How to price a tour package: a step-by-step costing method with a worked example

The tour package pricing formula in one line

Before the detail, here is where we are heading. For a given group size, the selling price per person is:

Then round up to a presentable number. Foreign-currency costs are converted at a buffered rate before they go into the formula, and single supplements are priced separately with the same multipliers. Each piece is covered below.

If you work in markup rather than margin, replace ÷ (1 − margin) with × (1 + markup). The difference matters more than most people expect — see markup vs margin for tour operators.

Fixed vs variable costs: sort before you sum

Every line on a tour costing falls into one of two groups, and the whole method depends on getting this right.

• Variable (per-person) costs rise with every traveller you add: entrance tickets, meals, rail tickets, cooking classes, hotel beds when travellers share rooms. Ten people cost ten times one person.
• Fixed (flat or group) costsare the same whether two or eight people travel: a private guide for the day, a vehicle and driver, a boat charter, a tour leader’s fee and expenses. They are shared across whoever is travelling.

Some costs are stepped: flat until a threshold, then they jump. A minivan seats up to eight; the ninth traveller needs a coach or a second vehicle. Guides often have a maximum group size per guide. Note the thresholds next to the line, because they decide which group sizes you can quote at a single rate.

Per-person vs flat costs: why group size changes the price

Here is the tour we will use throughout: a four-day, three-night private Lisbon and Sintra trip, costed in euros with travellers sharing double rooms.

The per-person subtotal does not move with group size. The flat €1,000 is divided by however many people travel. That gives a net cost per person that falls sharply at small group sizes and flattens out as the group grows:

Two consequences follow. First, a single “price per person” with no group size attached is not a price — it is a guess. Always state the basis: “per person, based on 4 travellers sharing”. Second, if the group shrinks after you quote, the per-person cost rises. Your terms should say the price is valid for the stated number of travellers and may be revised if the number changes.

Single supplements

Hotel rates are usually per room, not per person. When two people share, each carries half the room. A solo traveller carries all of it — and if your price assumed sharing, the difference comes out of your profit unless you charge a single supplement.

Work it out per night, then apply the same contingency, margin and fee multipliers you use for the rest of the trip:

On the Lisbon tour the hotel charges the full €180 for single use of a double room. Sharing, each person pays €90 a night; alone, €180. The net supplement is €90 × 3 nights = €270. Some hotels offer a lower single rate — at €160, the net supplement would be (€160 − €90) × 3 = €210. Ask; it is a common saving.

Odd-numbered groups need a decision too. Five travellers usually means two doubles and a single, so one person pays the supplement, or the group agrees to share a triple where hotels allow it.

An FX buffer for foreign-currency suppliers

If you sell in one currency and pay suppliers in another, the exchange rate on the day you quote is not the rate on the day you pay the balance. That gap can be weeks or months. The usual protection is to convert supplier costs at a slightly worse rate than today’s — a buffer — so ordinary movements are absorbed.

Buffers of a few percent are common practice; how much you need depends on how volatile the currency pair is and how long you carry the exposure. Paying suppliers early, buying currency forward, or quoting the client in the supplier’s currency all reduce it. Only buffer the lines that are actually in a foreign currency.

Contingency for the things that go wrong

Even with confirmed rates, small extras appear: a guide’s overtime when a flight lands late, a taxi when a transfer fails, a ticket price rise between quote and booking. A contingency line covers them so they do not land on your profit.

Many operators add a small percentage — a few percent of net cost — on every trip. The worked example below uses 3%. If it is not spent, it becomes profit; if you never spend it, lower it. Keep it on the cost side, applied before margin, so your margin is earned on the protected cost.

Payment and card fees

Card processing typically costs somewhere around 1.5–3% of the amount charged, depending on the provider, the card type and where it was issued. International transfers can carry their own charges too. These are a cost of taking the money, and they scale with the price.

Because the fee is charged on the final price, adding 2% to the price is not quite enough — you would pay 2% on the 2% as well. To keep your planned profit intact, gross the price up:

If you take most payments by bank transfer and only some by card, you can either price card fees into everything (simplest) or quote the bank-transfer price and pass on a surcharge for cards where that is allowed. Rules on card surcharges differ between countries, so check what applies to you.

Choosing your markup or margin

Your profit percentage should come from your business, not from what you heard a competitor charges. Start from the gross profit you need over a year to pay salaries, marketing, software and overheads, divide it by the revenue you expect to sell, and that is your target margin.

Then adjust trip by trip:

• Design-heavy, tailor-made trips take hours of planning and changes; they usually need a higher margin than a repeatable group product.
• Easily compared components — a well-known hotel, a rail pass — tolerate less markup because clients can check the price.
• Services you create or guarantee — private guiding, curated experiences, ground handling — can carry more.

