Farm and Ranch Recreation Resource Directory

Section 4 - Break-Even

Source: Kathleen Tweeten, Community, Economic Development Specialist
NDSU Extension Service
(The following is a sample only)

Business - Working Ranch Recreation

One Cabin with meals

Activities include horse back riding and wildlife watching
(Based on one week rentals to families of four)

Costs:
     Cabin $30,000 (including furnishings)
     Insurance $1,500
     Horses (rent) $3,600
     Vehicle $1,000
     Food $350 (wk)
     Utilities $20 (wk)
     Labor (2 people) $1,000 (wk)
    Advertising $200
    Supplies $20 (wk)
    Bedding $400
    Taxes $200
    Legal and Accounting $1,000
    Benefits $150 (wk)
    Interest (cabin) $3,000
Fixed costs - all but cabin and those with weekly costs=$10,900

Variable costs - those that are incurred only if cabin is occupied = $1,540

Unit price - what you plan to charge for a weeks stay = $2,500

Break even = Fixed Costs                                                            = $10,900
                     1 - Variable Cost as a percentage of unit price 1 - ($1,540 $2,500)
Break even = $10,900 = $28,385
                     1 - .616

Number of weeks rented needed to break even = $28,385 $2,500 = 11 weeks
Percent of occupancy needed to break even = 11 weeks by est. 25 week season =44%
If unit price was $2,200, break even would be $36,333, 16 weeks, 64% occupancy

Source: Reprinted with permission from the following source: Dave Sharpe, Montana State University

PRICING YOUR PRODUCT

How much do I charge?
An economist would say charge whatever the market will bear. I believe that the economist's approach to pricing may exclude the very people you may be comfortable with and enjoy the most! Here are some of the factors you should consider in making pricing decisions:

Your competition: What do they offer and for how much? How will your product service differ from your competition? Worth more or less?

Your costs: What are all of your costs in providing this service?

Your investment: How much will you have to invest to provide this service? What return on your investment are you willing to accept?

What is the market? Will people pay the price? Who is my intended customer?

Am I willing to take the lead and try pricing differently than my competition, or should I try to be more compatible with existing pricing strategies?

How do I want to handle gratuities? Don't accept, allow tips, charge automatic service charge, build into price?

Do I want to work with travel agents? Can I price to pay commissions?

One price for all-important! Travel agents, foreign regular guests.

Pricing strategy to use. Packaged all-inclusive, or Ala Carte?
WHATEVER YOU CHOOSE, BE FLEXIBLE AND WILLING TO CHANGE IN RESPONSE TO YOUR ACTUAL EXPERIENCE!

Some Thoughts to Consider When Pricing Your Farm and Ranch Stay

Arriving at a price which:

• Accounts for all your costs
• Accurately portrays your added value
• Is attractive to your customer
• Is favorably compared with your competition
• Ensures a realistic profit

Accounting for Costs

• Develop a cost checklist, including "overhead"
• Marketing expenses:

1. If your marketing budget is $15,000 and you plan to have 50 guests all staying for a week, you will need to factor in $300 per person; so if your weekly rate is $1,050, $300 is for marketing.

2. Have a marketing costing checklist.

3. Account for travel agent commissions.

         Example: Assume 15% commission to booking agent
                       Assume 25 out of 50 guests come from this source.
                       Prorated over 50 guests, this is actually a 7.5% commission.
                       If weekly rate is $1,050, travel agent commission equals $78.75 or 26% of your marketing budget.

Accurately Portraying Your Added Value

This is best done by a consumer and/or objective outside party.
Points to consider (sample list only):

• Location (example: next to National Park, major airport, interstate, unique historical site, etc.)
• Number of guests (capacity)
• Types of activities available - uniqueness (example: fossils on property, trout stream, work with rare livestock breeds, hunting opportunities, opportunity to ride Spanish barbs, etc.)
• The host(s)
               The extent of their involvement
               Community leader
               Story teller
               Multi-generation rancher
               Family with kids involved
               Rodeo participant  

• Accommodations  
              Bunkhouse
             Cabin with private bath  

• Food
            All raised on ranch
            Gourmet cook

• Understanding and delivering on the issue of quality

Attractiveness to Customer
Who is your customer? This is all-important. Once clearly understood, then price must be attractive to them (market tolerance) so you book them and have them return again and again-nurturing customers for lifetime value and lifetime income. Make sure the concepts of quality and added value are defined by the customer.

