Factors that Affect
Profit Margins
In the hospitality, travel, and tourism industry…
What is profit margin?
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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.
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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
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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
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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
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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
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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
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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
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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
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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
Customer types:
destination: growth More market
and decline
segmentation
Length of stay: a
more flexible
industry
Variety of things to Political aspects:
do: adventure,
the ‘War on
sport, activity
Terror’, safety and
health
Technological:
growth of ecommerce and new
transportation
Increasing Sales
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Increase average check amount in
restaurants.
Raising prices or selling more items.
Increase the number of customers.