Erik Hormann is the owner of Vantigo — San Francisco’s #1 rated tour on TripAdvisor. In this post, he shows us how the key to a tour operator’s success lies in the two Ps — profitability and popularity. Take it away Erik!
How to Make a Tour Profitable
“Show me the money!”
Every business owner says the same thing to themselves. Okay, maybe they’re not always quoting a ‘90s Tom Cruise film exactly, but the point remains. At the end of the day, if you’re not making money, then what you’re doing is just a hobby.
Maybe you’re a guide who wants to strike out on their own. Maybe you have a tour company that has grown to 20 buses, but you still feel like you made more money when it was just you and one bus.
After five years of scaling a business to become the top tour in San Francisco, I’ve gone through this same cycle every year. Here are some key things to consider when thinking about the real profitability of your tour:
Is your product right for the market?
First, let’s talk about your tour or rental itself. Is it in the right place? Does it have the right market?
I once had a tour where we would take participants up the California coast to shuck oysters, taste cheese and drink mead. Sounds amazing, right? But while blog articles may make this seem like the most glorious tour ever, the audience was just not there. As much as I loved doing this tour, it was so much work and could not be priced high enough to make it viable.
Maybe if I had amped up the marketing and found all the best Instagram-famous “influencers” and bloggers to promote it, I could have found my audience. But at the end of the day, I knew I could do two city tours in the time it would take for me to pull this tour off — and triple my profit in the process.
I loved doing this tour! But in the end, it just wasn’t profitable enough for my business
The price is right… or is it?
How much is your tour really worth? I had a good friend put it in a great frame of reference: When you are a solo operator, how much are you worth? How much do you need to make an hour?
This is the question I asked myself when I started, when I hired my first guide and each time I decided to scale.
It’s also something to consider when you make the leap from working as a tour guide, to managing your own company. How many guides do you need working full-time to pay for you in a management role?
I’ll be the first to admit I should have really dove into the numbers in the beginning to understand this better. Ultimately, it all rolls up into how you price your tour or rental.
When I started out, I also did a comparison of all nearby tour companies that were similar to me. I broke down what they charged by looking at their capacity and tour pricing, converting it into an hourly rate.
What do I mean by that? Let’s say Ted’s Most Excellent Adventures tour company has a tour that costs $45 per person. And on average it has 10 people for a six-hour tour.
His per hour amount would break down to $45 x 10 / 6 = $75/hour. This has nothing to do with how much it costs him to run his tour; it’s simply the hourly amount he receives. I used this calculation with similar tours and figured out that my per hour charge was below the average. Therefore, in order to be competitive in the market, I raised the price.
The cost of making money: is it raining dollars or overdraft fees?
Once I had fixed my pricing based on that of my competitors’, I then had to look at what it cost me to run a business. And there are a lot of factors that need to be considered.
The easiest thing to calculate is fixed costs.
Or is it?
Rent, insurance, loan payments, vehicle leases — all these factors can easily be put together. The real trick is splitting them up between tours. If one of your tours accounts for 70% of your business, and two others account for just 30%, then the fixed costs should be split accordingly. You’ll be able to see pretty quickly which tours are worth putting more energy into.
On top of that, you’ll then have to split out the individual fixed costs per tour itself — the rest will follow from there.
To help you out with some basic costing, I’ve created a tour profitability calculator which you can download here. This should help to get you on the right track in terms of being profitable.
To employ or not to employ?
Hiring may seem like a perfectly logical idea if demand is high — but you should always consider the cost of your time and any insurance involved. In most cases — especially in the U.S. — you’ll need workers’ compensation insurance. Some companies like to treat guides as contractors to get around this. My advice — and the advice of any smart lawyer — don’t do it. If you end up in court for whatever reason, they’ll almost always find a way to be defined as an employee.
There are other options out there. One of the best I have seen is offering employee ownership. Be sure to reach out to a lawyer to fully understand how this works, but in some cases it can save operators a lot of money.
Here’s our dream team — make sure you build one that’s viable for your business
Remember, when considering any part of your tour’s profitability, you should be thinking about your end game. Do you have an expansion plan for your company? Do you want to sell it? Is it worth anything? It’s important to understand that what you charge now is directly related to your prospective plans — so always keep one eye on the future.
How to Make a Tour Popular
So you’ve run the numbers, and you’re sure you’ve got a viable tour on your hands. Now the question you need to ask yourself is: what makes a good tour great?
It’s the little things
We’ve all been on good tours and bad tours. But what makes a tour so great that you not only want to buy a t-shirt, you want to straight up invest your kids’ college fund into it?
All I can say is: details.
While on vacation, I’m always looking at how other people do tours to see if there is anything I’m missing. And the one thing that always sticks? The details.
Take the Brewseum in Hawaii. A family-run museum and brewery — how could this place not be perfect? It takes you on a journey, starting with the museum and ending up in the brewery.
This could probably succeed based on the idea alone, right? But, what made this experience truly unforgettable were the details that operator Duke and his father Glenn added:
The museum told a story. From the very beginning, you’re immersed in 1930s Hawaii, before the Pearl Harbor bombing. As you weave along the path, you follow all the action until you end up at a door. That door leads to a military-themed speakeasy, where Glenn, dressed in military uniform, plays the part of bartender.
The bar is full of touchable relics from the era. Once we were done in the speakeasy, we moved along to the brewery.
It was so well done that I had to write a review right afterwards. This is why they hit a home run. There are so many well-placed details that I didn’t have time to think or pick it apart. It’s the same reason why adults love to go to Disneyland! They’re too busy living in this new, created world, to think about anything else.
So. Let’s say you’re operating a walking tour that goes down the same street every day. Along the way, you call on a shopkeeper who has a sample goodie for your folks to try. There’s a detail: a way to make people feel like this is a one-of-a-kind experience — that they are a VIP.
Do you have an epic, relevant soundtrack for your tour? Maybe some antiques that are part of the local history? Maps, newspaper clippings, local delicacies — all of this adds to the magic of your tour. Be on constant lookout for details like these, and review their success on a regular basis.
Let’s talk about content
Even when I first started touring, I was encyclopedic in my knowledge of San Francisco. So much so, that people walked away from my first couple of beta tours looking like they had been in class for eight hours.
The content of your tour needs to be catered to your audience. Ask questions, find out what they like, then provide information that they can connect with.
A great example is when I have someone from NYC on a tour. I love to explain that the person who built Central Park is the same person who inspired and helped with the design of Golden Gate Park. This connects them with something they are familiar with and may know something about.
One of my best guides told me once that people will remember 10% of what you tell them, but at the end of the day they will always remember how you made them feel.
How can you make them feel great? The best thing you can do is connect with people on your tour in some way. Ask them where they are from, understand what their itinerary looks like. People always love to talk a little about themselves.
If people let you know that they are a local or an expert in the field of your tour, use them. When I give beer tours and find out that someone is a homebrewer, boom — they just became a second staff member. I’ll ask them questions about how they brew at home or what type of ingredients they like to use. Honestly, the self-proclaimed expert is probably already thinking about poking holes in your tour. This is your chance to flip it on its head and have them add more flavor and dialogue to the experience!
Guests can make a great contribution to your tour — even the beer nerds! 😉
The big thing to remember when creating a great tour is that you want it to have an echo. It should leave an impression on someone: whether they walk away with a map, recommendations on where to eat, or just a song that gets stuck in their head. Make them feel special, and involve them in the experience. This will replace any negative thoughts or reflections they may have had.
So as you prepare to start, scale or breathe new life into your tour or activity operation, remember the two pillars of your success — profitability and popularity.