Pricing Yourself for Profit

When times look uncertain, it can be tempting to cut whatever deal you can with prospective tour and charter customers, at any price. But at how high a price to you does a bargain for them come?

We talked to a few operators who have come close to perfecting the art of pricing, and here are a few tips.

Keeping track is the first step

Jon Bailey of Bailey Leasing, York, Pennsylvania, would rather get less business as long as he can earn higher revenue with his tour and charter company. "Less is more — my daddy taught me that a long time ago," says Bailey, owner and president. "We won't put a coach on the road just to put it on the road. It needs to be profitable." Bailey is careful about managing costs on his coach and limo fleet, using a software program to track and break down overhead, operating costs and utilization rates. Also, because much of his limo work is airport transport, which typically isn't booked far in advance, he can adjust prices quickly when fuel prices spike. Says Bailey, "I visit [those prices] once or twice a week, just to make sure we have the right amount."

Make it worth customers' while

Bailey is also careful about making sure he can justify his prices by offering superior service. He learned that from years in the family travel business, after the airlines stopped paying commissions. "I added more bells and whistles and charged a little more. I'd watch as competitors cut staff, and I'd add services. [With 12 coaches], I can make more money than someone running 18 or 21 coaches. I learned a long time ago that yield is king, and profit is not a dirty word." Indeed, Bailey says his gross profits are up nearly 30 percent for the quarter.

The competition's undercut can be an opportunity

Troy Voigt, owner and vice president of Voigt Bus, St. Cloud, Minnesota, says he's been able to keep his revenue the same or better even as he puts fewer miles on his charter coaches. His secret? "We wait until people want to pay our price." He doesn't worry all that much when a competitor undercuts him. First of all, because Voigt offers top-notch service and good value with more than 40 coaches, there's a good chance the customer will be back. And second, he says, "It's the law of supply and demand. If another business undercuts us, that business can't go and do other work with their vehicles." In short, the next customer who comes along looking for a coach for the same dates will likely come to Voigt — and pay the going price.

Share information

Starline Luxury Coaches, Seattle, believes in diversification, measurement and sharing knowledge through a UMA-sponsored 20 group. On the charter side of the business, they have some of the most luxurious MCI equipment on the market today (they also do corporate shuttles and paratransit). Gladys Gillis, Starline CEO, and business partner Becky Pritchett, president, subscribe to the management theory of "what gets measured gets done," and they appreciate the peer evaluation, appraisals and comparison charts provided to them through the UMA 20 Group. "Everyone in the group is measuring the same things, and that lets us see where we stand and where can improve our profit potential," says Gillis.

Perception has value

Think about designer jeans. Typically, the person who buys $200 jeans has convinced himself that they are better than the $30 pairs he used to buy. It's not necessarily much different in the service industry. For better or for worse, consumers often associate low prices with lesser quality. If your customers view you as the cheapest operator in town, you may never be able to take full advantage of surcharge opportunities or be able to get the most out of your more luxurious equipment.

And finally, some advice from Entrepreneur Magazine: Always make sure you generate enough client traffic and interest. That way, you can make sure you have the luxury of saying no when a customer asks too much and offers too little. After all, as Bailey notes, "Business is more fun when you're making money."

The FYI from MCI editorial staff values your feedback. Please e-mail any suggestions, comments, or ideas for future articles to fyi@mcicoach.com.