Let's have a conversation about price vs. value.
My assumption, if you're reading this, is that you own or manage a dropzone in the U.S. You've surely felt the pain of declining margins in this industry. I have, too. What I thought was a short-term trend due to the popularity of daily deal websites turned into a scary trajectory for skydiving companies. This conversation is everywhere. Even industry marketing consultants are shining light on this issue, and fear what is to come if things don't change.
I decided to be the change I wanted to see in the world. This price war reality led us to make major changes at Chicagoland Skydiving Center, aimed at one thing: profitability. This is a business, and we are determined to have fun, take amazing care of our customers, and make money.
We are sharing what we learned. It boils down to three steps. If you take action, you can change the path of your profit, growth, and establish or proportionally grow a marketing budget
Why can't dropzones make money?
Over the past 25 years, we've seen experienced jumps double in price while tandems have remained stagnant and many markets have even dropped by as much as 30%. What other industries have reduced their prices while the cost of conducting business continues to go in the other direction? Can you think of one successful company using this model? Probably not, because they are out of business.
In the mid-1990s, most dropzones were operated with volunteers or by barter with limited or very small salary overhead, very little insurance expense, a $40,000 jump plane, virtually no facility costs, etc. The industry was just generally operating on a smaller scale.
Fast forward to today, and many of those dropzones are facing exponentially more expense to remain competitive.
- Capital investments in $1.5MM+ jump aircraft
- Large monthly mortgage payments, facility leases, land purchases, and maintenance expenses
- Student and tandem equipment at nearly triple the price it was back then
- Legal expenses that still barely let us sleep at night due to the litigation culture in this country
- More staff needed to serve higher volume, increased salaries, hourly employees, and high independent contractors expenses
- Increasingly complex and expensive marketing challenges
- ...Do I need to continue?
It's simply more expensive to operate a skydiving business now, of any size. Period.
"But customers want more for less!"
No, they don't. They want to feel they've received adequate value for what they spend.
It's our job to help them understand how to shop for skydiving. What kind of service and value should they expect for the price? What should an experience like this cost? Customers spending money in the entertainment and adventure category are not fixated on price. They are savvy shoppers who don't want to waste a dime - they want to get the most amazing provider within their budget.
If you're marketing your dropzone as a standard version of the commoditized generic tandem skydive, then the perceived low value of your services is your fault. If you doing nothing to create and communicate something unique and special about the experience you provide, then your potential customers have no choice but to compare you to other dropzones on price.
Other skydiving centers are not your competitor. The category of leisure spending and the many fun things to do in your area are your competitors.
Other industries for comparison
As an example of an industry that has taken things in the other direction, consider that the price of a single day ski lift ticket at Vail in 1994 was $42. This season, that same single day lift ticket goes for $189! That's a 350% increase and the most impressive part is Vail Resorts has figured out how to increase volume at the same time. How? By providing value to the guest. Here's an interesting article about their journey and what they learned along the way, a very worthwhile read for any business owner. It reads like a playbook for dropzones one bad weather season from going out of business. Here's another by-the-numbers analysis of rising lift ticket costs related to inflation.
How about golf courses? Green fees, cart rentals, course amenities, club dues, etc. have all gone way up. Why? Because the course is providing more value than it did when someone played their first round 20 years ago on the property. While many municipal courses are able to offer rounds for an average of around $40, consider the demand to play the high end courses is strong. In the U.S. alone, some are collecting close to $500 per round of golf.
What about theme parks? We could disappear down the Disney rabbit hole and analyze the holy grail of entertainment category profit genius. But since most of us can't even relate to that business scale, how about Six Flags or a similar amusement park? At least $265 just to get your family of four in the door. If you walked. You also paid $10 to park. Not to mention specialized rides inside with extra fees, concessions sales, the plethora of marketing gimmicks aimed at season passes, "skip the line" passes, media passes, merchandise...the business model relies heavily on the up sell.