Favorably Compares With Your Competition

• Must know your competition; must know their pricing.
• Then contrast what you have to offer that they don't.
• What is unique; what is extra value that you offer.
• Mistakes to avoid:
        You aren't a dude ranch.
        You aren't a guest ranch resort.
        You aren't next to Theodore Roosevelt National Park**
        You are three hours east of Bismarck, not 45 minutes.**
        Your hunter prices are not the same as your summer "dude" prices.
        You don't do realistic/objective assessment of what you offer that customers want.
        You set a price based mostly on what you want to make per person, open your doors, and they will come.
        You define added value and quality and not your customers.  

Ensures a Realistic Profit

• Must work through what a realistic profit is for you.
        Need to know some of your competitions only want to break-even (this can undercut you).

• Must clear $10,000 example:  
       If 50 guests at $1,050 per week, then your mark up is $200. If $300 is allocated for marketing, does $550 cover
       your costs?  

Other Issues

• Deposits - 25-50%
• Cancellation Fees - Depends when they cancel and whether you can fill the space.
• Gratuities - Extra? Included as a service fee? Can you expect one if you are the owner? Do you state them or hope the customer knows?
• All-inclusive pricing versus à la carte pricing.
• Family pricing - Discount for Kids?
• Off-season pricing.
• Local customer pricing.
• Minimum stay.
• Can you have day use customers and overnight customers? How do you arrive at prices for day visitors?

**North Dakota Additions

Source: Permission from the following source: William L. Bryan, Jr., President
Off the Beaten Path, LLC,
Bozeman, Montana

POTENTIAL CLIENT FORM

Establishing a customer file on potential clients is a better way you can serve them when they are with you. And, the chances of mis-communication are lessened. In addition, you can discover, over the period of a very few years, a "profile" of the type of person who actually visits you. This information can be used in turn to validate or nullify your current ideas about who your target markets are and how best to spend your advertising dollars.

There are certain aspects about each inquiry that must be recorded. At a minimum, you should include:

• Name of Party and Complete address
• Phone numbers (best place to reach during the day); fax#'s; Email address, etc.
• Date of inquiry (day/month/year)
• Number in party/rooms and bedding preference
• Intended date of arrival
• Length of stay
• Interests
• Constraints
• Source of inquiry (How did they hear about us?)
• Age and sex of all party members
• Profession
• Reason for choosing a farm/ranch vacation  

It will be much easier to elicit the above information from a phone conversation than from a simple written inquiry. In the case of phone inquiries, it would be helpful to have a ready-made potential client form (see attached) available to fill out during the phone conversation. The information obtained can then be transferred to the computer or to a card file at a later date.  

Computers are a wonderful, essential and effective way to maintain customer lists. This information should be compiled in a computer program (database) that later can be "sorted" to show reports by state, number of repeat stays, inquiries by source, professions, etc. Another helpful feature to consider in a computer program is the ability to compile letters and mailing labels from your customer database. A computer program can also facilitate the "sharing" of mailing lists should you so choose to share list with other providers. With a computer and a printer, a small business person can accomplish nearly all his or her own marketing, including the production of brochures and newsletters, creation of a Website and using the Internet to market an communicate with potential customers.

Source: Printed with permission from the following source:
William L. Bryan, "Off the Beaten Path" Travel Montana

Potential Client Form

(Sample)

Date____Who_______________________Source________________Total Time_____Ent___   Name____________________________________________phone h)____________________  Address_______________________________________________ w)___________________ _________________________________________________ fax)______________________
E-mail_______________________________________________________________________
Rural Vacation________________________________________________________________
Interests_____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Ideas________________________________________________________________________
Adults_______ Kids: M_____ F______ Ages: M___________________F_________________
Dates_____________________________________Number of days______________________
Fee discussed________________________________________________________________
Deposit discussed ___CC#______________________________________________________
Fax:_____/____/____________ Call Back Date:______/________/_________
Notes/Special Requests:________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

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