Factors that Affect Profit Margins

In the hospitality, travel, and tourism industry…

What is profit margin? A ratio of profitability calculated as net income divided by

revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

Ex. Imagine a company has a net income of $10 million from sales of $100 million, giving it a profit margin of 10% ($10 million/$100 million). If in the next year the net income rises to $15 million on sales of $200 million, the company's profit margin would fall to 7.5%. So while the company increased its net income, it has done so with diminishing profit margins.

Location, Location, Location Locations that are more expensive may

increase a company’s profit margin, if the company can balance its expenses.

Tourists are willing to pay higher prices to visit exotic locations. (Resort in Mexico vs. Resort in St. Thomas)

Seasonal Changes Changes in season are common angles that

affect profit margins. Businesses in travel, tourism, and hospitality

must address these changes in order to maintain profit.

Ex. Ski lodge in spring needs to market hiking trips and lakeside recreation.

Tough Economy How far will people travel? Will people travel? Will families go out to eat? Will families spend money on recreational

activities? All of these scenarios affect profit margins of

businesses.

Security and Safety Issues Airport security seen as priority, so attracts

investment. But this may leave a traveller exposed to risks

at other points in their journey. Expense of technological solutions to detect

terrorists.

Security and Safety Issues Political barriers prevent a global response

to risks. Not all countries have same view of

security risk. Impact on individuals of anti-terror

measures likely to increase inconvenience of some travel options.

Political Aspects As a result of higher security enforcements, bear

in mind travel restrictions or increased sensitivity as directed by political clearance. If there is a threat to your destination, your marketing efforts need to shift to a public awareness campaign asking for support and comforting guests that travel is satisfactory.

Special Events Sporting events, major concerts or film festivals

are reasons travelers visit a destination and often plan an entire trip around the main event.

This is an opportune time for you to market months in advance state and region-wide to get a boost in visitors.

These local special events or holidays can increase profit margins within the hospitality, travel, and tourism industries.

Changes in destination: growth and decline

Customer types: More market segmentation

Length of stay: a more flexible industry

Variety of things to do: adventure, sport, activity

Political aspects: the ‘War on Terror’, safety and health

Technological: growth of e-commerce and new transportation

Increasing Sales Increase average check amount in

restaurants. Raising prices or selling more items. Increase the number of customers.