posted by Website Admin on August 05, 2024