10 Jan 2014 3 Budget Management Essentials for Tour Operators

2014 is in full swing, and it’s the perfect time to revisit your budget. Good budget management skills are absolutely critical to increasing any tour operator and activity provider’s revenue.

Not only will a budget tell you whether you can afford your fixed costs, but you’ll know if there’s room to invest in a new employee or piece of technology.

Here are 3 budgeting essentials for tour operators that will help maximise revenue:

1. Know Where Your Money is Being Spent

You need a solid reference point before you can think about the results you want to achieve. To do that you need to know how many customers you need to cover your costs and make a profit.

First of all you need a budgeting report which lists your:

• Fixed costs which don’t depend on business activity eg. rent
• Variable costs which change according to your business activity eg. wages
• Income ie. forecasted income and other revenue that you are expecting
• Actual costs ie. difference between budgeted figures and actual numbers

Taking a close look at it during regular intervals will make sure you’re prepared for your future operating goals.

2. Monitor and Manage Your Profit & Loss

Was the budget in line with your actual numbers? If your answer is no, then you need to document why you think your actual numbers varied from the budgeted figures:

• Timing-related ie. the estimated result is expected to happen at some point in the future
• Permanent ie. the estimated result probably won’t happen

If it’s a loss, what can you do to stop the problem from recurring? If it’s a gain, how you can capitalise on the opportunity?

If your budget is tight, there are some basic costs you can cut, like company travel and lunches out. However, you might learn that you need to restructure the pricing of your services. Which brings us to our next point.

3. Choose the Right Pricing Strategy

As a tour operator, it’s important to know that each product you have is profitable. So you shouldn’t think of having just one fixed cost for your products. Instead, you should think about what pricing strategies you can use to maximise your revenue:

• Seasonal pricing. This is the most common type of yield management being used in the tour and activity sector. However, you should think beyond just ‘high’ and ‘low’ season. Take a look at your demand over the past few years, and assess whether you need more than just 2. You may end up with 3 or 4.
• Day of week pricing. Do you have different demand for your products depending on what day of the week it is? Then bump up your prices on those popular days, because customers who can make it on quiet days will be quick to take advantage of the cheaper pricing. That means you can increase your total sales on your busy days.
• Time of day pricing. The same is true for time of day. If you rent out kayaks and your peak hours are 10am-4pm, hire out your kayaks at $40 per hour rather than your $15 per hour price at 8am.
• Last minute pricing. This can be good only if you have some way to quickly advertise and distribute your last minute price to the public, or your agents. Otherwise people who happen to walk in at the last minute would get your lower price by chance when they would have been happy to pay full price.

The final piece of the puzzle is managing the commission you’re willing to give to your agents. Make sure you include this in your pricing strategy so that you’re not losing money.

One of the major problems with agent management is not having an online booking system like Rezdy in place that manages your commission automatically.

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Topics budget, revenue, tour operator, tourism business strategy