PRICING YOUR

TOURISM
BUSINESS
A PRACTICAL STEP BY STEP GUIDE TO
HELP YOU COMPLETE THE TOURISM
BOOST ONLINE PRICING TOOLS

2013 Small Business Development Corporation(All Rights Reserved)

INTRODUCTION
It is very important to price your tourism business correctly. Basing your pricing only on your
competitors prices and customer expectations is not enough. You also have to factor in all the
expenses you occur to run a tour or let out a room, as well as the costs associated with running your
business, such as marketing, licenses etc

And, lets not forget about profit! You would not have started a business unless you planned to
make money from it. Correctly pricing your tourism business will help you to cover all costs and
generate the hard earned profit that you deserve.

This step by step guide and the accompanying online tool will help you determine the point at which
your tourism business breaks even and the ideal retail price to make a profit that you wish to
achieve whilst factoring in all costs.

This booklet is designed to help you complete the Tourism BOOST ONLINE PRICING TOOL. Just fill in
all the blanks from step 1 through to step 6 and then transfer the information into the online tool.
The tool will then automatically calculate key figures for you such as your net rate, retail rack rate
and breakeven point.

To get you started we have developed a multi-choice a quiz; test your pricing knowledge on the next
page! This booklet also includes some activities along the way to help you get your pricing right.

PRICING FACTORS TO CONSIDER

The average price you sell your product for can vary, some of the factors that influence pricing are:-

1. SEASONALITY
You may vary your price depending on high or low season.

2. OPERATING COSTS
The higher your operating costs, the more expensive your prices will need to be so that you
cover all expenses.

3. COMPETITION
There is no point pricing your product out of the marketplace, you need to stay competitive or
be able to justify the high price.

4. DEMAND
People will pay more if there is a high demand in a region; similarly they will pay less if there is
an abundance of choice.

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QUICK QUIZ
1. FIXED COSTS ARE
a. Prices that are set in advance
b. Costs that need to be paid no matter how many tourists you carry or rooms you let
c. Costs that occur depending on the number of tourists carried or rooms let

2. VARIABLE COSTS ARE

a. Costs that change depending on how many tourists you carry or rooms you let
b. Prices that change depending on seasonality
c. Costs that change depending on suppliers

3. WHAT DOES AVERAGE CAPACITY MEAN IN RELATION TO TOURS?

a. The maximum number of tourists per tour
b. The minimum number of tourists per tour
c. The average number of tourists carried or room let per tour

4. WHAT DOES OCCUPANCY RATE MEAN IN RELATION TO ACCOMMODATION?

a. The maximum number of rooms occupied each night
b. The minimum number of rooms occupied each night
c. The average number of rooms occupied each night

5. WHEN PRICING YOUR TOURISM BUSINESS YOU SHOULD

a. Consider what your competitors are charging
b. Consider what tourists will actually be willing to pay
c. Factor in all costs and determine your desired profit level
d. All of the above

6. IS IT COMMON TO PAY COMMISSION IN THE TOURISM INDUSTRY

a. Yes
b. No

7. WHAT IS BREAKEVEN PRICE?

a. The price you charge to travel agents
b. The price at which you cover all costs
c. The price you charge when customers book directly through you

8. IF YOU OPERATE THE BUSINESS SOLEY ON YOUR OWN WITH NO STAFF SHOULD YOU
FACTOR WAGE COSTS INTO YOUR PRICING?
a. Yes
b. No
YOUR SCORE

/8
Answers at rear of booklet

2013 Small Business Development Corporation(All Rights Reserved)

INFORMATION YOU NEED TO PRICE YOUR TOURISM BUSINESS
To successfully complete this step by step guide and the online pricing tool you need to have the
following information readily available:-

1. TOUR OR ACCOMMODATION DETAILS

You will need to provide information about your business, such as the different tour types you
offer and the number of passengers or how many different room types you have.

2. DAILY COSTS (FIXED)

You need to determine the fixed costs associated with operating your business, such as fuel,
labour etc...

3. DAILY COSTS (VARIABLE)

You need to determine the costs associated with taking passengers on tour or letting out
rooms, such as meals, third party activities, linen and room cleaning

4. ANNUAL BUSINESS COSTS (FIXED)

You need to calculate the total costs associated with operating your business. These costs
occur whether you have tours operating or not, this is why they are called fixed. For example
costs that are fixed include insurance, marketing, lease payments, bank fees, accounting fees,
salaries etc...

