Net Rates, Markup and Commission: How Tour Pricing Actually Works
Three words get used interchangeably in this industry and they mean very different things to your bank balance. Here is the arithmetic, worked both ways, and how we price an operator's products.
The short answer
A net rate is the amount the operator must receive. Markup is what is added to net to reach a selling price. Commission is the distributor's margin, either added on top of the selling price or carved out of it, and confusing the two directions is the most expensive mistake in this industry. On VacoTours an operator publishes one price, travellers and trade buyers both pay it, and our commission comes out of it at a percentage set by the promotion level the operator chooses for the product.
Ask five people in tours and activities what a net rate is and you will get five answers that sound similar and settle differently at the end of the month. This piece fixes the vocabulary and then does the arithmetic, because the arithmetic is where the money is.
The three numbers
Net rate
The amount you, the operator, must receive for one seat. It covers your guide, your fuel, your permits and your margin. It is the number below which the trip is not worth running.
Your net rate is nobody else's business. Travellers never see it. Resellers should not see it either, though a surprising number of poorly designed systems leak it.
Markup
What you add on top of net to arrive at a selling price. Three forms are common and they behave differently:
| Form | Formula | Behaves well when |
|---|---|---|
| Percentage | net × (1 + p/100) | Prices vary widely across your catalogue |
| Fixed amount | net + f | You have a per-booking cost that does not scale, like a booking fee |
| Hybrid | net × (1 + p/100) + f | You have both a proportional margin and a flat cost to recover |
Percentage is the default and usually right. Fixed is useful on cheap products where a percentage recovers nothing, for example a five dollar locker rental where twenty per cent is a dollar. Hybrid covers the case where you want proportional margin plus a flat payment-processing recovery.
Commission
The distributor's cut. This is where the confusion lives, because commission comes in two directions and the industry uses one word for both.
Commission on top means the buyer pays your selling price plus the distributor's margin. You receive your selling price in full. This is the markup model wearing a different hat.
Commission inclusive means the buyer pays your selling price and the distributor keeps a slice of it. You receive less than your selling price.
Always ask which direction
"We take fifteen per cent" is an incomplete sentence. Fifteen per cent on top of your price, or fifteen per cent out of your price? On a hundred dollar seat, those two readings differ by fifteen dollars, and over a season that is a holiday.
The arithmetic, worked
Take a walking tour you sell at 40.00 an adult, through a distributor that takes 15 per cent. The same percentage settles very differently depending on its direction.
Commission on top
| Step | Calculation | Amount |
|---|---|---|
| Your price | 40.00 | |
| Distributor's commission | 40.00 × 15% | 6.00 |
| Buyer pays | 40.00 + 6.00 | 46.00 |
| You receive | 40.00 |
Commission out of your price
| Step | Calculation | Amount |
|---|---|---|
| Your price | 40.00 | |
| Buyer pays | 40.00 | |
| Distributor's commission | 40.00 × 15% | 6.00 |
| You receive | 40.00 - 6.00 | 34.00 |
Same tour, same percentage. In the first the buyer pays 46.00 and you receive 40.00; in the second the buyer pays 40.00 and you receive 34.00. Neither is wrong, but you cannot price well until you know which one you are in.
How it works on VacoTours
We use the second model for an operator's own products, and there is one price. The price you set is what a traveller pays on the marketplace and what a trade buyer pays through an agency or an API. Nothing is added to it, and there is no separate trade price to set.
Our commission comes out of that price. The percentage depends on the promotion level you choose for each product. There are four, and a higher level costs more of each sale and shows the product more. These are the default percentages, on the same 40.00 seat:
| Level | What it shows | Commission | You receive |
|---|---|---|---|
| Level 1 | A standard listing | 15%, 6.00 | 34.00 |
| Level 2 | Adds a Featured label | 20%, 8.00 | 32.00 |
| Level 3 | Also a place on the home page | 25%, 10.00 | 30.00 |
| Level 4 | Also its own section on the home page | 30%, 12.00 | 28.00 |
We can agree different percentages with a particular operator, and the Promotion screen in the operator panel shows the ones that apply to you. You can move a product between levels whenever you like; the change applies from the next sale, and a booking keeps the level it was sold on.
