What Should a Tour Operator Do Before Raising Prices? | Sarah Colgate

What should a tour operator do before raising prices?

Before you raise a single price, you need to know two things: what your product actually costs you to deliver, and what makes a guest choose you in the first place. Most operators raise prices without either, and that is why it so often feels like a gamble.

I have been in and run tourism businesses for over 20 years. I have put prices up, left them too long, and learned the hard way that a price rise done blind is a guess. The good news is that a price rise done properly is one of the fastest ways to improve a tourism business, because every extra dollar of a well-judged increase falls almost straight to the bottom line.

First, know your real cost to deliver

You cannot price a product properly until you know what it costs you to run, including the costs that do not change with group size.

Let’s say you last set your prices a couple of years ago. Since then your fuel, wages, insurance and supplier costs have all moved, and in Australian tourism they have moved a lot. If your prices have not moved with them, you are not holding steady, you are quietly going backwards, absorbing every one of those increases out of your own margin. The first job before raising prices is to work out your true cost to deliver each product today, not what it was when you last looked. Only then can you see how far behind your prices have fallen

Then know why a guest chooses you

Price is only frightening when you are competing on price. The operators who raise prices comfortably are the ones who can answer a simple question: why would a guest choose you over the operator down the road.

If the honest answer is “because we are a bit cheaper”, a price rise feels dangerous, because price is the only thing holding the booking. If the answer is something real, the experience, the guide, the story, the thing only you do, then you have room to move, because the guest is not buying the cheapest option, they are buying you. So part of the work before raising prices is getting clear and specific about that reason, and making sure your marketing actually says it. Sort that out, and the price rise stops being a gamble.

How I know this

When I ran Aquaduck, the work on pricing and channel mix was a big part of how I improved net profit per passenger by 200% and lifted yield. Putting a number up is easy. Knowing it will hold, because you understand your costs and your guests have a reason to pay it, is the part that takes the work. That is the difference between a price rise that sticks and one that costs you bookings.

The first step is seeing where your pricing really sits

Before you change your prices, find out how far they have drifted from your real costs, and how much of your booking depends on being the cheaper option. Those two numbers tell you how much room you actually have.

The Tourism Business Health Check looks at your pricing, your costs and your differentiation, the things that decide whether a price rise will work. It takes about ten minutes and it is free.