How many excuses can we come up with to avoid analyzing any numbers or financial statements beyond just guest count and your bank checking account balance? Even picking up trash in the parking lot seems more important than gritting your teeth and staring at your income statement. It can be so overwhelming. Why even do it in the first place? What metrics even matter, and how do you even analyze the data?
Better questions to start with are, “What numbers could I measure to help run a better business?” And, “How do I collect and analyze numbers to improve the business?”
KEEP IT CLEAN
In data analysis, the first task is to scrub (aka clean) your data. If you don’t clean up the data, then you end up with “garbage in, garbage out,” i.e., dirty (inaccurate, disorganized, irrelevant) data leads to dirty decisions. To make good decisions, we need good data.
Generally, clean data include only what is most important, are gathered and recorded in a consistent way, and are well organized for ease of analysis. It is important to spend the upfront time setting up processes to collect clean data and create metrics that matter. Developing tools to measure the largest revenues and expenses on your company’s performance can make (or save) the season.
For most zip line tours, for example, the largest line items on the profit and loss statement are likely zip line revenue, guide payroll expense, and marketing expense.
Your income statement is historical in nature and does not give you forward visibility. It does not help you fix what is happening next week or next month. To provide forward looking data that informs decisions about maximizing revenue or more effectively managing the costs of the line items listed above, we must answer the following questions:
• What is our booking pace vs. last year?
• What is our guide payroll per guest?
• What is our marketing cost per guest?
• How effective is our marketing?
These questions and metrics will make the juice worth the squeeze.
BOOKING PACE
The booking pace provides forward looking data that can be used to inform decisions and take immediate action to save your season if the numbers are off. Strictly speaking, your booking pace is the rate at which new reservations are coming in. To make this actionable, compare snapshots of current bookings vs. the same time in previous years. We do this monthly. Some owners track this weekly.
The image on the previous page is the actual booking pace report we use for Kerfoot Canopy Tour. At the end of May 2022, we had 331 guests “on the books” (OTB), which was 65 percent down versus the prior May. The number of riders on the books for June was 441 compared to 802 riders at the same time last year, putting us 45 percent behind year-over-year. Yikes.
Improving pace. If bookings are pacing behind previous years, you can: 1) increase marketing spend to try to book more guests, or 2) try to cut costs and just accept whatever business comes in.
In our case, with June 2022 pacing so poorly at the end of May, we should have taken radical action with our marketing in an effort to increase bookings. We did increase our marketing spend, just not enough to make up the difference. Since we did not take radical action, we had a terrible June, ending with 1,071 zip line guests compared to 1,470-1,811 in years past.
It was a painful lesson learned—next time I’ll be jumping up and down on the table insisting we spend more on marketing instead of gingerly saying, “Wow, this might be a slow June. Maybe we should increase our marketing spend.”
With a booking pace, you have strong data to know exactly what is going on and which button (marketing) to push to improve the situation.
Note: If you want help setting up your own booking pace report, I’m happy to send you the Excel template.
Email: [email protected]
GUIDE PAYROLL PER GUEST
Another key metric to track is how much you spend in guide payroll per guest. Guide payroll cost/guest is a helpful tool for:
1. Pricing for profitability.
2. Measuring how efficiently your general manager is managing guide payroll.
3. Helping set your budget for guide payroll for the upcoming season.
4. Benchmarking productivity against other zip line tours with different volume. (Many owners will not share actual revenue or riders with competitors, but sharing guide payroll/guest will allow you to compare a metric that does not reveal confidential information but still helps you analyze your productivity.)
Most importantly, it gives you a metric to understand your cost structure to make more informed (i.e., data driven) decisions vs. knee-jerk reactions.
To calculate guide payroll cost per guest, take your guide payroll and divide it by the number of guests. If your guide payroll was $224,000 and you had 15,000 guests, it would look like this: $224,000/15,000 = $14.93.
This metric is most helpful when looked at on an annual basis as the numbers can vary significantly month-to-month and week-to-week based on business levels. Additionally, by looking at this on an annual basis it helps balance out the historically slow times vs. the historically busy times.
Increasing profitability. If the guide payroll/guest cost is higher than you would like over a shorter timeframe (weekly or monthly), one immediate remedy is to look at how full your tours are. Can you consolidate two partially full tours into one full tour? Or consolidate three partially full tours into two full tours? Your ability to consolidate tours is often dependent on how far in advance your guests book.
To get a measure of how full your tours are, you’ll want to look at capacity booked: If a full tour holds 10 guests and you only book eight guests, that tour is at 80 percent of capacity booked. A fuller tour is clearly a more profitable tour.
Capacity booked does not indicate how many tours you need to open daily to be profitable overall. On any given day, opening as many tours as possible—while disregarding how full the tours are—does not lead to maximum profitability due to higher payroll costs. This is where you’ll need to go back to guide payroll/guest because the metric factors in both the number of tours and the capacity booked. For example, if you run four tours at 100 percent capacity one day and 10 tours at 100 percent capacity the next, your guide payroll/guest will be higher on the four-tour day due to the lower number of tours you operated even though capacity booked was the same (100 percent) across both days.
