How much margin should a tour operator take?

"What margin should I take?" is asked as though there were a number. There is not one, and the operators who do best on this do not carry a single percentage at all — they carry a rule for deciding it per quotation. Markup and GST covers the mechanics of putting it on a document; this is about choosing the figure.

What you are actually being paid for

Four things, and they vary independently on every trip.

• Risk carried. A trip where you have paid a non-refundable hotel advance, committed a coach and guaranteed banquet covers is a different commercial position from one you can release a week out. Risk is the part most often priced at zero.
• Work done. A bespoke fourteen-night itinerary built from nothing is not the same job as the eleventh sale of a route you have run all season, even when the trip costs the same.
• Knowledge. Knowing which hotel in a hill town is actually warm in January is the product. It is also the thing clients cannot check before they buy, which is why it is the hardest part to charge for.
• Who owns the client. Selling direct, you carry the acquisition cost and the service load. Selling through an agent, they carry both, and your margin should reflect that.

Percentage of what, exactly

Half the confusion in this conversation is arithmetic rather than strategy. A cost of 100,000 sold at 125,000 is a 25% markup on cost and a 20% margin on the sale. Both numbers are correct and they describe the same trip. Pick one convention, write it down, and make sure everybody quoting uses the same one, because a team where two people mean different things by "20%" will produce two different prices for the same itinerary and nobody will be able to explain why.

Where the margin quietly leaves

Most operators do not have a pricing problem. They have a leakage problem, and it is the same short list every time.

• The unpriced line. Monument fees, a driver's night halt, an arrival day room. Small items estimated once and never corrected, on every quotation.
• Free-of-cost positions. An escort's room and seat, a complimentary that disappeared at a lower room count. See costing a group.
• Last season's rate. A quotation copied from a previous document inherits a cost that has since gone up, and the margin absorbs the difference silently.
• Currency. Quoting in one currency and paying in another, months apart, is a position you either manage or donate. See quoting in the supplier's currency.
• The discount given to close. Legitimate, and it should come off a number you knew, not off one you had already eroded by the four items above.

Fixing leakage raises the money you keep without asking anybody to pay more, which is why it is the first place to look and almost never the first place people look.

A rule worth stealing

Set a floor rather than a target. Decide the margin below which you will not take the work, per trip type — a fixed departure you are filling anyway has a lower floor than a bespoke build — and then quote above it by judgement. A floor survives a negotiation; a target does not.

And write the floor down somewhere your colleagues can see. The commonest way margin goes missing in a team of three is that nobody knows what anybody else is allowed to give away.

When discounting is the right answer

Three cases, and they are narrower than they feel at four in the afternoon with a client who is hesitating: a departure with unsold capacity you have already paid for, an agent whose volume genuinely changes your buying, and a first trip for a client you have good reason to think will come back. Everything else is a reduction in the price of the same work.

If you do discount, take it off something nameable — a category, a night, an inclusion — rather than off the total. A total that drops by twelve thousand for no stated reason teaches the client that your price was never the price.