The price you set for your tourism products has a significant impact on your business’ ability to compete in the market. Pricing is tricky! Obviously, you want to set a competitive price, but you also need income to keep your business up and running. So how can you set a competitive price? Generally, you have two choices: mark up or mark down your pricing. Here’s how you decide between the two.
On marking up
- With a markup strategy, your prices are set to generate profit in every booking. As an operator, this requires you to identify the cost associated with your tour.
- Your costs will be greater than just the resourcing and staff members required for your activity or service. You also need to consider different factors like the cost of maintaining your business (rent, power, insurance etc), product development and marketing.
- Once you have determined the cost of each product or service for your company, you can then set your prices. For example, if you spend $500 on a tour that accommodates 10 people and runs for around five hours, then you may charge $100 per person. With this number, you’ll earn $50 profit on each person booked on your tour.
- Basically, you earn a healthy profit for each booking with this strategy. The downside, of course, is it can be difficult to be competitive, especially in markets that depend on a lot of traffic.
On marking down
- This strategy is the opposite of the one above. Instead of pricing high, you set a price lower than expected. The idea is to attract business by offering your product at a lower price point, driving out your competition by attracting more bookings. This strategy’s all about quantity over quality.
- As with the markup strategy, you will still need to consider the associated costs of each tour, as you don’t want to price it too low and lose money in the process. Identify all of the costs associated with developing and running your product before you set your price.
- For example, instead of charging $100 per person on your tour, you set your price at $75 per person to be more competitive. With this strategy, you will obviously earn less per booking. But you’re more likely to get more bookings per tour, without giving promotional discounts. This is a great strategy for slow seasons as all tourist destinations across the globe have their slow seasons.
As a tourism operator, you need to weigh the pros and cons of each option. You want to achieve a pricing strategy that will win over customers and ensure a steady cash flow for your business.
Destination NSW has a great resource for pricing your tourism product.