Summary
The study that is presented shows the application of the equilibrium point technique to a tourist product, the purpose is to determine the number of pax and the amount of necessary sales from which the operation of the product provides profits.
The relevance or novelty of the work is presented from the very conception of the tourism product in question, since two possible variants of obtaining the level of activity are derived from it so as not to obtain loss and from which profits are made in the business.
The result achieved may constitute a methodology for application in other areas of tourist activity, mainly those that refer to tourist recreation. On the other hand, although it does not delve into the design of the product, it provides important elements for its elaboration, which can be a valuable help for those specialists who must address such endeavors.
- Introduction Conception of the Tourist Product The Equilibrium Point Technique. Synthesis Application of the Balance Point Technique to a Tourist Product. Conclusions and Recommendations.
1. Introduction
Tourism as an industry is a phenomenon that has acquired a growing dynamic in the international economy, for many countries it constitutes its fundamental activity, generating income, employment and development. This fact has meant that tourism companies move towards a much more professional path, in which every detail counts. The Tourist Product is an important factor when selecting a tourist destination.
Companies must deliberately design engaging and memorable experiences. Today, the novelty lies in purposely designing experiences by systematically stringing tracks to add value to the product or service we manufacture, in order to provide the customer with an experience that exceeds the expectations that it brings together with their wishes and needs.
Dramatizing the experience does not mean falsifying the culture or history. A successful tourist destination will have to offer memorable experiences inserted in an offer of authenticity. This is where the challenge for destinations that want to compete in the market of cultural, historical and nature tourism in the future lies.
Now, in the design of the Tourist Product, in addition to aspects related to tourism marketing, two fundamental aspects should not be overlooked:
- Considerations in relation to the form of financing of the Tourist Product that is designed The viability of the operation, that is, if the designed product will be able to provide the expected profits.
These two aspects are relevant for decision-making by investors, that is, the person or persons who will provide financing to put into operation the ideas that are embodied in the product design.
The fundamental purpose of this study focuses on the second of the aforementioned aspects, that is, the determination of the moment from which the operation of the Tourist Product will provide profits.
For the study carried out, an analysis was made from the general to the particular as a fundamental research method. This is evident in the structure used, which includes four chapters, the first being this introduction.
The second chapter deals with the conception of the tourism product, and within this a general characterization of it is made, describing the elements that make it up, as well as a brief analysis of the demand for the product.
Later, in the third chapter, a theoretical foundation of the Equilibrium Point technique is presented, which will be used in determining the level of sale (number of pax) from which profits will be obtained. This technique is very important in financial planning, in which the typology of the costs that make up its calculation is defined.
In the fourth chapter, the methodology for applying this technique to the product in question is established, observing in it, aspects of great interest due to the uniqueness of the case, emphasizing the calculation of variable costs and fixed costs. In addition, the need to monitor and adjust the information is demonstrated through real data.
At the end, because of how interesting the research is, the main conclusions and recommendations of the work are presented.
The authors consider that regardless of the questions that this application may raise, it constitutes a reference element for similar works in this field.
2. Conception of the Tourist Product
The new tourist habits indicate that current travelers are more interested in experiences than in the destination. They seek sensations, fun, escape and security, and their concern is: what will I do? There is more to offer than a beautiful natural landscape, friendly people and wonderful beaches. Dramatizing the experience will be the key to success, in which each company will have to become a theater, where its services are the stage where each and every one of its workers perform, involving clients in a memorable experience.
goals
- Design a Tourist Product that contributes to promoting tourism in the town Contribute to the exploitation of natural beauties in a planned and organized way Make known elements of the local culture Diversify the offers with new Tourist Products, in addition of the purely gastronomic Create a Tourist Product that contributes to satisfy the unsatisfied needs of the tourists who visit the town Present to the tourist a new nature product Provide an animated tour by a professional with exquisite knowledge of every detail of the history of the place.Contribute to obtaining higher income and profits that facilitate compliance with economic plans.
Unsatisfied needs of the residents and tourists who visit the town
- Observe the typical flora and fauna of the region Take walks along the Ariguanabo River Know elements that identify the culture of the place Be in direct contact with nature Learn about the local culinary customs.