5. AVERAGE CAPACITY
If you have been trading for a number of years you should know your average capacity. If you
are new to the industry you will have to estimate your future capacity based on factors such
as visitation to the region, competitor analysis and customer feedback.

NOTES
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2013 Small Business Development Corporation(All Rights Reserved)

STEP 1 - CAPACITY
To be able to effectively price your tourism product you need to identify some basic factors about
your business, such as how often you run a tour or how many rooms you have. Fill in your answers
to the questions below about the MAXIMUM CAPCITY for your business.

TOUR OPERATOR
How many different types of tour do you have available?

MAXIMUM number of MAXIMUM number of times

Names of different tours
passengers per tour tour operates per year

ACCOMMODATION PROVIDER
How many different types of rooms do you have available?

Total number of rooms

Names of different rooms
per room type

2013 Small Business Development Corporation(All Rights Reserved)

STEP 2 ACTUAL CAPACITY AND OCCUPANCY
Now that we know your maximum capacity we need to work out realistically your actual capacity.
For example, you may be able to carry 20 passengers on tour 365 days of the year, but chances are
these are not your actual figures. You may only carry an average of 10 passengers and conduct the
tour 300 days of the year.

TOUR OPERATOR
If you have been trading for a number of years you should know your average capacity. If you are
new to the industry you will have to estimate your future capacity based on factors such as visitation
to the region, competitor analysis and customer feedback.

AVERAGE number of AVERAGE number of times

Names of different tours
passengers per tour tour operates per year

ACCOMMODATION PROVIDER
If you have been trading for a number of years you should know your average occupancy rate. If you
are new to the industry it can be difficult to estimate your predicted occupancy. Use the Tourism WA
Quarterly Tourism Snapshots to get the average occupancy rates for your region
www.tourism.wa.gov.au

AVERAGE occupancy rate

Names of business
per room type
%

2013 Small Business Development Corporation(All Rights Reserved)

STEP 3 - FIXED AND VARIABLE COSTS
WHAT IS A FIXED COST?
Fixed costs DO NOT vary, they stay the same no matter how many rooms you let or tourists you
carry. It does not matter if you carry 1 or 20 passengers the costs will STAY THE SAME. It does not
matter if you let out 1 room or 10 the costs will STAY THE SAME.

WHAT IS A VARIABLE COST?

Variable costs CHANGE, they are dependent on how many rooms you let or tourists you carry. If you
carry 10 passengers the costs will be different to if you carry 20. Or, if you let out 1 room, as
opposed to all your available rooms, the costs will change.

ACTIVITY FIXED VS VARIABLE COSTS

Using the examples below tick () which costs are fixed and which are variable.

Example cost Fixed Variable

Fuel for a bus tour
Wages for a bus tour
Meals whilst on tour
Room cleaning
Activities whilst on tour
National park permits
Vehicle registration
Amenities for rooms (soap, shampoo etc...)
Cleaning of room linen

Answers at rear of booklet

You will now need to determine your own fixed and variable costs. If you have been in business for a
while you should know your figures, if your business is new you will need to obtain quotes and give
rough estimates.

Use the tables on the next page to enter all your fixed and variable costs for each tour or room type
and then when you are ready enter the details into the Tourism BOOST online pricing tool to help
you determine your final pricing results.

2013 Small Business Development Corporation(All Rights Reserved)

TOUR OPERATOR FIXED AND VARIABLE COSTS PER TOUR

FIXED COSTS VARIABLE COSTS

Names of different tour types
Labour Fuel Other Meals Activities Other
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $
$ $ $ $ $ $

ACCOMMODATION PROVIDER VARIABLE COSTS PER ROOM TYPE

Names of different rooms Linen Room

Amenities Other
cleaning cleaning
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $

NOTES
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2013 Small Business Development Corporation(All Rights Reserved)

STEP 4 - ANNUAL BUSINESS COSTS
The next step is to calculate the total costs associated with operating your business. These costs
occur whether you have passengers on your tour or not, this is why they are called fixed. For
example: insurance, marketing, lease payments, bank fees, accounting fees, etc...

If you have a profit/loss statement you can use the latest report from your accountant, if you are
new to the industry use the table below to help you estimate your ongoing annual expenses.

