What can a remote wilderness resort, a minor league baseball team, and your income statement teach us about pricing and growing your revenue during the shoulder times at your business? Quite a bit, actually. If boosting revenues and growing profits is of interest, of course.
Assuming it is, let’s first discuss pricing by looking at your income statement. A traditional income statement is broken down into three categories: revenues, expenses, and profit. Pricing your experience requires you to first categorize your expenses as either fixed costs or variable costs:
Fixed costs stay the same regardless of the number of guests you have. Examples include: your mortgage, year-round salaried positions, vehicle payments, insurance, and utilities.
Variable costs go up and down based on the number of guests you have. The two largest variable costs are guide payroll and marketing. For this article, variable costs refer to your guide payroll and marketing costs collectively as one number.
BUILDING AN INCOME STATEMENT
To determine what to charge for your tour, let’s look at the following scenario. (You can replace the numbers here with your actual numbers to create your own income statement, and use that to help determine what price to charge for your experience.)
Let’s make the following assumptions about the year’s business:
• Your variable costs are $30/guest.
$15/guest in guide payroll + $15/guest in marketing costs.
• You expect to have 10,000 guests.
So your variable costs will be $300,000
($30 x 10,000).
Add up your fixed costs (mortgage, insurance, vehicle payment, utilities, etc.). Let’s assume the total is $500,000. Your total expenses (fixed costs + variable costs) are $800,000. Now, to make our income statement look rosy, let’s add a profit of $200,000.
To make this work you need your revenue to equal or exceed $1,000,000. If you expect to have 10,000 guests, then your price must average at least $100/guest.
Of course, simply writing attendance figures down on paper doesn’t necessarily make that many guests show up. Your marketing message needs to align with your pricing and experience. But for our current purpose, we’ll assume our basic profit and cost projections are spot on.
How can you improve this income statement and increase your profits? There are several ways. For example: change your experience to be something new and different; increase the number of guests during the shoulder times of the day, or times of the week, or months of the year.
How to accomplish that? Let’s look at a few examples, starting with the Gunflint Lodge.
MAKING WORK PAY
Gunflint Lodge is a remote wilderness resort in the highly seasonal market of northern Minnesota. The property sells out during several shoulder weekends thanks to two unique specials.
Work weekend. In late October, after all of the leaves have fallen off the trees, Gunflint offers a “work weekend” at a discounted price when the resort was historically empty. Guests pay $100-$120 per person, per night for two nights at the resort (a 25 to 50 percent discount, depending on the number of guests) including one breakfast and one lunch. In exchange, the guests work for Gunflint on Saturday morning from 8:30 a.m. to noon. Typical projects include raking leaves, splitting and hauling wood, or putting away summer furniture.
Crazy idea? Hardly. Gunflint Lodge is 100 percent sold out for the two fall work weekends. It is not uncommon for families to get into challenges to see who can split more wood or rake more leaves. Gunflint gets a lot of work done, and the discounted rate more than covers the lodge’s costs.
Decorating weekend. Gunflint Lodge was also 100 percent empty during the first two weekends of December. Inspired by the success of the “work weekends,” it packaged “holiday decorating weekends” during those December dates. Two nights, heavily discounted, one breakfast and one lunch. Again, discounts ranged about 25 to 50 percent. Guests spent Saturday morning putting up Christmas decorations throughout the entire resort. And once again, Gunflint Lodge was 100 percent sold out during shoulder (non-peak) times of the year. Plus, the resort looked great during the busy holiday season.
ZIPPING IT UP
Closer to home, several zip line tour operators have similarly found ways to fill shoulder times of the day and week to grow revenue. How? They have created shorter tours, and offer them at a lower price point. This new shorter tour is often only offered during slower times of the day or on slower days of the week. The purpose of the shorter tours is to sell out times that would not have normally sold, thereby increasing overall revenue.
Another way to change your adventure park experience is to change the lengths of time you let guests explore your park. Your base price could be for three hours. Do you offer a two-hour pass, or a one-hour pass? How about a full day pass? Do you make more money if your two-hour price is 80 percent of the three-hour price? What would happen if you only offered the one-hour pass during the very early hours or very late hours?
New experiences at different price points during non-peak times help grow overall revenue and profitability.
The businesses that offered shorter zip line tours found:
1) Their guests are more likely to come back for the full tour (effectively lowering marketing costs and increasing repeat business);
2) it increased overall revenue;
3) it kept their guides more fully utilized;
4) it created a product offering for price-sensitive guests, and;
5) it did not cannibalize the pricing integrity of the main experience.
