What is tour costing?
A package tour bundles travel, stay, food and sightseeing into one price. Tour costing is working out what the package costs the operator. Pricing is choosing what to charge the customer.
The operator lists every item on a costing sheet, day by day: transport, hotels, meals, guides, entry fees, insurance, permits and small extras like water bottles.
Fixed and variable costs
Variable costs
These are paid for each traveller. If one more person joins, the cost goes up. Examples: hotel bed, meals, entry tickets, travel insurance, a train or air ticket.
Fixed costs
These are paid once for the whole group, whatever its size. Examples: hiring a coach, a guide's fee, a tour leader, a welcome event.
Fixed cost per person = total fixed cost ÷ number of travellers. ₹40,000 ÷ 20 = ₹2,000, but ₹40,000 ÷ 10 = ₹4,000. That is why tours often need a minimum group size.
Two common extras
- Single supplement: hotel prices are usually quoted per person sharing a twin room. A traveller who wants a room alone pays extra.
- FOC (free of charge) place: a hotel or airline may give one free place for, say, every 15 paying guests. Often the tour leader uses it.
From cost to selling price
- Total cost per person = variable cost per person + fixed cost per person.
- Add a markup: a percentage on top of cost to pay for the office, staff, marketing, agents' commission and profit.
- Add taxes required by law (for example GST in India, VAT in many other countries).
Selling price = (cost + markup) + tax.
Markup or margin?
Markup is a % of cost. Margin is a % of the selling price. A 20% markup on ₹10,000 gives ₹12,000. A 20% margin needs a price of ₹10,000 ÷ 0.8 = ₹12,500.
Pricing methods
- Cost-plus: cost + fixed markup (most common in exams).
- Competition-based: match similar tours in the market.
- Seasonal / demand-based: higher in peak season, lower off season.
Break-even and currency
The break-even point is the number of travellers at which income just covers all costs.
Each traveller brings in (price before tax − variable cost). This is the contribution. Break-even group size = fixed cost ÷ contribution per person.
Price ₹12,000, variable cost ₹8,000 → contribution ₹4,000. Fixed cost ₹40,000 ÷ 4,000 = 10 travellers.
For international tours, costs come in other currencies. The operator converts them at a chosen exchange rate and often adds a small cushion in case the rate changes.
Try it: plan a one-day class picnic. List fixed costs (bus) and variable costs (food, tickets). Find the cost per student for 20 and for 40 students.
Key formulas and definitions
- Fixed cost per person = total fixed cost ÷ group size
- Total cost per person = variable cost + fixed cost per person
- Price before tax = cost × (1 + markup %)
- Selling price = price before tax × (1 + tax %)
- Break-even group = total fixed cost ÷ (price − variable cost per person)
- Price for a margin m = cost ÷ (1 − m)
Worked examples
1. A coach costs ₹30,000 for a trip. How much is the coach cost per person for 25 travellers?
₹30,000 ÷ 25 = ₹1,200 per person.
2. Hotel ₹2,500 per night (twin share) for 2 nights, meals ₹800 per day for 3 days, entry fees ₹700. Find the variable cost per person.
Hotel 2 × 2,500 = 5,000. Meals 3 × 800 = 2,400. Fees 700. Total ₹8,100.
3. Using ₹8,100 variable cost, a guide at ₹9,000 and a coach at ₹21,000 for a group of 15, find the total cost per person.
Fixed = 30,000 ÷ 15 = ₹2,000. Total = 8,100 + 2,000 = ₹10,100.
4. Cost per person ₹10,100. Add 15% markup and 5% tax. Find the selling price.
Markup 15% of 10,100 = 1,515 → 11,615. Tax 5% of 11,615 = 580.75 → ₹12,195.75, rounded to ₹12,196.
5. A twin room costs ₹4,000 a night; a single room costs ₹3,200 a night. Find the single supplement for 3 nights.
Twin share per person = 4,000 ÷ 2 = 2,000. Extra for single = 3,200 − 2,000 = 1,200 per night. For 3 nights: ₹3,600.
6. Fixed costs ₹48,000, price before tax ₹9,000, variable cost ₹6,000 per person. Find the break-even group size.
Contribution = 9,000 − 6,000 = 3,000. Break-even = 48,000 ÷ 3,000 = 16 travellers.
Common mistakes
- Dividing variable costs by the group size. Only fixed costs are shared; variable costs are already per person.
- Taking tax on the cost instead of on (cost + markup).
- Mixing up markup and margin. 20% markup is not the same as 20% margin.
- Forgetting that hotel rates are often per room, not per person. Halve a twin-room rate for a per-person cost.