Because commission comes out of the price, set your price with it in mind. If you need 30.00 for a seat, 40.00 on level 3 gets you there and 40.00 on level 4 does not.
Some inventory here comes from third-party channels rather than from an operator who lists with us. That inventory arrives as a net, and our pricing rules add a markup and a commission to it, which can differ for travellers and trade buyers. Operators who list with us never deal with that.
The reseller adds their own margin
Here is the part that surprises operators. A trade buyer paying 40.00 does not sell at 40.00. They add their own margin, typically 15 to 30 per cent, and put it on their website at somewhere around 48.
Which means the same seat is now visible to travellers at 40.00 on one site and 48.00 on another. That is rate disparity, and depending on who you ask it is either a problem or just how distribution works.
Rate parity and the price floor
The usual tool is a minimum selling price, sometimes called a parity price. You publish it alongside your rates and it is the number below which a reseller has contractually agreed not to sell.
It protects you from a reseller with thin margins undercutting your own direct channel, which is the failure mode that actually damages a business. It does not stop them pricing above it, and it should not, because a reseller who can sell at a premium into their own audience is doing you a favour.
Publish two more numbers while you are at it. A recommended retail price, which is what you would like to see, and a gate rate, which is what a walk-up customer pays at your door. Resellers use the gate rate to show a saving, and a visible saving converts.
Currency, and why one is easier than many
If you sell internationally you will be asked to quote in several currencies. The instinct is to maintain a rate card per currency. Do not.
Hold every price in one currency. Convert to a display currency at the moment of presentation, using a rate you refresh on a schedule. Freeze the rate you used onto the booking so a receipt issued today still reconciles in six months.
The alternative, maintaining parallel rate cards, means that every time you change a price you change it five times, and the day you forget one is the day you sell a tour at last year's euro price .
Store integers, not decimals
Hold money as whole minor units, so 34.16 is stored as 3416. Floating point arithmetic on prices produces rounding drift that shows up as unreconcilable cent differences at scale. Integers do not drift.
Seasonal and tiered rates
Two refinements that pay for themselves.
Seasonal rates mean a price that varies by date range and day of week. Peak summer costs more than a wet Tuesday in February, and if you charge one number all year you are subsidising your busiest bookings with your quietest ones.
Tiered rates mean a lower price per head above a quantity threshold. A group of twelve costs you less per head than a couple, because the guide and the vehicle are the same either way. Expressing that as a rate tier rather than as an ad-hoc discount means your system can quote it automatically instead of waiting for you to reply to an email.
A short checklist
- Write down the least you need to receive per unit per season, in one currency. That is your net.
- Ask every distributor whether their commission is on top of your price or out of it, and write the answer down.
- Where it comes out of your price, as it does here, set the price so that what is left after commission still clears your net.
- Publish a minimum selling price if you also sell direct.
- Publish a gate rate so resellers can show a saving.
- Store money as integers in one currency and convert only for display.
- Review the whole thing once a season, not once a year.
Frequently asked
What is a good markup for tours and activities?+
Where you set a markup yourself, most operators land between 20 and 35 per cent over net for direct retail and much thinner for trade. On VacoTours there is no markup to set: you publish one price, and the question becomes what that price leaves you after the commission of the level you choose.
Is a net rate the same as a wholesale rate?+
Close but not identical. A net rate is what the operator needs to receive. A wholesale rate is what a trade buyer actually pays. On VacoTours, for an operator's own products, the trade buyer pays the operator's published price, the same as a traveller.
Should I show different prices to different resellers?+
Many distribution systems let you, through markup rules per partner. VacoTours does not for an operator's own products: there is one price and every buyer pays it. What you choose instead is how prominently each product is shown, through its promotion level.
How do I stop resellers undercutting my own website?+
Publish a minimum selling price and put it in the contract. Enforce it by monitoring, because no API can stop a reseller discounting on their own site. In practice the combination of a published floor and a visible relationship is what holds.
Do I need to hold prices in every currency I sell in?+
No, and you should not. Hold one currency, convert for display at request time, and freeze the conversion rate onto each booking so historical records stay reconcilable.