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One of the most frequent questions we receive from tour operators in our sanitized mailbag here at Tourpreneur is how to price private tours? We commissioned industry writer Hollis Thomases to interview Tourpreneur Podcast listeners who share their tips with us. We always strive to share real-world experiences for tour operators and avoid theory so pour yourself a coffee and study this one.
We are very grateful to our sponsor, tour operator booking platform Checkfront, without whose financial support this article would not be possible. Thank you.
Shane Whaley – Host and Producer of Tourpreneur.
By Hollis Thomases
Today’s unique time of contagion and caution has upended travel, and the tour business is no exception. As regions of the world come out of lock-down, though, people are eager to return to “normal life” again. Pent-up demand for travel has people itching to do something that resembles pre-COVID travel experiences, experiences everyone had become accustomed to. Everyone just wants to have these experiences safely.
Having these experiences with people you already know and trust – likely family or friends in whom you have strong confidence feels the safest. It’s these conditions that make the private tour experience even more appealing.
If you own a tour activity business but you’ve never sold private tours before, there are differences in how you’ll want to think, build, and price these kinds of tours. To help structure, describe, and steer you through this process, Tourpreneur put a call out on its Facebook group. We asked for input from fellow tour operators who already sell private tours that command three- and four-digit price points and assembled our findings in this article for you.
But first, a clarification. The phrase “private tour” generated two kinds of responses: Those from tour operators who create completely customized experiences from scratch for their clients every time, and those from operators who have a defined itinerary to sell and what makes it private is that it’s sold to only one preset group.
For this article, we’re going to focus on the latter of these types: the private tour of a fixed itinerary sold to a single group.
Why Offer Private Tours Now?
There are two big reasons to offer private tours right now:
1) increased consumer demand; and
2) maximizing your revenue.
We’ve already mentioned that many people want to feel safe during this COVID era by limiting their interaction with people they know and trust. That need has increased demand for activities limited by who’s allowed to participate. If you’re a tour operator who has relied on selling individual tickets to multiple people to deliver any single tour, this kind of consumer demand presents you with a problem: you either have to sell MORE smaller tours or sell FEWER limited tours.
Neither of these options probably generates the kind of revenue you’re used to making. In order to maximize revenue under these restrictive kinds of consumer buying conditions, you need to make as much money per tour – regardless of its size – as possible. That’s where the private tour comes in.
Pricing Tours When Private Means “Just Our Group”
Most tour operators offering private tours of fixed itineraries will do so for as little as a single person or even as many as a dozen. The maximum might be limited by vehicle capacity – if transportation to and from tour stops was a part of the tour – or how many people a single tour guide can reasonably handle.
When a tour operator pivots to accommodate private tours, developing the right pricing can be a tricky task.
Most tour operators preliminarily do some initial market and competitive research. “I looked at the price of my competitors,” explained Delphine Berbigier, Owner/Operator of Unique Maui Tours. “I wanted to make sure I wasn’t the most expensive one out there, at least not until I could justify it (with a few years in business and many reviews). But I also didn’t want to be the cheapest, since I did not want to target budget travelers.”
“When we were getting started, I looked at how others in the market were pricing their tours but undercut them as a new starter by around $50 USD per hour,” described Amy Overy Founder of Hong Kong Greeters. “As time went on and we were in high demand and receiving very good feedback, I would increase the hourly rate by $20 – $30 every year.” If your tour is a truly unique experience with no in-market competitors, for guidance you can also look at price points of similar private tour offerings in comparable markets.
Another pricing factor has to be financial: you need to know your numbers to make private tour pricing work in your favor. For instance, determining a profitable Net rate and what that’s based on (e.g. number of guests) and then working up from there. Simon Philipp, Founder and Chief Explorer of Expique and The Market Experience, has come up with a solution that works for him and is easy to understand for his guests: “We simply offer to upgrade to a private tour for a set fee. Given our join-in tour prices are based on two people to break-even, the upgrade fee is almost pure profit.”
Delphine came to the same conclusion that her private tour pricing had to be easy for guests to understand. “Charging per person either makes a two-person tour’s margin too thin (or negative) or makes a seven-person tour cost-prohibitive for customers. Charging one amount for a group of one-to-two people, and another amount for a group of three-to-four, etc., makes it pretty complicated for everyone to understand.
So, I opted to [price from my minimum] base rate of one to two people, and then charged a fee per additional passenger: $745 base, plus $160 per additional passenger.”
Getting to Net
For private tours to work for you financially and profitably, you really need to put the figurative pencil to paper. You need to first determine all your costs so you can then calculate your breakeven. Factors to consider for your breakeven should include:
- Tour guide time (even if that tour guide is yourself, you need to make a living!)
- Vehicle costs (rental or acquiring; fueling; tolls; wear-tear-maintenance; etc.)
- Sales commissions (to resellers, partners, etc.)
- Marketing expenses (website building-maintenance-hosting; marketing staff/assistance; paid advertising; printing [flyers, handouts, business cards, etc.]; postage; etc.) TIP: Operators we interviewed who were willing to share their marketing budget in terms of percent of revenue say it runs them 10 – 12%.
- Other operational expenses (leasing office or headquarters; office/other paid staff; miscellaneous supplies; etc.)
Once you’ve added this all up, you still need to add in some amount of PROFIT for yourself so you can have a successful business. No business that just sells at breakeven will ever be sustainable, let alone profitable. Plus, it’s this profit that you factor in and add onto your breakeven that helps you arrive at your Net.
