You’re losing money if you don’t know what your breakeven is.
7 out of 10 Small Tourism businesses we have worked with don’t know their breakeven point for tours, experiences and accommodation.
Many businesses place a minimum number or minimum nights stay when accepting bookings but are they ensuring they are profitable? Unfortunately for many…no!
Breakeven is quickly mistaken for minimum numbers for tours and experiences where in fact many businesses will be running at a loss if they run. It then gets more complicated because if you run more than one departure in a day then you can share your daily fixed costs over multiple departures reducing the number of tickets / people sold on a tour. Although, ensuring your minimum numbers are achieved across all departures and are in fact covering the daily fixed costs.
Keeping in mind, when we calculate our price many businesses determine the price based on a minimum number they would like to achieve on each departure. For example, if a jetboat can take 16, they may price it as if it was taking 6 to ensure they cover all the costs.
Difference when determining breakeven is the revenue you make to cover the cost to run a tour with no profit versus minimum numbers where you have factored in a margin. The margin is there as profit but also to cover things such as commissions if selling via one of many distribution channels. Depending on the channel you sell via again it adds another variable.
During challenging times, it is more important than ever that tourism businesses focus on ensuring that they have all their costs covered and don’t expose themselves to running departures at a loss.
At Directional, we work with operators to determine their costs per person, departure and per room. So they can make an informed decision when pricing and looking to yield manage their tours. It isn’t an easy process but a rewarding process once done.
Don’t get caught out, understand your numbers better to survive!