Some KPI's to Make Your Numbers Work in the Travel industry

Here at CRM, we work with a number of clients within the travel industry and help these clients to not only comply with statutory requirements but to fully understand the numbers in their business. One of the ways we can do this is by calculating some useful Key Performance Indicators (KPIs) to help understand how their business is performing.

One of the most important areas that all businesses need to monitor, but it is particularly important in the travel industry, is gross profit margins. No matter what area within the travel industry your business falls into, you will no doubt face instances where you have empty seats on a coach or empty rooms in a hotel due to variations by season and promotional offers. Pair that with the constant increase in fuel prices and the industry has real fluctuations with gross profit margins.

A gross profit margin is a simple calculation that takes the gross profit for the period divided by the turnover. This shows you the percentage of profit made for your turnover. This should be comparable each period and stay relatively constant but as we know this is not always the case due to the fluctuations in the industry. 

For example, a coach with capacity for 50 people will use almost the same fuel whether it is at capacity or only half full (save for a small reduction in fuel costs due to weight). This will have a huge impact on the gross profit margin for the business as it is difficult to compare when a coach is at capacity and when it is not.

One calculation a business can do to monitor this is a breakeven analysis to ensure that the journey is profitable. You would need to calculate the total costs involved in the travel (eg. fuel, driver salary etc.) and then divide that by the price per ticket. This calculation will tell you how many tickets will need to be sold in order for the trip to breakeven.

This will help management to decide whether the trip will go ahead. Obviously, there are other commercial reasons that would need to be considered if the trip was cancelled, for example the reputation of the business if you cancel bookings.

For regular services, you can also look at how many people on average use the service. You can then determine ticket price in order that the service makes a profit.  In order to do this, you would need to monitor trends in the average number of customers for each service. Then you would need to calculate the total cost of running the service with the addition of your required profit. You can then divide this number by the average customer for the service and this is the minimum ticket price. Obviously, the market is competitive so you would need to consider whether an increase in ticket price would result in a loss of customers.

If you would like to discuss how we can support your Travel business, then please call us on 01865 379272.