Making A Profit
Many small businesses struggle to figure out how to calculate a profit, and perhaps tour operators struggle even more. Many tour operators – particularly operator/owners – might have decided to go into the business out of passion, enthusiasm, or desire to have a certain flexible lifestyle. These are all great reasons, but they can also obstruct the need to have a firm handle on the financial aspect of running a business. But that’s OK. It’s in part why we’re motivated to bring you this article!
Profit can feel like a dirty word to a first-time business owner, but it’s the reality of your survival. Profit is what lets you keep your business going and growing. Profit allows you to put aside money to improve your business and your marketing, to hire new people, to expand into different areas or create new products, to find new ways to sell. Profit lets you do more than just make a living – profit can keep your business afloat when a crisis hits especially if you’ve had the forethought to bank on rainy days.
Let’s bring this topic of profit back to private tours. To start the calculation process for private tours, you should consider how many minimum tours you need to give per time frame to break even, private or otherwise. Use the easiest frame of reference you can. Perhaps your biggest expense is your vehicle and you’re paying for that by the month, so calculate all the rest of your expenses on a monthly basis. You can always divide that total monthly “nut” by the number of weeks in a month to get a sense of how many tours you then need to sell per week to cover that nut (TIP: for better accuracy, calculate 4.3 weeks per month).
Once you determine your nut, then you need to add-on some amount of profit per tour for yourself. Some businesses use a markup number – say $150 per tour – or a gross margin percentage like 30% to make sure they’re pricing their Net properly. You just need to be sure that you’re calculating these
properly.
Fear, Factors, and Lessons
When you start asking one single party to pay a substantial amount of money for a private tour with your company, it may be natural to feel uncomfortable or even fearful. If your very first product is a private tour and you have no experience selling them, you may even suffer from “impostor’s syndrome.”
To overcome her fear, Amy Overy reminded herself that she needed to test the market, have confidence, and overcome her inexperience. “I even considered free tours!!” she said. “But after getting more comfortable with what I was doing, prices increased every year, sometimes twice.”
Jacqui Goodwin, Sales and Marketing with Active Africa, expressed a different feeling. “I felt guilty if I thought we were making too high a profit, but I eventually got tired of working harder than smarter. And we rarely have clients ever comment on the price, so we knew we were probably under-charging.”
Most operators we interviewed review and re-assess their pricing every year. They look at factors like what the competitors are charging, how much costs have increased, what products are power-performers and which are dogs, which tours drive the most profit, and where they want to be positioned in the market.
Tour Operators Share Top Three lessons learned selling and pricing private tours.
When it comes to the Top Three lessons learned in selling private tours, our operators offered some great sage advice:
- “You have to believe in your tours in order to sell them at the pricing you have set.” ~ Katie Hayard, Owner, Uncorked Tours
- “Charge for your knowledge and expertise.” ~ Jacqui Goodwin
- “Don’t undervalue yourself, your time, your expenses, or your efforts.” ~ Delphine Berbigier
- “Don’t underprice. You can always have room to offer a discount if customers ask (as we have margin for partner commissions, we can in theory also offer direct customer discount if really needed).” ~ Simon Philipp
- “For private tours, I truly believe it is the GUIDE who makes the tour, not the itinerary or product you are offering. We therefore align with resellers who share this ethos and not ones who want to sell quantity and not quality.” ~ Amy Overy
- “Customers WANT to pay more because it gives them the impression they’re getting the best service because they’re paying more – their minds associate the higher price with increased value…though you DO need to deliver on this value promise!” ~ Delphine Berbigier
- “A private tour is much easier to execute and manage! You don’t have to worry about making sure everyone will get along, and you have one point of contact.” ~ Stephanie Parker, Founder, Epicurean San Diego
When Selling Something Is Better Than Selling Nothing
While pricing a private tour might seem daunting right now, it cannot be much worse than the prospect of selling no tours at all. Heed the advice of your peers – you have to believe in your tours and your value to sell a high-priced ticket like a private tour. If your product isn’t that valuable, maybe you have other underlying problems to examine?
Armed with all the information in this article, figuring out solid pricing for your private tour may also be a useful exercise in reviewing the pricing for all your tours. Why not get your ducks in a row to be ready to fully re-open when the time comes? And then you can do so with even more confidence that you’ll be running a profitably priced business.
Hollis Thomases is a three-time entrepreneur, travel industry analyst, and leader in travel technology content marketing. She has produced reports and content for Arival, Phocuswright, and other travel companies.
Agree? Disagree? Got even more tips about pricing private tours to share? Join 2,000+ tour operator peers in our online Facebook discussion group to join the conversation.
Margin and Gross-Profit Margin
Margin is a figure calculated by taking the price the product sold for and subtracting out its cost, or in the case of tours, its Gross versus its Net. For instance, a tour that sells for $500 with a base cost of $300 has a margin of $200.
Gross-Profit Margin can be expressed as either a number or a percent. If expressing the “GP” as a percent, it should always be as a percent of Net Sales. To calculate that percent properly, take the total sale value, minus the Net cost value, and divide by the sale value ($500 – $300 = $200) / $500 = 40% GP.
Markup – Is the amount added to the cost of a product to determine its selling price. In the case of tours, you might use a markup once you’ve calculated your Net to determine your Retail selling price. When Markup expressed as a percentage, that formula is (Total sales minus Cost of sales) / Cost of sales = % Markup. Using the example above, ($500 – $300) / $300 = 66% Markup.
Notice the difference in the percentage between GP and Markup. It’s common to mistakenly calculate one for the other, and they’re not the same. This is a handy article about the difference between margin and markup, with this key point: “As a thumb rule, the markup percentage must always be higher than the margin percentage else you are making losses in the business.”