Decide whether you quote in markup or margin, and make sure everyone on the team uses the same one. A 25% margin is a 33.3% markup; a 25% markup is only a 20% margin. The markup vs margin guide has a full conversion table.

VAT and the tour operators’ margin scheme

Calculate cost, contingency and margin on figures that exclude VAT you can reclaim, and think about output VAT separately. For tour operators in the UK and EU this is rarely simple.

When you buy in travel services and resell them as a package to travellers, you may fall under a special margin scheme — the Tour Operators’ Margin Scheme (TOMS) in the UK, or the special scheme for travel agents under Article 306 of the EU VAT Directive. Under these schemes VAT is generally due on your margin rather than on the full selling price, you usually cannot reclaim the VAT on the bought-in travel costs, and the VAT is treated as included in the price.

The practical effect: some of the margin you calculated belongs to the tax authority. As an illustration, if a margin is subject to VAT at 20% and the VAT is included in it, one sixth of that margin is VAT — €166.67 of a €1,000 margin. Whether and how this applies depends on where you are established, where the travel takes place and who you sell to (B2B sales are treated differently in some countries).

Rounding and presenting the price

A formula produces €910.88. Nobody wants to read that on a proposal. Round to a clean number, and round up — rounding down on every quote is a slow leak in your margin.

• Pick a rule and keep it. Up to the next €5 per person, for example, or the next €10 or €25 on high-value trips. A consistent rule makes prices look deliberate.
• State the basis.“€915 per person, based on 4 travellers sharing double rooms”, with the single supplement as a separate line.
• Show the total as well. For private trips, clients compare the total they will pay; give both the per-person and the party total.
• Say what is included and excluded — flights, tips, city taxes paid at the hotel — and how long the price is valid.

Whether you show line-by-line prices or a single package price is a business choice. Many operators show one package price to stop clients cherry-picking components, and keep the line detail in an internal costing sheet.

Minimum group size and break-even

Private trips are costed at the group size the client gives you. Scheduled departures are different: you publish one per-person price before you know how many will book, so you need to know the smallest group that still covers the flat costs.

Say you publish the Lisbon tour as a scheduled departure at €795 per person (the 6-traveller price from the worked example below). After a 2% card fee you keep €795 × 0.98 = €779.10 per traveller. Take away the €400 of per-person costs and each traveller contributes €379.10 towards the €1,000 of flat costs. €1,000 ÷ €379.10 = 2.64, so you break even at 3 travellers.

Breaking even is not the goal, so set the minimum where the trip earns an acceptable margin — here, four travellers rather than three. Publish that minimum in your terms, along with the date by which you will confirm or cancel the departure, so you are not forced to run a loss-making trip. Your deposit and cancellation terms work alongside this; see deposits and payment schedules.

How to price a tour package, step by step

Here is the full method, in order, with the Lisbon and Sintra tour priced for a private group of four. The client pays in euros, every supplier invoices in euros (so no FX buffer is needed), and the operator targets a 25% margin.

1. 01

   List every service with its net rate and basis

   One line per service, marked per person or flat, at net supplier rates excluding reclaimable VAT. Note any stepped costs and their thresholds. Here: €400 per person and €1,000 flat.

2. 02

   Convert foreign-currency lines at a buffered rate

   Any supplier invoicing in another currency gets converted at today’s rate plus your buffer. Not needed in this example.

3. 03

   Calculate net cost per person for the group size

   €400 + (€1,000 ÷ 4) = €650.00 per person.

4. 04

   Add contingency

   €650.00 × 1.03 = €669.50 per person.

5. 05

   Apply your margin (or markup)

   25% margin: €669.50 ÷ 0.75 = €892.67 per person. (With a 25% markup instead it would be €669.50 × 1.25 = €836.88.)

6. 06

   Gross up for card fees

   2% fee: €892.67 ÷ 0.98 = €910.88 per person.

7. 07

   Round up and price the supplements

   Round up to the next €5: €915 per person, €3,660 for the party of four. Single supplement: €270 × 1.03 ÷ 0.75 ÷ 0.98 = €378.37, rounded up to €380.

8. 08

   Check the result, then add VAT if it applies

   Re-calculate profit from the final price (below), then apply whatever VAT treatment your accountant has confirmed.

Running the same steps at every group size gives the price list you can put in front of a client:

You do not need to build this in a spreadsheet. The free tour price and itinerary cost calculator takes per-person and flat costs together, applies markup or margin, and shows the price per person for your group size — a quick way to sanity-check a quote before it goes out.

Keeping it consistent across every quote

The method is simple once written down. The risk is in the repetition: a flat cost entered as per-person, a group size changed on one tab but not another, a margin target typed into a markup column. Whatever tool you use, the costing should know which lines are flat, re-price automatically when the group size changes, and show you the profit on the final rounded price.

Once the price is right, the next bottleneck is usually speed. See how to quote faster, from enquiry to proposal.

Frequently asked questions