Do you feel like your tours aren’t as profitable as they could be? As a tour operator, you know that your pricing strategy is key to running a successful business.
An effective pricing strategy will help you drive more bookings and run a profitable, sustainable business — and a poor one can do just the opposite.
If your tours are priced too high, you might be pushing guests toward your competitors. But if they’re priced too low, you might be on the verge of breaking even. Neither scenario is ideal.
We understand that figuring out the right price for your tours and experiences can be tricky. That’s why we’re breaking down the process for you.
In this post, we’re sharing our top tour pricing tips to help you nail down the best pricing strategy for your company.
What is pricing strategy?
Pricing strategy is the method you use to price your tours. Overall, this strategy should be based on your operating costs, market conditions, local competitors, and your desired profit margin.
Tour operators might use a variety of strategies to price their tours. Here are five of the most popular:
- Value-based pricing: Price tours based on their perceived worth. If your company consistently gets five-star reviews, guests will see the value in paying more for a highly rated, quality tour.
- Competitor-based pricing: Price experiences in a way that’s competitive with what similar tour operators are charging in your market. If your competitors are selling similar experiences for $75 to $100, you should consider pricing your tours within that range.
- Cost-plus pricing: Calculate your operating costs, then add a mark-up. If the cost of running your tour is $100, and you expect to make 10% profit, you’ll sell the tour at $110. In this case, your profit would be $10.
- Seasonal pricing: Mark up your tours during high season, and do the opposite in the low season. You might charge $100 during shoulder season but bump your price up to $175 during peak season or holidays when demand is unusually high.
- Last-minute pricing: Offer last-minute deals to fill out a tour or experience. For example, you might offer your tour at a 30% discount to fill a few last-minute spots.
Psychological pricing 101
Many businesses also use psychological pricing, a marketing strategy based on the theory that consumers are more likely to make a purchase at certain prices.
Research has shown that prices can make consumers “feel” a particular way, which makes them more or less likely to make a purchase.
Charm pricing is an example of this. It involves reducing whole digit prices by one cent so that a tour that costs $50 would be displayed as $49.99 instead. The theory is that consumers feel like the latter is significantly less than the original price, even though there’s only a one-cent difference.
You’ve probably seen or even used the “buy one, get one free” strategy before.
That’s another form of psychological pricing that assumes customers will happily pay the full price for something if they know they’re getting something for free in return.
It’s the same idea behind why businesses will display a discounted price next to the original. The theory is that customers “feel” they’re getting a bargain simply because they see the price drop.
Let’s dive into the financial analysis you should do before settling on the pricing strategy that best suits your company.
How do you price a tour?
There’s some groundwork every tour operator should do before pricing their tours.
This starts with a financial analysis of your company. First, you’ll want to take a look at your Profit and Loss Statement (a.k.a. Income Statement) to gauge how profitable your business has been with your current pricing structure.
Your P&L Statement will categorize your revenue and expenses and can help you figure out your total operating cost. Once you have a good idea of how much it costs to keep your company up and running, you’ll know the minimum you should be charging for your tours.
The ultimate goal, of course, is to profit from every tour. Ask yourself, “How much would I like to make on each tour?”
Profit margins vary widely depending on the industry, especially in the tourism sector. If you operate your own city walking tour, for example, your profit is nearly 100% since your expenses are minimal.
On the other hand, if you run jeep tours and employ tour guides, your margins are impacted by the cost of vehicle upkeep, fuel, and employee wages.
As you’re crunching the numbers, it’s important to note that your overall pricing will also depend on a number of external factors like what your competitors are charging and customer demand.
Let’s dig into a few actionable tips that’ll help you price your tours right.
7 tips for finding the right price for your tours and experiences
Pricing your tours and experiences might take some trial and error. Here are seven tips to help you lock in a solid pricing strategy that’ll increase your bookings.
Identify your operating costs
Your operating costs will determine the absolute minimum you should be pricing your tours. These will include your fixed costs (rent, administrative costs, business software, equipment storage) and variable costs (wages for guides, cost of fuel, meals during tours, commissions).
Keep in mind that the more tours you sell, the higher your variable costs will be.
Conduct market research
It’s important to research your market to see what competitors are charging for their tours. You want your prices to be able to compete with similar tour offerings in your region. This will also give you an idea of what customers are accustomed to paying for comparable tours and experiences.
Factor in your value-added services
Tour operators who offer value-added services like free parking, champagne on arrival, or discounted tickets for attractions can charge more for their experiences. You can justify a higher price if you offer services that bring additional value to your tours, especially if it’s something your competitors don’t offer.
Adjust pricing depending on demand
Many tour operators adjust their tour pricing based on demand. You might price high during the holidays and price down during the slow season.
You might also adopt the last-minute pricing strategy, where you’ll offer last-minute discounted offers to book your tours at max capacity. This can be automated with Xola’s Lightning Deals, a feature that can offer discounted tours to customers.
Let’s say you’re a kayak tour operator, and you have a few Monday morning tours that are only 25% full. You can use Lightning Deals to drive more bookings on those slower time slots by offering a discount as soon as someone lands on your site.
Mark-up vs. mark-down pricing strategy
A mark-up pricing strategy ensures you’re making a steeper profit on every sale compared to the mark-down strategy, where you’re using a lower price to attract a higher quantity of bookings.
You might use the mark-up strategy during holidays when demand is high, and upcharges are common. On the other hand, the mark-down strategy would be a way to draw in more bookings during slower months.
Be mindful about discounts
Discounted tours help bring in more bookings during slow seasons, but they’re also an easy way to reduce your profitability. If you offer your tours at a discount too often, guests will start expecting them. They may refuse or become hesitant to buy your tours at the regular price, which would make it harder for you to go back to charging your normal rates.
Pro Tip: Consider adding special conditions to your discounts, such as requiring a specific number of guests or more than one tour booking.
Know that your pricing probably won’t be fixed
Your pricing will likely fluctuate with the market. Even if you feel you’ve found the ideal prices for your tours, you should always keep tabs on your competitor’s prices and overall market conditions. You want to make sure your prices remain relevant over time.
The overall takeaway is that you might be using multiple pricing strategies to increase your profit — yet it can be overwhelming to stay on top of all the price changes.
We have the solution: An effective booking system like Xola can help you manage all of your pricing variables in one place. Your booking software can also provide you with revenue reports that’ll help you build the best pricing strategy for your company.
Now that you have a better understanding of how to price your tours, they’ll begin bringing you the profit you’ve always aimed for.