These industries all face the same challenges of a dropzone: weather risk, expensive grounds and facilities, increased equipment costs, high proportion of staffing cost needed to serve volume, competitors in every market, fighting for one-time (or annual if they're lucky) leisure dollars of customers...sound familiar?
Why are these industries showing us that charging appropriately for experiences and services still gets people in the door - yet DZOs are still willing to do tandem jumps at or below cost?
The answer is very simply: marketing. The dropzones doing it well are creating more value than those that aren't. And a critical mass of dropzones aren't doing it well yet.
DZOs aren't marketing professionals, and most can't justify the cost to hire one. So just pay a marketing firm to do it for you. Oh wait, we can't afford to because there's virtually no margin in our business. See the irony? The only way to exit this catch 22 is pricing and establishing a model to feed a marketing budget.
Three steps to creating change
Calculate your median tandem rate (not including video sales) and begin tracking this number on both a monthly and annual basis. If you already have this data from at least one season, record it in a track able location. The starting point of this process relies on this data, and you must hold yourself accountable to this number as you move forward. Knowing what you're truly averaging when you account for all the specials, discounts, and promotions is important to estimate what you can do in the future.
At CSC, our median tandem rate in 2016 was $187.00 and our goal is to push that well over $210.00 during the 2017 season. To do so, we've increased our retail rate a bit, but more importantly, we've begun pulling back on our discounting. There used to be a way to get a deal every day of the week at CSC, and that has ended. If our retail price is $229.99, why do we need to give people $50 - $75 off that price? Perceived value is a real thing, but a $5 - $20 discount is still a discount, and fulfills that perceived need on the customer end. It also makes retail value real, not just a fake milestone to base a discount against. People generally see right through the pricing tactics when businesses put high retail prices on their product/service and then offer a huge discount for it everywhere it's available for purchase.
Put a plan in place to take a percentage of the delta from your old tandem median rate and your new and improved one, and re-invest it in marketing and your "someday" list. If you do exactly the same number of tandems you did last year with your new median rate, what does that yield? If you did 10% fewer tandems at your higher median rate, do you net out better off due to savings on maintenance expenses? For example, if you can increase your effective median rate by $25 via a retail price increase and reduced discounting, take 50% of that difference and apply it to a marketing budget and put the other 50% towards your bottom line. How would that change your business if you could suddenly re-invest $12.50 per tandem sold on marketing to find new tandems? Could you afford to give that employee the raise you've always wanted to? Maybe you could finally afford to replace those ragged out student rigs? Maybe you can upgrade your bathrooms or install a nice packing floor?
Download this spreadsheet that I've created and enter in your dropzone’s numbers to see how these changes apply to your dropzone. Use your new or newly increased marketing budget to hire a marketing professional or outsource to a marketing firm in your area. With this worksheet, it’s easy to focus only on how the bottom line increases by charging a higher median tandem price. Fight the temptation to reduce the marketing budget increase to low levels. You must continue to fill your pipeline or the total number of tandems will continue to decrease over time which will end up costing us the volume we need to survive. In other words, reinvestment into a solid marketing strategy is essential for long-term sustainability.
How can we more effectively market with an advertising budget of $X? What would happen if you increased the price of your tandem jumps by $20, $30, or even $40 tomorrow morning? Seriously, do you know the answer to this question? Everyone's knee jerk response is to assume that the customers would go to the competition, but do we really know that? Have you performed any sort of market research? Think back to the ski resort information I shared above. If Vail raised their price by $10, is the only possible result that everyone will drive an extra hour and a half to go ski at Keystone? Of course not.
Because our industry doesn't have the marketing acumen most others do, we gravitate to something we can all relate to and that's price. The result is that we all compete with each other on price and not overall value. Think about your own shopping habits. How do you buy airfare? Technology? Restaurants? Hotels? The answer probably isn't the same for all of those examples because when you're shopping hotels and restaurants, you know you get what you pay for. You take your partner out to dinner to Steak & Shake for a meal for $20 or you can spend 10x at a high end steakhouse. You are well aware that the experience will be vastly different.