Targeting particular groups can work, too. For example, Kerfoot Canopy Tours created a “Scout-a-Palooza” on two consecutive Sundays in early October, a typically slow time. Combined, more than 175 Boy Scouts participated, so it was an exciting experience. And the event created 175 new fans in the community who raved about the tour. Plus, the scoutmasters have an easy event to offer each fall.
How do you price your experience for price sensitive groups such as Scouts, schools, or churches? When crafting a new one-time event, basing prices on your year-round variable costs could lead to overpricing. So, you need to determine your variable cost per guest for the event. Using Scout-a-Palooza as an example:
First, determine how many labor hours you’ll need. Next, multiply the labor hours by the hourly pay (plus any payroll taxes), and the total is your labor cost.
Finally, let’s assume $200 for marketing of the event. Add the $200 (marketing) to the $720 (labor) to get total variable costs of $920. Divide the $920 by 175 guests, and the per-guest variable cost is $5.25. If you charge guests $20 each, then you need 46 guests to cover the variable costs. Everything after 46 guests goes to pay down the fixed costs, or is profit if the fixed costs have already been paid.
The Gunflint Lodge and Scout-a-Palooza have one thing in common with airlines, hotels, movie theaters, and even Amazon: they practice revenue management. This can be generally described as selling the right product, to the right person, at the right price, during the right time.
Tours that charge more during periods of strong demand, such as weekends, and charge less midweek when demand is weaker are practicing revenue management. These moves encourage guests to come during a time and price that is best for them and the business. If guests are price sensitive, they can come during the slower (lower priced) time periods. If guests value a particular time more than price, they can pay peak prices for peak time periods.
Jesse Cole and his wife, Emily, own the Savannah Bananas, a minor league baseball team in Savannah, Ga. To say they do things differently is like saying the sun is kind of warm. They have altered just about every typical touch point and tradition in baseball, and revenue has grown as a result of totally reimagining the experience.
For example, all of the players wear green jerseys for the first game of the season, because the bananas are not ripe yet. Before every game, the players line up at the ticket booths and high five the fans who arrive early. Instead of the usual 7th inning stretch, the “grandma cheerleaders” come out and do a fun dance to energize the fans. Jesse wears a yellow tuxedo with a yellow top hat to every game and fans love getting selfies with him. He has radically changed the typical minor league baseball experience.
Now, back to pricing. Jesse knew he needed to charge enough to cover his variable costs, which were extremely low. So, he decided to charge one price (at last check, tickets were around $20). That price includes a ticket to the game, parking, unlimited food, and unlimited non-alcoholic drinks. This strategy further changed the experience, and turned a common complaint—high prices for food and drink—into a huge plus.
Demand for tickets boomed, and continues to skyrocket. To the envy of every other minor league team, for the past three years and running, the Savannah Bananas have sold out every game of the season—months before the season even starts.
Jesse created a new experience by reimaging what a baseball game could be, and adding so much value that fans just had to see the games. How can you change your experience to add more value and attract more guests?
In my experience, when you attempt to add value, it needs to be something your guests will truly value. For example, free GoPro rentals did not make a material improvement in our mid-week reservations; it only increased our GoPro costs.
If you don’t want to or feel you can’t add more value—but still feel pressure to discount tours—what should you do?
One component of revenue management is to offer discounts as far in advance as possible, and not at the last minute. This trains your guests to commit (and pay) further in advance vs. training guests to wait for a last-minute special before booking a tour with you.
Another strategy: One canopy tour sells discounted gift certificates at Christmastime that are only valid during the slower days of the week for the upcoming season. In addition to filling slower days, the sale drives revenue when the course is closed. That helps with cash flow.
Selling the discounted gift certificates only during the winter months helps reinforce the pricing integrity of the tour during the main season. If guests saw the zip line tour running discounts every other week throughout the year, guests would be trained to wait until the last minute to book their tours.
Short-term discounts and the associated last-minute reservations can strain operations as the business tries to line up guides and other resources. Guides are often looking for certainty and clarity on their schedules as far in advance as possible, and near-term discounts make that difficult.
Instead, use discounts selectively. Knowing your fixed and variable costs helps you understand what price you need to charge your guests. You may discover you can grow your revenue and profits by changing the duration of your experiences, for example, or by creating new experiences, as the Gunflint Lodge and the Savannah Bananas did. If you understand the variable costs of a one-time event or off-peak promotion, you can then price the event or promotion appropriately. Have a great season!