In business, there’s a well-known adage: “You have to spend money to make money.” When it comes to tours and attractions, this money can be applied in many different ways – Putting money into your rides or exhibits. Spending money to market your special events or new facilities. Hiring employees to help run day-to-day operations. Investing in customer service to keep your visitors happy and loyal. The list goes on. In most instances, these expenses are seen as the cost of building a business, but imagine if there was a way that you could generate more business without an upfront expense? Envision only paying an expense if you receive a new sale? Isn’t that an offer you couldn’t refuse…or at least would want to learn more about? This is called performance-based selling, and the most successful tour and attraction businesses know exactly how to leverage performance-based selling to increase their marketing exposure and maximize their revenues. Let’s share their secrets here.
But first, some terminology
We’re going to be using some terminology that may or may not be familiar to you so let’s get these defined upfront.
: You might call yourself a tour, attraction, destination, or even an experience. The tourism industry also refers to you as an operator or a supplier.
: Depending on the type of tour or attraction you offer you might also call your customer a guest or a visitor; sometimes the industry also refers to them as consumers.
: You’re probably already selling your tour, activity, or attraction yourself – what we call selling direct – whether that’s through your website or on-site at your physical ticket window. Maybe you’re also selling through other websites, too, like Expedia, GetYourGuide, Ctrip/Trip.com, Musement, Cleartrip, and many others. We call them OTAs, which is short for online travel agent, and the links we just provided give you direct access to their partner programs! There might be other entities you also sell your tickets through — like pass programs, hotel concierges, ticket wholesalers, ticket aggregators, employee benefit providers, membership clubs, etc. – and you might also collectively refer to these entities and OTAs as your partners, resellers, or third-parties. The industry refers to these as channels or your distribution network.
: When you sell direct, the price your customers pay is called the retail or window or gate price. It’s the full price of your ticket – your gross revenue per ticket…unless you have also offered your customer a special discount promotion or coupon, at which point they’re paying a certain amount off-retail or your discounted price. In other words, when you offer specials and discounts, you are taking that discount off your full retail price and what you are left with is effectively a net retail price or “rate.” Hopefully, before you offer a discount, you have also taken into account the difference between the two prices so that you’re still making a healthy gross profit in order for your business to absorb the discount and still make money. This discount should otherwise be seen as a kind of “padding” or “slush fund per ticket sold” and you’ll normally need this padding to pay more staff and do marketing and even be set aside for a rainy day – which literally may impact your business if you have an outdoor, weather-dependent one – when you need to make some kind of unexpected repair or invest in some kind of new software.
The difference between your gross retail price and your net rate is also called your margin, and you should know the maximum (most) and minimum (least) margins – in both dollars and percent terms – that you can absorb between your gross retail and your net rate before you even begin to discount your prices because this could literally mean the difference between success and failure for your business. Even businesses with healthy sales soon find themselves out of business if they do not price appropriately!
Let’s demonstrate with a little example:
- You’re thinking of charging $30.00 USD per ticket per guest for entrance to your tour or attraction.
- Because you want to include some padding for those extra expenses, you figure you’d better charge about 20% more (or $36.00). In this instance, you have a $6.00 margin of padding.
- If your attraction heavily leverages discounting to drive ticket sales, then you can’t give away all that margin or else you won’t have anything to help you cover your other expenses. That means you must limit your discount to less than 20% (or $6.00) or list your retail ticket price for more than $36.00.
- Given this consideration, you ultimately decide to retail your ticket for $40.00, which gives you a lot more wiggle room for discounting and promotions OR a lot more gross profit when you do sell at full retail!
This leads us to Secrets #1 & #2: Always understand your margins, and don’t be afraid to price a little higher.
Understanding your margins will give you the confidence to know that you are generating enough profit to sustain and grow your business. Pricing-wise, you can always discount off a list price, but you can’t go up over it. Plus, everybody loves a bargain!
Historically, operators have a set fixed ticket price for certain periods of the year (or maybe they just have only one price for the entire year). If they’ve advanced as operators, they’ve probably implemented different pricing throughout the year based on seasonality or other data points. Now there is also a relatively new pricing term being introduced into the tours and attractions industry that you should be aware of: dynamic pricing. Dynamic pricing is pricing oftentimes controlled by technology that’s usually programmed to lower or increase pricing rates based on “rules” that you implement to accommodate your seasonality and supply and demand. Since it’s early days in dynamic pricing, for the purpose of this article we’re not going to delve any deeper into dynamic pricing for now, but keep your eye on this trending topic for the future!