To guarantee the quality of the product, we worked on the assurance of aspects such as:
- Make the tourist feel safe on the tour Make the boat safe with comfort and good technical condition Use of an entertainer with a high degree of professionalism Make the tour interesting, exceed customer expectations Make gastronomic offers with quality products Comply with all the requirements of the rules for the operation of nautical equipment Comply with the provisions of the Environmental Law Comply with the regulations for the exploitation of nautical resources Comply with the provisions of the Headquarters of the business group in the nautical activity procedure manuals
"WALK THROUGH THE ARIGUANABO RIVER"
Modality
Tourist product of nature
Ecotourism
Concept
Tourist Product to meet the needs of groups interested in contact with nature, learn about the history of the place and navigate the crystal clear waters of the Ariguanabo River.
Travel
The tour begins at the pier of the Nautical Point located in the gastronomic facility that the company owns and which is named “El Río”, it will be carried out with a guide who explains the history of the town and its close relationship with this river so appreciated for its legends and crystal clear waters, you navigate around 10 km.
The tourist will see on its banks a wooded vegetation of mountains of galleries with the presence of multiple species of flora and fauna such as the Palmas Reales, the majestic Ceibas, El Almacigo, El Algarrobo, El Ocuje, El Pasanegro, La Jatia, La Liana, Los Curujeyes and abundant species of orchids of the Cuban endemic genus, the fauna is represented by La Jutía, majaes, songbirds such as El Tomeguín de La Tierra, El Sinsonte, El Guario. As you advance through the heart of the River, in addition to enjoying a landscape of singular beauty, the different steps and bridges, the mysteries of its caves, and you can visit a small cave that is located a few meters from its banks will be present.
You can also see the crystalline and mighty springs of water that are the ones that give it life, feed and maintain its permanence throughout the year, among the most mighty we find: "El Ojo de Agua", "Ojo de Agua El Guerrero" and "Ojo de Agua La Catalana".
During the boat ride, those interested will be able to take photos and videos, they will also have the option of enjoying different gastronomic offers such as juices, soft drinks, snacks and jams that will be charged at the time of consumption, they will be served by the guide who also of keeping tourists entertained with the history and legends of the places through which they pass will in turn fulfill the function of a gastronomic clerk.
Once the tour is finished, the El Río installation will offer a lunch with Creole food and enlivened by a local trio that will perform Cuban music, depending on whether the group wishes it or not, so it is not included in the cover of the excursion, it will be paid at the time of consumption. With the aim of adding one more value to the service provided and in order to seek the repetition of customers at the end of the tour, they will have the opportunity to buy a replica of the boat made of wood and yagua, made by local artisans who are present in unit, repeaters will have the option of choosing the artisanal object they wish to buy from those that are intended for this purpose and thus they will have a beautiful souvenir to take home, in the case of Cubans and their countries, in the case of foreigners,to keep it or give it to family and friends as a souvenir.
There will be a maximum of 7 daily tours, for which people can book up to two days in advance through the different mechanisms established for this. Those who do not book in advance will be able to access the excursion at the time of it, but with the risk of waiting because there are no capacities at that time.
After conducting a feasibility analysis, it was decided to carry out three tours in the morning, rest for an hour for the staff lunch and then do four tours in the afternoon, the schedules will be as follows:
EXPECTED HOURS:
morning
9:00 --– 9:40 am
10:00 --- 10:40 am
11:00 --- 11:40 am
12:00 --- 1:00 pm (Workers' Lunch)
Late
1:00 --– 1:40 pm
2:00 --– 2:40 pm
3:00 --– 3:40 pm
4:00 --– 4:40 pm
Natural attractions
Flora, fauna, Cuban landscapes, river, caves.
Sociocultural attractions
Custom. Food, crafts and culture in general of the place.
Strategies for setting the price
The price is more than a fee that determines the monetary value of some products or services. An intelligent pricing policy allows you to cover expenses and obtain a certain profit, without causing a loss of customers.
The determination of the price and the methods used to fix it depend on:
- Profitability criteria. That the Fixed and Variable Costs are taken into account. That the prices of the Competition are taken into account. Know how the existing supply and demand moves. The quality or the brand.
There are three reference points when setting the price:
- Internal costs and expected profit Competitive prices Demand or what the customer is willing to pay
Analysis of demand
For the analysis of the demand, interviews were carried out with the representatives of the potential markets at different moments of the project design and at the time of the conceptual tests where it was possible to know that they are willing to pay up to 5.00 CUC for the excursion, since due to their purchasing power it is not possible for them to pay more and they consider this a fair price despite the fact that it is higher than the price of another similar excursion that takes place in the town, however, the one proposed has a boat with greater comfort and safety, the tour is also carried out with a guide that makes it more interesting, they have the option of enjoying different gastronomic offers and taking home a nice souvenir made by local artisans.
3. The Balance Point Technique. Synthesis.
The Balance Point or Breakpoint, represents the economic moment in which there is a balance between income and total costs. That is, when you have stopped having losses and have not started to make profits.
Companies that use the partial cost method only distribute certain categories of costs, the rest not distributed are considered expenses for the year and are taken directly to the Income Statement. Within this category, two methods can be distinguished:
- Direct cost method: allocate only direct costs to products or services Variable cost method: allocate only variable costs.
The advantage of partial methods lies in their simplicity, although the information they provide is of lower quality than that offered by the total cost method (they distribute the total costs of the company among the products).
All companies that use the variable costs method need to know when the fixed costs that were structured are absorbed and the variable costs that are determined during the operation, so that neither losses nor profits are obtained in its operation.
The break-even point analysis is applicable to any of the divisions or units of the organization that have duly differentiated costs, fixed and variable.
The correct definition of which are the fixed costs and the variable costs of the organization in question is an indispensable requirement for the calculation and application of this instrument. However, it is necessary to emphasize that in most organizations, the information is not structured in this way, which makes calculating the break-even point somewhat complex.
- Fixed Costs: It is a cost that remains unchanged during a certain period, also called the relevant period, despite changes in the level of activity Variable costs: It is a cost that changes in direct proportion to changes in the activity or the total volume.
Sometimes, and for some cases, it is difficult to establish an exact dividing line between fixed and variable costs, in which case it is necessary to apply specific methods to separate them.
The literature on the subject establishes three variants for the determination of the Balance Point:
a) Equation method
Net Sales - Total Variable Costs - Total Fixed Costs = Break-Even Point
b) Contribution Margin Index Method, also known as the global or value breakeven point.
This variant arises because in most organizations, they offer a variety of products and services, and therefore, the Balance Point is formulated in terms of value and not in physical units. For this, it is necessary to calculate the Contribution Margin index, which is the quotient of Total Variable Cost between Net Sales. This index should be updated frequently, whenever there are important changes in these factors.
c) Graphic Method
From the plot of a graph where the quantities of units are represented on the abscissa axis and the amounts corresponding to fixed costs, total costs and net sales are represented on the axis of the ordinate, the equilibrium point can be derived, starting from the point where net sales are intercepted with total costs.
As a rule, the cases presented in the consulted literature indicate the determination of the Balance Point in an ongoing organization, however, it is known that prior to the execution of any type of investment, feasibility analysis of the same is carried out, with the purpose of having an idea of how the business should develop.
Main assumptions in the Break-even Analysis
- The behavior of the total cost has been determined reliably and linearly along the relevant scale. Total costs can be divided into a fixed component and a variable component with respect to a factor related to economic activity. Total fixed costs remain constant at throughout the relevant scale. Total variable costs are directly proportional to the volume along the relevant scale. Sales price remains unchanged. Activity volume is the only factor affecting cost. Revenue behavior Total and total costs is linear in relation to the units of service. There is no uncertainty regarding the data of costs, income and quantity of service provided.
Changes in variable costs
Both the contribution margin and the Break-Even Point change with changes in unit variable costs. Variable costs are subject to varying degrees of control at different volumes due to both psychological and other factors. When business is booming, management tends to worry about producing volume at all costs. When there is little activity, the administration tends to thoroughly review costs.
Changes in fixed costs
Fixed costs do not remain static year after year. They can be deliberately increased for more productive sales and distribution combinations; These changes affect revenues, variable and fixed costs.
Fixed costs remain constant only on a relevant scale of activity considered, it is rare for the volume scale to extend from closing levels to 100% capacity. Therefore, when a radical reduction in volume is anticipated, managerial action frees up many fixed costs. Reducing fixed costs lowers the breakeven point and allows the company to support a higher volume before losses occur. These fixed costs could be divided into three: avoidable fixed costs, fixed capacity costs and discretionary fixed costs.