As dropzone operators, we have been focusing on being $10 cheaper than the other guy, and then when you drop your price, the others respond with another price drop. The winner in this situation is clearly the consumer who ends up paying sometimes less than what it costs you to put that jumper in the air. Think about that for a minute. There are dropzones all over this country selling tandem jumps for "cost" in hopes that they make it up with video or a t-shirt sale. Does this sound like a winning strategy? Can you make your monthly mortgage payments or payroll with the proceeds from t-shirts? I can't.
Playing the long game
It's time we all start thinking of skydiving as a long term, sustainable industry that could grow to amazing heights if we collectively start thinking more in terms of profitability and less in terms of volume.
Making strategic changes like this could alter the trajectory of your company. You’ll go from spending your marketing dollars on things you hope might work (like daily deals) to a larger ad spend managed by a marketing professional or an agency who truly understands how to attract and convert your marketing dollars to customers. Media sales reps aren't the marketing professionals you're looking for. You need someone who is focused on the whole picture - digital, traditional media, PR, content production, SEO - take a big picture approach to your marketing mix, rather than saying yes to an offering when it comes along.
Many dropzones have chosen to use daily deal companies to help increase volume. I argue that this approach runs counter to the plan I’ve outlined. While I realize that volume is a vital component to make dropzones work, we can't ignore business fundamentals just to say that we did 150 tandems last Saturday. I have my opinion on the Groupon effect, but most importantly, if you can't immediately cut that cord, I urge you to take control of how much you sell your products for with these daily deal companies. If you feel that Groupon is a worthy marketing expense, use it wisely to push guests to off-peak days of the week or times of your season. However, if Groupon is your entire marketing strategy and you're priced at cost or less every day you're open - well, let's just say I don't subscribe to that business model.
Pain only a DZO can understand
How many of us reflect on the season of 90+ hour work weeks, missed family obligations, financial stress, weather holds, crossing fingers that payroll clears the account, and paying instructors more than we make? It may be the way things have become in the skydiving industry, but I think it's time we challenge the status quo. We have all put our asses on the line and I'm convinced the risk versus reward matrix is way outside the envelope for all of us.
My goal for CSC is to take our current volume and build a pricing model that makes us profitable, if volume never really changes. For years, I’ve looked back on seasons and think “next year will be busier”, but it rarely is so I continue down this dangerous path of thin margins, high overhead, and sometimes even annual loss. My focus has changed to only the business I know I can generate each season and make certain that we can squirrel away enough money to bridge the winter gap. Without that stockpile of cash on-hand, we’re forced to lean on short-term financial instruments like credit cards and/or lines of credit. Trust me, I have years of experience dancing with that devil and we pay heavily for it the following season when we’re forced to spend months of peak season revenues just to dig out of the winter debt. Unchecked, this can be the beginning of the financial death spiral.
We need to be making money on each and every transaction. Not because we're greedy, but rather because it's the way business works and if we ignore these business fundamentals, we could end up losing it all. I have an obligation to my bank, my family, and my team to make this thing work. Our poor pricing decisions could have profound effects down the road. How many of you are sitting on enough savings to carry you through a blown engine, lawsuit, bad weather season, or other unforeseen expenses? I'm guessing many of us would not make it across the chasm without either begging the bank for assistance or dumping more personal savings into the business.
Changing the way I look at the business that I've poured my blood, sweat, and tears into has been hard. Sometimes I yearn for the old days, because it just wasn't as complicated. After 17 years of building the best possible skydiving center I could with the resources I had available, I realize that I alone can't push the industry to the next level. Some of my best friends are fellow DZOs, and I'm tired of wondering if my buddies and I are going to lose our livelihoods by trying to continue to do what we love.
Every single one of us have to step up our game and begin marketing this industry in a way that elevates the way people perceive skydiving via savvy media campaigns and profitable pricing strategies.