Operating Expenses Item Amount Notes

Accounting and legal fees $
Advertising and promotion $
Business loan payments $
Business travel and accommodation $
Depreciation $
Electricity and gas $
Employees' superannuation $
Equipment lease and hire purchase $
Insurance $
Interest and bank charges $
Membership to professional organisations $
Other business premises costs $
Printing, postage, stationery, packaging $
Registrations, licences and permits $
Rent of business premises $
Repairs, maintenance and cleaning $
Stationery and office supplies $
Taxes $
Telephone/internet connection $
Training $
Vehicle operating costs $
Wages and salaries $
Workers compensation insurance $
Other Expenses $
Total operating expenses $

2013 Small Business Development Corporation(All Rights Reserved)

HOW MUCH DO YOUR TOURS OR ACCOMMODATION CONTRIBUTE TO YOUR OVERALL
BUSINESS?
Some tourism businesses offer lots of different experiences for their visitors. For example, you might
offer luxury safari camping and also cultural tours.

So that you can price each element of your business accurately it is important to determine how
much each element contributes to your overall business. In terms of percentage how much does the
product you are pricing contribute. For example, if all your business does is offer tours then you
would enter 100%. However, if you also offer activities or hire equipment you might enter 80%.

Use the table below to help you determine the correct percentages. Tick which answer relates best
to you and then apply a percentage figure to it.

Percentage
Business activity
of business
I only offer tours 100%
I only offer accommodation 100%
Accommodation is my core business, but I also offer some tours and
%
activities. What percentage of your business is accommodation?
Tours are my core business, but I also offer some other activities. What
%
percentage of your business are your tours?

NOTES
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2013 Small Business Development Corporation(All Rights Reserved)

STEP 5 - MARK UP PERCENTAGE
As mentioned earlier, one of the main aims of any business is to make a profit. The only way to do
that is to correctly price your product, factoring in mark-up.

There is no set figure for mark up; however the mark up you set needs to make you a profit on the
one hand, yet be competitive on the other. You dont want your price to be radically different to
that of your competitors if it is too cheap people may question your professionalism, if it is too
expensive and doesnt offer more value you may lose customers.

Below are some average net profit percentages for various tourism business, this information is
based on the FMRC Business Benchmarks. The percentages below are calculated before any salary
has been paid to the owner/operator.

FMRC Net
Type of business
Profit Average
Bus/coach transport 20%
Caravan parks and camping grounds 22%
Gift shop 14%
Guest house operation 23%
Motel/hotel operation 18%
Restaurant operation 14%
Travel agency service 25%

Mark-up or profit is the most dynamic element of your pricing; you can return to this step later in
the online guide and alter the mark up percentage to see how it affects your pricing.

Based on the percentages listed above you should be calculating your figures using a mark-up of
somewhere between 14% to 25%.

NOTES
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2013 Small Business Development Corporation(All Rights Reserved)

STEP 6 - COMMISSION
Some tourism operators believe they save money by not paying commission to third-party sellers.
But, here's another way to look at it - what do you lose by not paying commission?

CONSIDER THESE SIMPLE QUESTIONS...

1. Is your website ranking highly and are you generating great international bookings directly?
2. Are you consistently full and happy with the way your business is performing?

Answered YES to both these questions?

Congratulations! Maybe you don't need to branch into the tourism distribution channels as you
seem to be doing very well on your own.

Answered NO?
Maybe another sales avenue could be beneficial to you. Retail Travel Agents, Tour Wholesalers and
Inbound Tour Operators can open up new markets for you in a very cost effective way. But they also
need to be paid.

Commission is usually the major source of revenue for retail travel agents, wholesalers, inbound
operators and visitor centres. Tourism operators need to understand how commissions are divided
between the different levels of sellers and allow for the payment of commission in their prices.

Tourism operators do find it difficult to justify the commission required by some agents, yet the
costs in accessing these markets are generally beyond the reach of small operators. For example, it
can cost up to $10,000 to attend just one international tourism trade show.

You need to weigh it up - Do you want to open up new markets?

YES? Then the most cost effective way to do this is through the commission structure.

HOW MUCH COMMISSION SHOULD I PAY?

The level of commission varies depending who sells your product and which distribution method is
used. For example, working directly with a Visitor Centre you will pay less than working with an
International Tour Wholesaler. Here are the average commission levels payable to third-party
sellers.