Understanding Performance-Based Selling
This is the fun stuff – where all the secrets lay. As we explained earlier, performance-based selling is when you generate a new sale without incurring an up-front expense: you pay only when the sale was already made for you. Performance-based selling works best when you have a few pre-existing conditions in place:
- You have already calculated your pricing to take into account your margins. In other words, you know how much of your gross profit you can discount and still have enough padding left over for you. Think of this discount in terms of the compensation to another entity – resellers, partners, and distributors — for making your sale for you. The compensation you give them is a commission, which they will ask for as a percent of sale or as a minimum price you’re willing to accept for their sale (your floor or net rate).
- You build-up a significant base of reseller partners and distribution network because the more sales partners in your network, the more total tickets you can sell. This base of partners and distributors help you sell because they have enormous marketing power – in most cases, much more than you could ever have – and they can reach audiences in ways you probably never could. They translate your product into foreign languages so you can attract international customers. They advertise on television, billboards, in airplanes, and on Google. Some provide you with content and copywriting support. Because these partners also handle the sale for you, they’re the ones who have to deal with currency exchange and processing fees. And, your distribution partners can also give you additional intelligence on your market, your consumers’ behaviors, and maybe even your competitors…but you need to have these partners in place and ask them for this kind of assistance. In other words, you want to manage them and have them work hard to earn their keep.
Which leads to Secret #3: Manage your distribution partners!
In order for you to maximize your sales and profits, you want to have your distribution partners working for you to earn their money and not just cannibalizing your existing sales. If you just turn over all your sales efforts to your distribution partners, you would always be selling tickets at a discount – instead, you want to have to discount in such a way that’s to your sales process; essentially, this is so that you maintain control of your business. Now that you know you need to manage your distribution partners, let’s tell you how to do it.
Managing Distribution Partners
Let’s start with another secret:
Secret #4: Know your business trends.
In order to best manage your resellers and distribution channels, you need to understand the ebbs and flows of your business. This includes seasonality and even days of the week and times of day when your business could use a little help booking sales. This is hard for a new tour or attraction, but the good news is that the sooner you know to study your business and market trends and start collecting your attraction’s trend data, the better. Here’s another simple example to help illustrate:
- Say the full retail price of your most popular ticket is $45.00 USD;
- Your business is typically slow on Tuesdays and Wednesdays during the first 2 weeks of the month. By slow, we mean ticket sales drop by 40% on those days;
- Normally, you do 300 visitors per day, so a 40% drop means that on your 4 slow days, you’re only selling 180 tickets per day and generating only $8,100 per day instead of $13,500, a $5,400 drop in daily gross revenue. Per month, this equates to $21,600 in unrealized revenue (4 days x $5,400). This is a lot of revenue – but your electric company, employees, and advertising contracts don’t care. You still have to pay them even when you have fewer customers;
- To help offset this loss, you sign contracts with 5 new reseller partners who each charge you a 25% commission on tickets they sell. This reduces your per ticket revenue to $33.75. Should you be troubled by this reduction in your per ticket revenue? NO! And here’s why…
- Each of these 5 new channel partners drive 10 new ticket bookings per day (50 total new bookings per day) which leads to an increase of 100 new bookings per week or 200 new bookings for the month;
- With these new partners, even though you’re generating less per ticket now at $33.75, you’re still generating $6,750 more per month in new incremental revenue that you weren’t previously generating ($33.75 x 200) . Now your unrealized revenue lowers to $14,850 per month, and you start thinking about how many more distribution partners it will take for you to make up the entire difference!
Maybe you’re also wondering how (or even if) you can manage all these additional partners to your advantage. You might be thinking…
Why would a partner want to sign with me under such limited sales conditions?
How can I control what days of the week my partners get to sell my tickets?
How do I manage all of these on/off changes with multiple partners? Isn’t that just a frequent hassle and huge operational strain?
These questions come with simple answers: 1) Just like you, your distribution partners want incremental revenue gains. They want to prove to you that they can sell your tickets in pockets of time when you cannot, hoping that you will allow them to sell even more of your ticket inventory over time. 2) You can control the literal “spigot” of your ticket inventory flow to your partners, the pricing strategy, and also the strategy by which you control who gets how much inventory through technology like Redeam’s Channel Manager, which is also a performance-based selling solution. 3) Because Redeam’s Channel Manager provides direct connections to distribution partners, it allows you to automate controls you would otherwise have to manage manually. Doesn’t that sound like a huge relief to a portion of your business operations.
Which brings us to the fifth, final, and self-explanatory secret of the most successful tours and attractions – Secret #5: Automate, so you can open the revenue floodgate!
Ready to open YOUR revenue floodgates? Contact Redeam today!
Other Articles You Might Find Useful: