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3 Simple Steps to Increase Tour Operator Profits

These 3 tips will help you increase your activity provider or tour operator profits

Generating revenues with your tour or activity business is one thing, but making a profit is something different.  You’re probably in business because you love what you do and because you want to be able to keep doing it for a while.  Making a healthy profit from your business gives you the freedom to grow your business at your own pace and to make decisions and even mistakes from time to time without having to worry too much about the bottom line.  Whether you choose to take your tour operator profits out of the company or re-invest them back in to the business to fuel growth, the point is that you can’t do either of these things if you aren’t actually generating a profit.

These 3 tips will help you increase your activity provider or tour operator profits

Photo Credit: http://www.flickr.com/photos/76657755@N04/7658159678/

Here are 3 things you can consider doing today to increase your tour operator profits for the long term.  You may even find that these tips help to improve other areas of your business including your brand equity and credibility as well as your perception in the marketplace.

1. Stop competing on price

There will always be someone more desperate than you who will sell their tours or activities for cheap just to get the business.  You may be tempted to lower your prices or to cut your margins just so you can compete.  Don’t do it, this type of competition is a fast track to the bottom.  You are far better off differentiating your tours or activities from your competition and even raising your prices.  Once you stop the obsessing over low prices, you can focus on other more important things like providing the best possible value for your customers.  Here’s a quick calculation:

Tour A = $120
Cost = $80
Gross Profit = $40
Profit Margin (Profit/Cost) = 50%

Increasing cost of Tour A 10%

Tour A = $132
Cost = $80
Gross Profit = $52
Profit Margin (Profit/Cost) = 65%

So by increasing your tour by 10%, you have increased your profit margin on your tour by 30%.   For a traveler who has already paid hundreds or thousands of dollars on airfare and hotel or who have committed to visiting your destination, the prospect of spending (in this case) an extra $12 per person for a unique experience is not going to be a deal breaker.  In a best case scenario, assuming you are differentiating your tours and providing good value for the price, you shouldn’t see a dramatic decrease in your conversion rates.  Even with a decrease in conversion rates of say 30%, you can still expect to generate more profit then with your previous pricing model.  The additional perk is that you will have more margin to play with in case you want to offer one-time specials or promotional codes.

Remember that increasing your prices requires you to have a unique service offering that delivers high value to your customers.  Offering the same or similar tour or activity to your competitors at a higher price simply won’t work.  Once you break yourself of the habit of always lower your prices or competing on price, you’ll find that you have more freedom and energy to build other areas of your business.

2. Focus on overall profit not on actual revenue per customer

Let’s face it, not everyone is going to love your tour and when they don’t, they may be vocal about it.  I’m not advocating cow towing to review trolls or people that complain for the sake of complaining, but when a customer has a truly bad experience on your tour or activity, don’t be afraid to make things right.  This may mean offering them a complimentary tour or activity on another date or a refund.  They will remember the incredible customer service they experienced and that may be enough to turn a negative review into a positive one.  In today’s world of mediocre customer service, differentiating yourself with a superior customer experience can go a long way to increasing your word of mouth marketing and your brand credibility.  If you’ve already done the work to increase your profitability, then being able to offer this kind of higher level customer service won’t cost you anymore and will actually drive more business.

3. Ditch the paper & pen and get with a program

One of the biggest steps you can take to increasing your profitability is putting your administration on auto-pilot.  The first step is taking the leap from paper and pen to a tour and activity operator software like Rezgo.  The next step is simplifying your offerings in order to avoid things like “schedule clash”, offering many tours on the same schedule but only ever being able to offer one.  Simplifying your offerings doesn’t mean decreasing the value of your offerings.  The easier it is for your customers to book and pay with you online, the less administration you need to worry about.  Remember that according to Google, 86% of  travelers plan their travel online, so making sure you are online and can be found is a big plus.

If your tours or activities are less than $200 per person and are easily booked online, you can expect a lot fewer phone calls.  Spending less time on the phone on each sale will also free up your time for other things like improving your website SEO and driving more customers online.

What have you got to lose?

At the end of the day, you won’t know what money you’re leaving on the table if you don’t try to change things up.  You can always make small incremental improvements in your business in order to increase your profitability.  Just remember, that you need to put some metrics in place in order to measure your success.  Don’t be discouraged if you don’t see results right away, a profitable business takes time to build and grow, you’re in this for the long term.

Written by

Stephen is the CEO and Co-Founder of Rezgo. He has been working as a travel & tourism technology consultant since 1995. Stephen is active in fostering tourism technology and is a Past Chair of the OpenTravel Alliance. He is also a regular contributor for Tnooz, a leading travel technology media site, and speaks regularly at conferences around the Globe on travel & tourism technology, messaging standards, and industry trends.

6 thoughts on “3 Simple Steps to Increase Tour Operator Profits

  1. Pingback: Selling On Price Is A Fast Track To The Bottom…Sales 101 | liveonnorfolkisland

  2. You are so right Anna. Given that most tour and activity businesses are small businesses, they are local employers and, therefore, local tax payers too. Making ones business more profitable means being able to make positive changes in one’s own community. That can be a very satisfying thing indeed.

  3. Sadly most small niche operators in tourism watch the “big boys” and assume it’s all and only ever about price and to discount is the only way to “steal” business from the competition. Airlines, bus and train companies delivering people from A to B and many chain hotels are now selling commodities and that’s about all they can compete on and their razor thin margins turn financial sustainability into a volume gain.

    Tour operators – especially those in emerging destinations and who are offering clients a variety of benefits including safety (if needed), translation, insights into cultures and landscapes that would otherwise remain a mystery, plus personalised experience and excellent hospitality and delivering the source of memories for a once in a lifetime trip. Why would you consistently discount that and undermine your ability to give your guides and drivers a decent living that makes them happy, helpful and hospitable and forfeit the chance to become the subject of a rave review?

    Great post Stephen – glad to see someone else beating the “higher value” drum

    HIGHER PURPOSE = HIGHER VALUE= HIGHER PROFIT.

  4. I agree on points 1, 2 and 3! Using Rezgo and offering just 3 tours (plus occasional custom tours) I get very few phone calls so my “free” time is mine to work on the business or enjoy other activities.

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