If your payroll cost/guest is high, you may not be operating efficiently enough or booking enough guests. Once you know your payroll/guest—and your marketing cost/guest, which we’ll get to next—you can make a more informed decision about how to maximize your profitability (or just cover your fixed costs to survive another season).
MARKETING METRICS
Marketing is a dark art, and it is tricky to know what is really working. Therefore, we focus our marketing dollars on what can be easily tracked (90 percent or more of our budget is spent on digital marketing), and we review our marketing spend using three metrics: marketing cost per guest; return on marketing spend (ROMS); and return on ad spend (ROAS).
Marketing cost per guest. Your marketing cost per guest tells you how much you spent to get one customer to visit your property. To calculate marketing cost/guest, divide your marketing expense by the number of guests. In 2021, our marketing cost/guest was $83,000/15,000 = $5.53.
This metric can help you to:
1) Know your cost structure.
2) Calculate how much you need to increase your budget to catch up to prior years.
3) Budget for the upcoming season.
For example, according to the booking report, at the end of May 2022, we were 361 riders behind last year’s booking pace for the month of June. If our return on marketing spend (ROMS) continued to be equally effective, then applying marketing cost/guest ($5.53) by the number of guests I want to add (361) tells me how much I needed to spend in marketing to catch up to last year ($5.53 x 361 = $1,996.33).
However, I would be remiss not mention a few flaws in this simplified logic. First, the more you spend on marketing, usually the less effective each incremental dollar is. Second, depending on how far in advance your guests book reservations, you may or may not have enough time to backfill those reservations.
That said, this calculation gives you a specific number you can use to guide your decision on how much to increase your marketing budget to help recover the summer.
Return on marketing spend (ROMS) is a ratio telling you how much revenue is generated for every $1 spent on total marketing. It can also be used for benchmarking against other zip line tours with more or less revenue than your business.
If our total revenue was $1,250,000 and our total marketing spend was $83,000, then our ROMS would be $1,250,000/$83,000 = $15. So, over the course of the season, every $1 spent on marketing generated $15 in revenue. The higher your ROMS the better, with two caveats: 1) If the tours you are offering are not full, or 2) you are not opening enough tours, then it does not matter how high your ROMS is; you are leaving money on the table and not maximizing profitability.
Return on ad spend (ROAS) is also a fantastic metric to use for benchmarking the effectiveness of unique ads against each other. ROAS will show you which ads generate the best return on your marketing dollars. Once you know the individual ad ROAS, you can turn off the least effective ads, try new variations on what is working, or just keep spending on your best performing ads.
For example, if ad no. 1 on Facebook cost you $100 and Google Analytics says you booked $1,000 through it, your ROAS is $10 ($1,000/$100 = $10). This means for every $1 spent on ad no. 1, it generates $10 of revenue.
Calculate your ROAS for every ad, and after comparing their performance, you can decide on an ad-by-ad basis if you want to: 1) increase spending, 2) decrease spending, 3) try new variations on what is working, or 4) compare ads across different platforms (Facebook vs. Google vs. YouTube vs. TikTok).
Calculating the ROAS for each ad will also help you determine which channels and which types of ads—carousel vs. single-image ads, for example—generate the most revenue.
According to Jeremiah Calvino, co-founder of Blend Marketing, a typical benchmark for ROAS in tourism is 5X, which is typically lower than online travel agency commissions. My personal preference is to budget for 7X, then if we have the guide availability, give the marketing agency the latitude to spend more. We choose to let our marketing agency (or whoever is responsible for marketing) calculate and monitor the ROAS.
Words of caution. When you find an ad generating a very high ROAS, eventually, spending more on that ad will lead to diminishing returns due to saturation. In this example, you might consider turning the ad off or dialing back the spend until the saturation diminishes and your ROAS increases thusly.
If you see high ROAS but your tours are not sold out, you are not spending enough and are losing out on revenue. You can never resell yesterday’s tour tomorrow.
That said, once your fixed costs are covered, all incremental revenue only needs to cover the variable costs (generally, marketing and guide payroll). So, if you need 8,000 guests to cover your fixed costs, all revenue beyond the 8,000 guests will be highly profitable. At that point, you are trying to maximize the yield between spending more on marketing to fill tours (even if your ROAS and ROMS are less efficient than you would like) vs. guide availability. Once your guides are fully booked, you can reduce your marketing spend. This is tricky to balance but a wonderful situation to be in.
Despite marketing being a dark art, in their proper context, these three metrics—marketing cost/guest, return on marketing spend, and return on ad spend—will help you optimize your revenue.
CONCLUSION
Using these metrics—booking pace, payroll cost/guest, and a variety of marketing data—you can make informed, forward-looking decisions.
There are many other metrics you can track, but my suggestion is to limit your analysis to the largest expenses and revenues so the metrics you measure matter. We have also found that tracking no more than five metrics work best for us.
When you regularly review these numbers, though, you can be proactive instead of reactive, making more informed decisions during the off-season, and you can react faster during the season.
