Tip Sheet: Pricing for Profit and Purpose
Many historic sites struggle to set prices for admission, tours and gift shop products. Setting prices isn’t random but doesn’t need to be difficult.
The right price conveys value, creates cash flow, and sustains your historic site operations.
Organizations often struggle with determining the price to charge their customers and visitors. Some are concerned that if the price is too high, their revenue will suffer, and if it is too low, they will not generate enough revenue to keep operating.
Your organization needs to consider three key elements when pricing products and services: goals, costs and value.
Setting goals
The first step in setting prices is to be clear about what your historic site wants to achieve through the sales of goods and services. Do you want more customers, do you want more revenue, do you want to target youth, or do you want to create exclusive experiences? Your business goals will help to determine which of the proven pricing strategies you’ll want to employ.
Variable Costs
Variable costs include any cost that changes based upon the number of visitors. Examples might include contract tour guide fees, bus transportation to a site, printing of tickets or brochures, toilet paper, samples offered to each visitor, etc.
Estimating Costs
In order to set prices in any business, it is very important to calculate a cost per unit, as there is a strong relationship between unit cost and price, as is discussed later in this tip sheet.
When estimating costs, operators of historic sites need to decide what aspects of their business are reasonably expected to be covered by the sales of goods and services. Major renovations or infrastructure costs are likely going to be financed through grants, private philanthropy, or possibly loans. However, operational (variable) costs and reasonable* overhead (fixed) costs incurred in a given year should be included when setting prices.
*Reasonable is a subjective concept, obviously, but if your site operates a museum in 50% of the space of your historic property, then museum admissions should only cover 50% of the overhead.
The following equation makes it relatively easy to set a price to covers costs:
Estimated # of sales of product X per year
Estimating the number of sales per year can be based upon past years’ (or several years’) statistics, a target in a marketing strategy, or even an educated guess based upon business planning efforts.
Relationship between unit cost and price
There are two different groups of pricing strategies. The first group intentionally sets price below cost and is typically used to attract new customers, sell off old/excess inventory, or to liquidate a business. The second group of strategies sets price at or above cost and are used to maximize revenue and/or to sustain (and grow) the business.
Different pricing techniques will help achieve different marketing goals for your organization. For more detail on each of these strategies and how they might apply to your historic site, read our Tip Sheet: Expanding on 8 Pricing Strategies for Historic Sites.
Maximizing value for your customer while covering your costs
You may choose one or more strategy to achieve your organization’s marketing goals. However, the most effective pricing strategy is the one that confirms for your customer that you are providing them with good value for their money. At historic sites, the customer is a student, an advocate, a marketer, and the very reason for the preservation and celebration of the location. It is important that they feel their experience is valuable.
Of course, it is important to set prices that cover the operational costs of providing a good or service to your customer, but you can also set your price to have a profound effect on the value that they perceive they will get (or will have had).
Every historic site will have a different ability to charge for their experience or product. However, visitors to most historic sites are likely driven by more than price as they want an experience, they want to learn and they want something they can’t get elsewhere.
The more unique your experience and the more effective your marketing in conveying that uniqueness, the more you can increase prices without fearing a drop in sales. By investing in marketing and providing a quality experience, your site will become a more desired destination, and with that improvement, you can increase prices to maximize both revenue and customer value. Many tourist locations are able to charge relatively high prices, and their prices do not necessarily drive away all their customers; instead, their prices are simply a reflection of what the site operators perceive their customers will pay for their experience.
1, 2, 3: Set your price
By applying three simple steps—defining your marketing goals, calculating unit costs and setting price to convey the value of your experience—setting prices for services, admission or products becomes relatively straightforward. Note that price is only one component of a marketing mix, and that it is important you also consider the quality of the product, the messages you use to promote your site and the locations where you convey that message to your audience.
