Have you wondered what are the criteria used to adopt a correct pricing strategy? How do golf courses and resort hotels establish their price rates?
Although this last question is more delicate and extensive, since today we are moving from having static to dynamic pricing structures. In the “pricing” strategy it is crucial to have a base from which to begin building our pricing architecture.
The objective of our golf course or resort hotel is to obtain income that exceeds costs. Revenues that exceed costs are called profits, so the properties or management can keep the profits as income, or invest the profits in their resorts to drive growth. The “breakeven point” or “Break-Even-Point” will help us know the level of sales income that our golf course or resort hotel needs to avoid taking losses.
Let’s describe the term Breakeven Point.
The term break-even point is the scenario in which our golf course or resort hotel does not make a profit, but at the same time does not lose money. From another point of view we could say that one’s sales income must be equal to its total expenses. This means that the break-even point is the point at which sales revenue equals total costs. The management that manages to obtain more income than the amount necessary to reach the break-even point will achieve profitability.
The importance of our sales structure.
Taking into account that the reference of this value is the total costs generated by our business, the sales income will determine whether our golf course or resort hotel is reaching the break-even point or “zero cost” situation. In which, having a sales situation below the break-even point, we will enter a loss scenario and, on the contrary, above this variable we will enter the profitability threshold.
Do golf resorts and hotels take the break-even point into account in their sales strategy?
Stating negatively or positively is really compromising, especially because it would be a consultancy and analysis job to determine what sales policy each property uses with respect to its products or services. However, we can say that determining the balance point of our complex is extremely important if we want to take into account our operating account in terms of expense and sales budgets. It would make no sense to start selling a product at a certain price, without knowing exactly the structural and operational cost it has, both in fixed and variable values. Quite the opposite, it is usually called in colloquial language as “hitting the air.”
How do we obtain the balance point on our golf course?
The formula by which the equilibrium point is expressed is the following:
Qc = CF / (PV – a)
Where:
Qc = dead point = Number of units produced and sold so that Profit is equal to zero
CF = Fixed costs
PV = Unit sales price of the product
CVT = Total variable costs
a = Unit variable cost
In order to make it easier for everyone, we can say that our break-even price is obtained from the following dividend:
Total estimated fixed + variable costs / Total number of green fees available
Considerations to take into account.
The management of our complexes faces two basic types of costs: fixed costs and variable costs. Fixed costs are costs that remain unchanged in the short term, and variable costs are those that vary depending on the number of units sold. “Breakeven point” occurs when the number of units sold multiplied by the profit per unit equals the fixed cost. The profit per unit is equal to the sales price of a unit minus the variable cost associated with said unit.
Do you carry out this type of analysis before determining your pricing structure? I think that for those who don’t, it is a good starting point to continue researching and maximizing income from our golf courses and resorts.