4. Application of the Equilibrium Point Technique to a Tourist Product.
To calculate the equilibrium point, a series of steps must be followed that constitute the way to establish a methodology, it is described below:
- Determine the variable costs and the fixed costs of the operation, for this, we will take into account in as much detail as possible the costs incurred when carrying out the operation, in this case the route proposed by the product. fixed daily and monthly costs. These can be determined from the Income Statement and the Trial Balance, if it is not possible to obtain all the information from the first. According to how the Companies Income Statement is structured, it must be taken into account, for the Determination of fixed and variable costs, operational expenses, functional expenses and other expenses Once the variable and fixed costs have been determined and taking into account the expected price (price per pax) for each route,The Balance Point calculation will be carried out in values and physical The case at hand, has the particularity that we can determine the necessary amount of pax, if only one tour is made per day or determine the amount of pax if it develops more of a route, in this particular, the product plans to carry out 7 routes a day. The Balance Point is determined in the case of a single route and also when more than one route is made. If the tourist product consisted of an optional to a certain place or places of interest, then, to determine the equilibrium point of the same, it will only be necessary to determine the Equilibrium Point of a single route. This means that the methodology that is exposed can be applied to other cases different from the one presented, such as, for example,an excursion to a place of interest. Finally, once the Balance Point is found, price considerations can be made, depending on the tourist season (high or low); as well as evaluating different scenarios according to the level of utility that is desired and the prices of the product that the market can assimilate.
The data provided in the table above shows the classification of the total costs of the operation in fixed and variable. This information is detailed by month and by day, it is in this last period, that is to say, daily, in which the breakeven point will be calculated.
Only one tour per day
If we approach the problem of determining the Break-Even Point from the point of view of a route that is carried out once a day, then the expense of fuel and lubricants will be a fixed cost, hence all the costs of the operation will be fixed, therefore:
Total costs = Variable Costs + Fixed Costs = 0 + 106.53;
Then: Sales Price * Units = Total Cost + Profits
Considering that at the Equilibrium Point Profits = 0; so:
5.00 * X = 106.53 +0 (break-even profit)
X: Number of Units
5 X = 106.53
X = 106.53 / 5
X = 21.3
In other words, for a single trip the break-even point is reached with 21 PAX, and from 22 onwards, profits are made.
Up to seven tours in the day
However, the type of service that is going to be offered is not one-time, that is, it can be offered as many times as possible, in this case, in the product design, a maximum of 7 routes is planned. daily with a duration of 40 minutes. In this case, the costs of fuels and lubricants would not be fixed but variable, since they would increase together with the increase in the number of trips.
In this case, to determine the Balance Point we must bear in mind two variables, namely, the number of people and the number of tours, that is, the number of people who will make each tour.
To achieve this, use was made of the facilities provided by the Excel System in its spreadsheets, which allowed simulating the number of people and the amount of necessary trips.
For example, we describe the following:
- If only one client participates in each of the 7 tours, then the equilibrium point would not be achieved in the 7 tours, the same happens if only three clients participate in each of the tours. However, if 4 clients attend In each of the routes, then from the sixth route you begin to obtain profits.
The graphs shown below exemplify the aforementioned aspects and are instruments of evidence of when the equilibrium point in the activity is reached.
Although we are analyzing the simultaneous behavior of two variables (number of clients and number of tours) to determine the Balance Point, the key number (number of pax) is 21, that is, there may be a high number of combinations (clients - tours) however, in all cases to reach the Balance Point it will be necessary for at least 21 clients to attend the seven tours that take place on the day.
Below are the graphs of the results of the operation when 21 and 22 clients attend each tour respectively.
As can be seen in the graphs shown below, when 21 clients make each tour, 2 tours will be necessary to start making a profit, while if 22 clients attend each tour, with only one they will have already exceeded the Balance Point.
Conclusions and recommendations
With the development of this work, the fundamental objectives proposed were fulfilled, on the one hand, to design a new Tourist Product and on the other to determine from what level of activity the operations of the exploitation of the product register profit.
Making an analysis of the results achieved we can reach the following conclusions:
- In the work, he summarizes the fundamental concepts to create a new tourist product, quality, nature, history and culture; synthesizing the fundamental elements for its design, which is coherent and can be applied to future works similar to this one.In the study, the possibility of applying the technique of the Balance Point was appreciated, which allowed determining from which level operation, the product would provide profits. The research carried out allowed to establish a methodology for the calculation and application of the equilibrium point, taking into account the characteristics of the tourism product and its possible application to similar cases or other cases of non-hotel tourism products.The applied methodology allows the punctual analysis of the expenses classified as fixed and variable. The two variants analyzed for the determination of the Balance Point, depending on whether a single route is made per day and up to seven routes in a day, allow to focus similar studies, such as for example, excursions, from the perspective presented here.The determination of the balance point allowed making operational decisions regarding the number of clients and the number of routes.The application of the proposed methodology in calculating the balance point yields results of vital importance for the development of this product. For all the above, the work allows recommending specialists, both in the marketing and economic areas, to use the methodology designed here to be applied to similar studies.
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