Withstanding economic downturns and travel slowdowns requires planning, analytics and a willingness to take a step back and think thoughtfully about your business. Such was the main takeaway from a presentation by Travefy founder and CEO David Chait at Travel Market Report’s Travel Market Place West conference in Vancouver earlier this month.
“The pandemic was a case study in the value of travel advisors,” he said, addressing the audience of Canadian travel advisors. “But one thing we all learned is that things can go bad quickly and income can dry up in a second.”
Future proofing your business is about thinking about the lessons of the past, building new processes, and implementing new plans to ensure you can survive – and thrive – no matter what happens.
“Knowledge and having a plan are key,” he said.
Financial Sustainability Fundamentals
Future proofing your business starts with understanding your business’ financial fundamentals.
“How do you make sure that you are, from a financial standpoint, putting yourself in a position that you’re hoping for the best but [no matter] what might happen, you’re in a position of strength,” Chait said.
To position yourself this way, he explained, takes a three-pronged approach.
Understand Your Financial Statements
Before you do anything else, you need to understand where your business stands now, and what’s required on a daily, weekly and monthly basis.
First and foremost, that means understanding your expenses.
“Understand where your money is going, what you’re spending it on, and what are the nice-to-haves and what are the things that are core to running your business.”
The answer to that will be different for everyone. For one advisor, an after-hours phone service might be a luxury, while for another it’s a necessity. For everyone, high-speed Internet probably isn’t negotiable.
Understanding what your expenses are, along with which are the most critical, will help you make decisions should you need to tighten your belt in the future. Without that understanding, you might end up cutting something that could be disastrous, Chait told attendees.
Maintain Cash Reserves
Maintain a cash reserve of ideally three to six months, Chait advised. By doing so you have enough money to cover your core expenses should your business (or the industry at large) take a hit. Even if you eventually end up needing to cut expenses down the line, having a reserve will let you “understand the situation before making any decisions.”
The main point is to avoid having to make rash decisions in the moment, he added.
Chait acknowledged that accumulating a six-month cash reserve is easier said than done, but encouraged advisors in attendance to formulate a plan now, even if it’s only putting away a small amount each month.
Adapt Processes to New Realities
Finally, advisors should always be adapting processes to respond to new realities, particularly when it comes to liabilities. That might mean introducing COVID-19 waivers or requiring signed authorizations for credit card charges or insurance refusals.
These liability-related procedures are about “really protecting your business,” Chait said.
Once you understand where your business stands from an expenses and liability standpoint, it’s time to understand the other side of the “revenue minus expenses equals profit” equation.
You need to understand “what are your bands of income, where it’s coming from and what are things that you can do to get yourself more predictable revenue.”
If the COVID-19 pandemic taught the travel advisor community anything, it’s that being married to only one type of travel or one travel destination can be dangerous. Advisors who sold only cruises prior to the pandemic suddenly found themselves without anything to sell, for instance. Anyone who specializes in the Baltic region is most likely having trouble now.
To avoid this situation, Chait recommended diversifying and said there were lots of great examples from advisors over the last two years.
Some advisors began selling domestic products. Others expanded their Mexican all-inclusive offerings.
How you diversify (or whether you need to) is entirely up to each and every advisor, he said, adding there is no right or wrong way to do it.
“The question for you is, do you have at least two things that you sell that are not the exact same so you can shift if need be.”
And, he added, it’s okay if one of those things is your primary product. The point is simple to have something in your back pocket you can fall back on if you need to.
A hot button topic for sure, but fees are one option for bringing in consistent revenue, Chait said. But he added, once again, there’s no one size fits all approach.
“There’s no right or wrong but make sure that whatever your response is to [fees] that it’s thoughtful. That you’re either charging fees because you recognize your value or not because you’ve identified a competitive advantage in doing so.”
In other words, don’t let emotion determine if you charge fees are not. Approach it from an analytical, business-first standpoint. And, then make an informed decision.
ROI for Client Acquisition
The third prong of future proofing your business is getting more analytical about and optimizing for how you spend your time and money when it comes to client acquisition.
“It’s about taking what’s working, tweaking it and making it better,” Chait said, challenging audience members to “be a little bit more analytically driven to help in the decision making process on where we’re spending our time and our dollars to grow our business.”
There are two ways look at your client acquisition: sources and ROI.
Start by asking yourself “What is your top source of business?” or put another way “Where does most of your business come from?”
Be sure you’re not just guessing, but have a solid way to check this, whether it’s an automated CRM program or a manual spreadsheet.
As an example, Chait gave this example:
An advisor booked three clients last month. One was a referral and two came through Facebook ads. In other words, 66% of that advisor’s clients last month came from Facebook ads.
Knowing that, the advisor might to decide to boost more social media posts, buy more Facebook ads or try other social media network ads to see if they also bring in customers.
Return on Investment
But that’s not the only way to look at client acquisition.
“How do we measure impact? Now we’re talking about dollars. Not just where they’re coming from but what is the cost of that acquisition. What are we spending to get these folks?”
Same example, explained a different way. We know the advisor had three clients last month, one from a referral and two from Facebook ads.
All three spent $1,000, for a total revenue of $3,000. The advisor spent $100 on obtaining the referral (say a bottle of wine as a thank you to the referrer) and $500 in Facebook ads.
So what was the ROI? (The equation for calculating the ROI is: Return on Investment = [Revenue – Cost] / Cost)
Starting with the single referral, the advisor spent $100 and brought in $1,000. Subtract the first from the second to get a profit of $900. Put that over 100 and you have an ROI of 900%.
As for the two Facebook clients, the advisor spent $500 and brought in $2,000. Subtract the first from the second to get a profit of $1,500. Put that over 500 and you have an ROI of 300%.
When looking at it this way, you see that yes, the advisor is getting more customers from Facebook, but the single referral was more impactful to the bottom line.
What does the advisor do now? What would you do, Chait asked.
The rub is, once again there is no right or wrong answer. One person might decide to go all in on getting referrals. Another might decide that quantity is the way to go and double down on social media advertising. A third might figure out how to split time between the two.
“There is no right answer. The point is, with the data at your fingertips, you can be more thoughtful. It’s about understanding so you can be as smart with your dollars as possible to help you grow and scale.”