One of the key factors for success in the tourism industry is the right tour costing and pricing. Set the price too high and people won’t buy. Set it too low, and you’ll go out of business.
To ensure that consumers purchase your tours and partners promote them, your prices must be consistent, accurate, and competitive.
If you are developing a new vacation package, have you considered listing your existing tour offer on various distribution channels? Or perhaps attract another type of travelers?
The cost and price of your products are connected with the decisions you make in the early stages of product development.
This article will help you determine the individual elements that make up the cost and price of your products. Read on and learn how to better costing and pricing a tour.
Finding an optimal price for your travel products involves researching, doing some math and a little bit of trial and error.
Below you can find what is necessary for a tour operator to get as close as possible to the ideal price of a tour.
The pricing objective is the goal you want to achieve with your pricing strategy. There are multiple pricing objectives, some of the most common are:
Take your time to choose the right price objective for your business. You should pick the one that is in accordance with your marketing, financial, strategic and product goals.
Remember, business and market conditions change over time, may your price objective as well. Review it when you feel it’s necessary, and don’t be afraid to change it according to a future business scenario.
The demand has an important role in the tour costing and pricing
According to Investopedia:
Demand is an economic principle referring to a consumer’s desire to purchase goods and services and willingness to pay a price for a specific good or service.
In the tours and activities sector, demand means how many tourists would book your tour for a determined price.
Other factors that have a direct impact on the demand for your experiences are:
To estimate the demand for your product, you can perform surveys, price experiments, and statistical analyses. Creating your ideal customer persona will also help you measure the size of your market.
Calculating demand may be a complex task, so it’s a good idea to hire a specialized company to handle it for you.
Costing an experience is different than costing a good.
For the first one, you are essentially selling a service. Of course, your offer may include add-ons that are goods. But pricing those items is not the objective here.
To price an experience you should consider the many expenses needed to keep your business running. From energy bills to organizing, distributing, selling, and leading a tour.
Your final price should be able to cover all the expenses directly related to the tour, and also a fraction of the expenses that will occur despite the tour. Those are the direct and indirect costs respectively.
Some of the expenses connected to a tour operator business are:
The list of expenses goes on. But you should know all of them to better calculate the tour costing and pricing.
For that reason, don’t hesitate in asking for help from a professional accountant. Set the right cost will save you a lot of money.
Tour operators should benchmark their prices against competitors to establish a reference price.
A reference price is a price that a traveler considers fair to pay for your tour in comparison to competitors’ tours.
When benchmarking the competition you should note the differences between the experience you are offering and the ones your competitors are offering.
What are their differentials? What is their price? Which channels do they use to distribute their tours? Who is the market leader? What are their payment conditions?
Each detail matters. By understanding your competition it will be easier to see your own strengths and weaknesses, and what is considered a fair price for your tours in the eyes of your customers.
Unfortunately, there isn’t an ultimate formula for tour costing and pricing. Although would be great just to add the inputs, set the parameters and… voilà! Here you go the right price for your experience.
As I said at the beginning of this article, finding the price that works better for your business is more or less a trial and error journey.
The good news is that you can use one of the methods I’ll describe below as the starting point for your journey.
This method involves calculating the cost of a tour and then adding a percentage markup to determine the final price. That’s the easiest way to calculate what a tour should be priced at.
There are essentially five ways that you can do that:
When using this method you will set a final price based on the current market conditions.
This means you should know very well the market that you are operating including your competitors, demand, etc.
This method fits well with companies that offer products with a high intangible value. That’s the case for tour operators.
Each experience is unique and customers will perceive a higher value as more memorable the experience is.
In a similar way as the costing oriented pricing, there are different techniques to find a final price based on the market:
If you wanna dive deeper into the matter, the book Pricing Done Right is a good start.
Calculating the tour costing and pricing is essential for all tour operators and it’s something that should be done in the early stages of your business.
Finding the right prices for your products will prevent future losses. If you are in the market for a while, consider checking your pricing objectives and updating your market research.
That is something you should do once in a while to make sure your prices are competitive and that you are receiving what is fair for your tours.
If you found this article useful, download our guide The Best Way to Price Tour and Vacation Packages.
on August 18, 2021
Receive the latest news and resources in your inbox
Learn what Agritourism is, its advantages, how DMOs can support this activity and how destinations around the world are promoting it.by Felipe Fonseca on November 9, 2022
Learn six strategies to attract customers to overcome Seasonality in Tourism and keep your cash flowing even during the off-season.by Felipe Fonseca on October 26, 2022