Average
Third party seller
commission
Travel agents/ Visitor centres 10% - 20 %
Tour wholesalers 25% - 30%
Inbound tour operators 25% - 30%

2013 Small Business Development Corporation(All Rights Reserved)

DIVERSIFYING YOUR INCOME STREAM
"Don't put all your eggs in one basket" is a common phrase for investing, but it also applies to your
business income. Diversifying your income stream is a great way to protect your business against the
unknowns such as a downturn in the market, or loss of a major third-party seller.

It is a good idea to spread your sales through avenues such as wholesalers, inbound tour operators,
direct bookings, retail agents and Visitor Centres.

Direct sales will give you instant money and help your cash flow. Tour wholesalers sometimes take
four to eight weeks to pay an invoice which may impact on your cash flow.

CALCULATING THE RIGHT COMMISSION FOR MY PRICING

To ensure you price your business consistently you need to calculate the AVERAGE commission level
you will be paying to third party sellers such as Inbound Tour Operators, Tour Wholesalers and
Visitor Centres. Also factor in direct sales that do not incur any commission. You can then input this
percentage into the Tourism BOOST online pricing tool.

For example, if 80% of your sales come directly and only 20% through third party sellers you need to
calculate the commission percentage accordingly.

Use the table below to help you calculate the average commission you pay across all your sales
avenues.

Average
Sales avenue
commission
Direct to consumer 0%
Visitor Centre %
Online travel agents %
Tour wholesalers/IOTs %
Other %
AVERAGE COMMISSION
To calculate your average commission
add up all the percentages listed above
and then divide by 5.

Note: This is not an exact calculation method, but it will assist you in pricing your product more
accurately.

2013 Small Business Development Corporation(All Rights Reserved)

RESULTS
The final page of the Tourism BOOST online pricing tool is the results page. To help you understand
your results use the glossary below.

Glossary Meaning
The price at which you cover all costs and breakeven. This
Breakeven price figure does not factor in any profit to you or commission
fees.
The minimum selling price that covers all your costs and
Net rate makes you a profit. This price does not factor in
commission to third party sellers.
This price covers all your costs, including profit and
Recommended Retail Price (RRP) commission to third party sellers. It is the recommended
price you should be selling your product for.
This is the number of passengers you need to take on tour
Breakeven number of PAX/ROOMS or rooms you need to let per night to cover all your costs
and break even.
Revenue per available room, or RevPAR for short, is a ratio
commonly used to measure financial performance in the
RevPar hospitality industry. The metric, which is a function of both
room rates and occupancy, is one of the most important
gauges of health among hotel operators.

NOTES
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2013 Small Business Development Corporation(All Rights Reserved)

ANSWERS
QUICK QUIZ
Q. FIXED COSTS ARE
A. (b) Costs that need to be paid no matter how many tourists you carry or rooms you let
Q. VARIABLE COSTS ARE
A. (a) Costs that change depending on how many tourists you carry or rooms you let
Q. WHAT DOES AVERAGE CAPACITY MEAN IN RELATION TO TOURS?
A. (c) The average number of tourists carried or room let per tour
Q. WHAT DOES OCCUPANCY RATE MEAN IN RELATION TO ACCOMMODATION?
A. (c) The average number of rooms occupied each night
Q. WHEN PRICING YOUR TOURISM BUSINESS YOU SHOULD
A. (d) All of the above
Q. IS IT COMMON TO PAY COMMISSION IN THE TOURISM INDUSTRY
A. (a) Yes
Q. WHAT IS BREAKEVEN PRICE?
A. (b) The price at which you cover all costs
Q. IF YOU OPERATE THE BUSINESS SOLEY ON YOUR OWN WITH NO STAFF SHOULD YOU FACTOR
WAGE COSTS INTO YOUR PRICING?
A. (a) Yes

ACTIVITY FIXED VS VARIABLE COSTS

Example cost Fixed Variable
Fuel for a bus tour
Wages for a bus tour
Meals whilst on tour
Room cleaning
Activities whilst on tour
National park permits
Vehicle registration
Amenities for rooms (soap, shampoo etc...)
Cleaning of room linen

2013 Small Business Development Corporation(All Rights Reserved)

 Small Business Development Corporation
140 William Street
PERTH WA 6000
Telephone: (08) 6552 3300 or 13 12 49
Facsimile: (08) 6552 3399
Email: info@smallbusiness.wa.gov.au

www.smallbusiness.wa.gov.au

2013 Small Business Development Corporation(All Rights Reserved)