Fixed costs for tour operators: Understanding your business expenses

What should be the fixed cost of your tour and activities business? Although leading advisors may suggest your total business expenses be no more than 30% of your total revenue, this can’t always be a reality — especially if you’re  running a company based on tourism or seasonal activity. 

As the booking reservation software for over 20,000 operators, we have a unique perspective on both fixed and variable costs for tour operators. While you can’t control the cost of everything, having a better understanding of your specific expenses can help you make important business decisions, like how you price your tours and activities each year. 

We’re covering the predictable in this blog. You’ll learn about the different types of fixed costs so you can plan better for your future.  

Getting comfortable with your fixed costs

These expenses remain constant whether your business is going through peak season or a slow month. Suppose you are operating a kayak rental company in the Everglades. You will need to calculate the cost of keeping the lights on, staff to run tours, rental fees for your facility, insurance premiums for your vans, and similar items. 

Pro Tip: While calculating your fixed costs, keep in mind your gross revenue compared to net income. You may think you’re doing fantastic by bringing in $50,000 a month in revenue, but without subtracting the fixed expenses, you are only looking at the “gross receipts.” The “net gain” or real profit will be $50,000 minus your costs. 

What fixed costs should you consider? These will vary based on your unique needs as a tour or activity business. Below you will find some of the more common ones.: 

Permanent and full-time staff

This won’t be your seasonal staff or those you hire for a big weekend when demand is high. The fixed expenses here are your full-time or permanent team members that take a draw or get paid for the entire operating season. 

Insurance

Insurance is a necessary evil in today’s consumer-driven marketplace. You’ll need a vehicle, health, liability, business, and many other insurance forms based on your business’s unique nature. For instance, a Salem night walking tour probably needs less than an eco-challenge over three days on Maui. 

Operational costs by industry

These nuts and bolts keep your business in complete working order. They can range from a large number of items, but tend to fall into utilities the most. Consider expenses like: 

• Water
• Electricity
• Oil/Heating
• Sewage
• Trash and recycling

Pro Tip: This is one of the best areas to trim expenses. If you can introduce renewable energy sources like solar panels or wind turbines, you can lower many of these utilities and boost potential tour or activity revenue. 

Operational costs can also differ for operators in different industries. For example:

• Boat tours and charters
  • Gas for boats
  • Lifejackets and other safety measures
  • Food and beverages if severed on board
• Walking and food  tours
  • Partnerships with the businesses or landmarks you visit
• ATV, Snowmobile or other adventurous tours
  • Gas for vehicles
  • Helmets and other safety measures
  • Routine care on equipment
• Workshops or crafting experiences
  • Materials for workshop or craft
  • Food and beverages if served 
  • Tables and chairs

Rent or mortgage for physical location

Rent or mortgage payments are as predictable as the tides—coming in every month without fail. Just like you want to be paid for your activities, the landowner or investment company running your space wants to make a living as well. 

If you run a seasonal business and have the means, consider putting  a six-month reserve of rent payments into your profit plan to give you a cushion in the off-season. 

Pro Tip:. If there is a way to use the land you’re renting to “sub-lease” for other activities, you can cushion your expenses. An example would be a kayak company that has a space for outdoor concerts, weddings, or team-building exercises on the side. 

Internet and cell service

Having reliable Wi-Fi is essential in the digital age. Your bill remains constant, even if online bookings are low. In many tour companies, the use of wireless connection  is critical to maintain safety and ensure your team is always updated on any changes in the day’s activities or weather patterns. 

Debt

If you’ve taken out loans, these usually have monthly repayments that continue rain or shine. There will not be any wiggle room for these fixed costs.

Annual business expenses

Licenses, permits, and other yearly expenses are fixed costs you can mark on your calendar, much like the changing seasons. You will either need to pay them annually or monthly, but you may be able to adjust the fee schedule to fit better when you are cash positive. 

Software and digital expenses

Your reservation software, website hosting, or memberships to digital services all may come with a monthly or yearly price tag. A digital presence and modern software can be the key to a successful tour business and more bookings.  

Exercise for tour operators

It is time to get down to brass tacks. Take some time to create a detailed list of your fixed business costs. This is your first step to mastering your budget and setting fair and profitable ticket prices. It also paves the way for you to examine your variable costs, which can be more fluctuating and season dependent.

The goal here is to balance what you need to earn and what you can charge for ticket prices. Once you have that number, compare it to the local competition and try to position your tour company so they are attractive in the market but still earning a decent profit. 

This is a tightrope walk, but with the right tools in place and a solid understanding of your fixed business expenses, you will get the much-needed data to move forward with your tour company. Before settling on an optimal ticket price, read our article on variable costs next for more insight.