Arriving at the right price margins for travel packages can get tricky. It involves taking into consideration a number of factors and variables that may affect the end cost of your tour services. Given that travel and tourism is an extremely dynamic industry and witnesses cost changes typically with every season, assessing the right price margin can be the key to achieving targeted profitability and the desired growth curve of your business.
Striking the right balance between customer value and profitability can be a paradox that needs to be sustained and balanced out, all the while keeping the final pricing structure in mind. So, here’s a quick take on 5 useful tips you can apply for setting the right price margins for your travel packages.
5 Smart Tips To Use For Setting Travel Package Price Margins
Check The Operating Cost Incurrence
Even when operating in the travel and tourism industry, your business’s operating costs can be easily identified under either variable costs or fixed costs. Both these cost types form an essential component in determining the final price margins for your travel packages.
The variable costs of your travel business keep changing based on the total services you provide for any given period. You can assess the total variable costs incurred on your travel business based on the total number of tours conducted, activities assisted with, or any travel services provided.
These costs usually include cost types like wages paid to tour guides, fuel related expenses, cost of meals on the tour, reseller commission, and the likes.
The incurrence of fixed cost in any business, including travel agencies, is perpetual. So, once you have identified these costs, keeping them as a constant part of price margins becomes convenient. These costs usually include the likes of rents, equipment storage costs incurred annually, administrative costs, etc.
Keep them accounted for perpetually for an accurate inclusion in the final pricing of your travel packages.
Determine The Break-Even Point For Your Business
From the financing perspective of travel and tour providers, the break-even point for the business can be considered as cost recovery that just matches the cost incurrence. Identifying your travel business’s break-even point allows you to set the right price margins based on the upcoming traveling seasons.
It is ideal to identify the break-even point for your travel agency from one season to another for a better annual output as the variable cost for each season can change significantly. If done annually, it can portray an aberrated margin that does not justify your financial goals.
Closing in on the break-even point identification, you need to calculate the number of bookings you need to make at a set price and raise revenue that strikes just right for covering the trip costs. Then on, it can also be easy to calculate business profitability with the break-even point as a benchmark to set price margins.
Create A Profit Margin Curve You Wish To Operate At
You can then proceed to set your desired profitability margin based on which the travel packages would be priced. As the operational structure of a travel business is simple, identifying the profit margin can be straightforward too and be done through the method of cost-plus pricing.
In this pricing method, a percentage of product cost is added as a mark-up on the initial cost to determine the travel package to identify the price margins. While this forms a part of pricing strategy, which we will deal with later, what’s crucial to understand is how to determine this profit percentage to be added to the cost of your tours for travel package determination.
When identifying the profit margin, one needs to assess a host of critical factors, as elucidated below.
The Overall Demand For Your Travel Package Type
It is crucial to understand the demand of your travel package type or types in the existing market to set the price margins. If you are new in the industry of travel and tourism, you can undertake market research to determine the demand for different types of travel packages. For businesses already operating in the segment for a few years, the data can be easily collected from their previous sales volume. This information regarding the overall demand can be utilized in favor of setting up the final profit margin on the product.
Value Addition You Aim To Provide
The profit margin of your travel packages has a direct correlation with the value you seek to provide to your customers. The overall value addition can be determined on the basis of any added services or facilities your package extends to the customers. In case a travel agency goes out of their way to add travel convenience elements to their travel package as against the standard packages from their competitors, the margin can be proportionately modified. These can be implemented under two pricing models. Either a travel business can price their packages on an all-inclusive basis or can choose no-frills package pricing, where added services are provided against price add-ons.
Prevailing Market Rates For The Tour/Activity Type
Competitiveness of travel packages is another critical aspect that needs to be considered when determining the price margins for the final package pricing. You must thus consider all the rate range prevailing in the market and determine the final pricing accordingly. Given that hospitality forms a significant component of overall travel experiences, price margin ranging can always be paired up with these elements to define the final cost.
Based on these considerations, setting the price margins for various travel packages can be simplified.
Assess Various Pricing Strategies
Another essential aspect to consider when determining the price margins for travel packages is selection of the right pricing strategy. One of the strategies already mentioned earlier is through cost-plus pricing. Other well-known strategies for determining the price margins for various travel packages include the following.
Value-Based Pricing
In this pricing strategy, the value of the travel package is determined based on its past reviews and ratings, and is given necessary weightage to determine price margins. It is because a high-rated tour, say one with 5-star ratings, is more likely to add to the purchase worth of the customer than a 2-star rated package.
Last-Minute Pricing
Pricing tours on a last-minute basis can be one tricky yet strategic move to run the tour at full capacity. These pricing strategies also aim to enhance profitability based on travel package sale volume rather than the per package margin. Price margins under last-minute pricing strategies are mostly low per package due to huge discounts offered on tours but the overall margin can fare well.
Competitor-Based Pricing
With more and more cost-effective tour packages from newer travel agencies coming in the market, one can barely forego assessing the impact of market competition on price margins. Under this strategy, the pricing of package profit margins are steeply based around competitor price ranges.
Seasonal Pricing
Seasonal pricing is another strategy that is the most consequential in the travel and tourism industry than any other due to its inherent dependency on seasons and weather conditions. Depending on the location you operate in and the scale at which seasons affect tourism in the location basis weather changes, seasonal pricing of profit margins can be significantly fruitful. Travel package price margins can always be marked up during peak travel seasons and marked down with low tourist footfall.
Discount Pricing
In the travel industry, the futility of setting volume-based price margins is second to none. One of the best ways to do so is by offering discounted travel package pricing for corporate bookings or group bookings. As travel packages are always chargeable on a per person basis and the traveler types mentioned above bring multiplied bookings at a go, discounting the per person price gets to be a win-win for both travel agencies and customers.
Travel businesses always have an option to combine one or more of these strategies to best optimize their price margins. A well thought out pricing strategy can always provide maximized margins all the while serving the customers with the best travel experiences.
Analyze Competition
When analyzing competitor offers to set the price margins for their travel packages, tour operators can take the two-pronged method into consideration. Under this, they can categorize their considerations under the following two heads.
- Price range variation
- Service based pricing
For either of these, a business needs to have hands-on information regarding the prevailing market rates for different tour package types as well as the features and facilities offered under each by competitors.
Under price range variation, benchmarking the travel package pricing against competitor price ranges helps establish a price reference point for both tour operators and customers. This only allows the traveler to compare the prices fair and square with prevailing rates for value determination.
Combining it with service based pricing only amps up the overall strategy for an improved impact. For instance, if a tour operator is able to include a few additional services and facilities to the overall package, like making pickups and drops convenient, providing travel equipment readily, etc. the overall value is amplified. It thus provides a greater flexibility for setting up the price margins.
Conclusion
The travel package prices are not fixed across the year and are more subject to variation than not based on seasons. It can thus be the best to set price margins for travel packages throughout the year to assess the overall business profitability comprehensively.
With assistance from Pathfndr’s rich travel database, pricing travel packages has become easier than ever and setting price margins equally efficient. Aided by AI-backed travel management tools, tour operators can make several other market comparisons and analyses as well for a better business strategization and measurement.
You can simply host your travel business on Pathfndr and explore a host of useful features that make setting the right price margins a cakewalk.