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Factors that Affect Profit Margins

Factors that Affect Profit Margins. In the hospitality, travel, and tourism industry…. What is profit margin?.

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Factors that Affect Profit Margins

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  1. Factors that Affect Profit Margins In the hospitality, travel, and tourism industry…

  2. What is profit margin? • 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. • 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.

  3. Location, Location, Location • 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)

  4. Seasonal Changes • 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.

  5. Tough Economy • 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.

  6. Security and Safety Issues • 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.

  7. Security and Safety Issues • 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.

  8. Political Aspects • 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.

  9. Special Events • 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.

  10. Increasing Sales • Increase average check amount in restaurants. • Raising prices or selling more items. • Increase the number of customers.

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