Variable costs for tour operators: Managing unpredictable expenses

Understanding your daily, weekly, and monthly expenses is essential in determining the best prices for your tours and activities.  You’ll need to understand the fixed costs charges that happen every month, regardless of anything else (think mortgage payment, vehicle insurance, or electrical bills).

However, life is never that predictable. You also need to consider variable expenses. For instance, you may need to hire a temporary extra hand because you’re busier than expected or the roof of your business needs to be replaced.   Variable costs are any factor that can shift daily, monthly, or annually. 

Understanding these expenses goes a long way to setting competitive prices and running an efficient tour company. Learn more about variable costs below.

The variable cost dilemma

Variable costs are like the shifting tides—they can be low one minute and high the next. These costs change depending on how many tours and activities you’re operating, among other factors like customer demand and even seasonality. 

Pro Tip: Make a simple graph. There are endless free and easy-to-use apps that will give you a month-by-month report of fixed and variable expenses. This goes a long way for future decision-making by seeing how your costs shift over a time period. 

Look, things will slip through the cracks. You cannot avoid something being missed, but writing them all down goes a long way to improving your operations. 

Some typical variable costs for a touring company include: 

Marketing, social media and paid advertising

In some years, you can allocate a bigger treasure chest for marketing. You may need to adjust your sails and cut back in leaner times. Marketing is the lifeblood of a business, especially a touring company. 

You can save some money by “going viral” or having a solid online community that shares info about your business on their own, but you should set aside some finances for physical marketing (flyers, mailers, posters, coupons, etc.) as well as running digital ads (social media, Google, Yelp, Groupon, etc.). 

Part-time staff

Part-timers are your extra set of hands during your busiest times, like during festivals or peak seasons. Unlike full-time staff, their wages are not a constant expense but based on need. 

For example, a 12-day local festival in your area will increase demand for your business and you may need to hire two extra people to keep up with the increased customers coming to go on your tours. 

Equipment maintenance, fuel, per-tour costs

Every tour is an expedition. Think of equipment, fuel, and per-tour costs as your provisions. The more trips, the more requirements you’ll need. If you run an extra tour in one week, you’ll have to pay more for gas for your cargo van. You can redirect those funds to marketing if you are in a slump and only run an AM tour. There is a fluid magic to adjusting operational costs like these. 

Commissions to resellers

You may collaborate with online travel agencies, which takes a slice of your earnings. These commissions vary based on how many bookings they bring in. A company referral program or working with online affiliates goes a long way to boosting your marketing without spending as much as traditional methods like TV ads or newspaper articles. 

Pro Tip: If you work with affiliates or are on the FareHarbor Distribution Network, consider using the FareHarbor feature, affiliate rules. This tool allows you to better manage when these partners can book your tours. Restrict them on days you know you will sell out, but allow them to book during times you need the extra business. 

Emergency expenses

Unfortunately, emergencies happen.. Think of equipment malfunctions,sudden regulation changes that require immediate action, or natural disasters that force a business closure. 

While always unplanned and unwelcome, a great way to prepare for an emergency is to build a contingency fund for any variable costs that may come your way. You never know when an Ice Storm in New England will shut down your cross-country skiing tour for a couple days or weeks. 

Exercise for tour operators: Chart your variable costs

Start by taking stock of your variable costs from your most recent season. This will help you get a better idea of what to expect.  

It’s better to have a few years to compare and look at how they relate to your customer acquisition cost. Be sure to also look at your fixed costs to see if there is any scope to streamline and cut back on waste.

Here’s how you can do it:

• List every variable cost: Include everything from marketing to emergency expenses.
• Analyze the impact: See how each variable cost factors into your overall financial health. Is there an imbalance? Are you spending more in one area that isn’t yielding returns?
• Adjust: Lower your expenses as much as possible so you can maximize profits. Just be sure to give your team a cushion in case times are rough or you suddenly have an influx of fresh capital. 

Don’t forget to read up on our recent fixed costs article to gain a better understanding of your business’s finances. With a full grasp of your fixed and variable costs, you’re not just weathering the elements but mastering them. You’re turning uncertainty into strategy and challenges into waypoints on your roadmap to success.