Do You Know Your Numbers? | TravelResearchOnline

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Do You Know Your Numbers?

You’ve heard the pundits and read the headlines:

“Advisors need to pivot, experts say.”

“Agents have to adapt to the new normal.” (Ugh. That phrase.)

While these concepts are great advice, what should you as a business owner do to employ them at your business? Well, that’s the thing about trendy catch phrases; they usually aren’t useful if that’s all they offer.

I think a good portion of why there’s so little real, good advice out there for entrepreneurs is because too many pundits and “experts” really don’t want to share their “secret sauce.” Others come to realize they just don’t have any (but I did cash the publisher’s book advance, so let’s start searching for a catchy book title).

I want to shoot straight with you – I’m not brilliant. What I have learned about business over 35 years is pretty much the result of a series of successes and failures, with most of those experiences not unique to me.

The other important truth is that business isn’t easy. Don’t let anyone fool you. If someone writes an article titled “Pivot During COVID in 5 Easy Steps,” know this: The five steps will be so generic you’ll only have an outline of what to do next, not a real game plan to help you win. (Feel free to replace “game plan” with “business plan” if that works for you.)

Business is exquisitely simple

I know. I know. I just said business isn’t easy. Well, it is. And it isn’t. I’m no accountant, or mathematician. But I AM a serial business owner and I worked in my family’s business for eight years. Additionally, I’ve worked with some of the smartest business leaders from companies like Virgin Atlantic Airways, American Express, and Thomas Cook Travel.

Here’s what I’ve learned about business in three bullet points.

  • Business is math. If I see linear trends that hold true over a statistically valid time period, then those numbers are telling me a story about my business and I better pay attention.
  • There is no such thing as a monolithic consumer market. If people tell you travel is down, ask them: “With which population? For which time period?” If someone tells you there is “pent-up demand,” ask them the same questions. Your game plan arises from their detailed answers… if they can give you any.
  • You need to think backwards to create a successful plan. Yes. Backwards. (More on that later.)

 

Business is hard

I know. Back to the hard part. (But it’s so worth it.) You cannot establish your new game plan using my “thinking backwards” philosophy without knowing what your numbers are RIGHT NOW. No. You’re not going to need a full blown pro forma with cash flows, expenses, and projected income – although it would be a great thing if one day you did.

But you do need to know some basics about your business, like:

  1. How many clients do you typically sell in a given year?
  2. How many clients are in your database?
  3. What is the average commission those clients produce for you, and is there a group of clients that produce a much higher average commission?
  4. What is the typical annual number of consults/inquiries you handle per year?
  5. Break down for me the number of final sales to prospect channels.

There’s so much more I could add to this list when working with my consulting clients, but I don’t want to get bogged down here. The “secret” of the answers to these questions is that your business operates by some very simple math formulas. For example, let’s say you answered the above questions as follows (using round numbers for simplicity’s sake):

  1. 100 clients a year.
  2. 2,000
  3. $500, but $1,000 for European FITs
  4. 250 inquiries a year.
  5. 50 of my annual sales are loyal repeat customers; 25 are referrals from loyal customers; and 25 are brand new leads who found me over the internet, or my consortia sent me.

Typically, I would ask you to break down your numbers a whole lot more. (Told you this can be hard.) For example, I would want to know what your average commission was by vacation type (e.g. cruise, all-inclusive, high-end resorts). I’d also want to know some other details, like which channel (e.g. consortia, referrals, return loyal clients) wanted which vacation style and what your close rate was for each channel. But all we want to do here is illustrate what “thinking backwards” looks like (also called reverse engineering).

If we know that leisure travel agent demand is 20 percent of what it was this time in 2019 (Source: Airlines Reporting Corp., July 2020 airline ticket volume), then we can guestimate that, if you don’t do anything new, based on your historic operations, your volume of new inquiries will be down to just 50 a year (Math: 20% of 250).

Since 50 inquiries from your business as usual marketing and sales equals 20 sales. You need to close another 80 sales to get back to 100. At your 40% close rate (Math: 250 inquiries a year = 100 paying clients), you’ll need to find an additional new 200 sales prospects to replace those 80 sales. What if your close rate drops to 20%? Then you will need 400 new prospects.

Of course, that’s just number of clients. What if they don’t produce the same average transaction and, consequently, same average commission? You’re right. That would impact your ultimate goal: the $50,000 in annual commissions you want in your bank account. Guess what? Think backwards. If you have the relevant numbers, you can still get there.

Real quick here, ‘cause I have to go soon. Let’s say 50% of your loyal clients produce those $1,000 average commissions. (That’s real love.) If you could maintain that number of loyal clients booking at that level, then 25 loyal clients = $25,000 in commissions. You’re halfway to your annual commissions goal.

Maybe now there is a way to book them into luxury U.S. or Mexico resorts that would satisfy those loyal clients given the travel restricted environment Coronavirus has created. This is when I send my consulting clients off to analyze their supplier relationships, especially supplier commission rates.

Now, what if you find that vacations like a 7-day resort stay in Vail, Colorado or Palm Springs, California for a family group of four could generate $1,250 average commissions. Then you don’t even need 25 loyal client bookings (Math: 20 loyal clients * $1,250 average commission = $25,000 in commissions.)

Let’s work backwards one last time before I go. You have 2,000 clients in your database. For argument’s sake, let’s say you believe 200 are prime targets for this vacation style. If you started sending them emails, posting on your social, maybe even purchase some Facebook ads targeting them, talking about high-end getaways in mountain/beach resorts, could you achieve a 10% close rate off that group? (Math: 20 bookings divided by 200 prospects)

Now, what if you used those same ads to also attract brand new sales prospects who have never heard of you. Let’s say you attract 100 inquiries and close 10%. Then you only need 10 loyal clients to add to these new clients to reach that $25,000 in higher value vacation commissions. Or, ideally, close 30 total bookings for $37,500 in commissions.

It’s all math.

That’s how you “pivot.”


Richard D’Ambrosio is a master storyteller who, for more than 30 years, has helped leading brands like American Express, Virgin Atlantic Airways, the Family Travel Association (FTA), and Thomas Cook Travel tell their stories to their customers, the media, and employees. A professional business coach and content marketing consultant with his own firm, Travel Business Mastermind, Richard most recently has worked with The Travel Institute, Flight Centre USA and a variety of host agencies and tour companies, helping entrepreneurs refine their brands and sharpen their sales and marketing skills. Richard writes regularly about retail travel agencies, social media & marketing, and business management.

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