Hotel Pricing: Markup vs Target Margin
Master TourVilo's hotel pricing engine: understand exact mathematical formulas, Markup vs Target Margin, and rule priority hierarchies.
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Step-by-Step Guide
Understand Markup % vs Target Margin %
Markup calculates profit relative to your cost. Target Margin calculates profit relative to your final revenue. A 20% Target Margin results in a higher selling price and higher profit than a 20% Markup.
The Markup Formula
Selling Price = Cost × (1 + Markup% / 100) Example with $600 Cost & 20% Markup: • Markup Amount = $600 × 0.20 = $120 • Selling Price = $600 + $120 = $720.00 • Profit = $120.00 • Realised Margin = $120 ÷ $720 = 16.67%
The Target Margin Formula
Selling Price = Cost ÷ (1 - Margin% / 100) Example with $600 Cost & 20% Target Margin: • Selling Price = $600 ÷ (1 - 0.20) = $600 ÷ 0.80 = $750.00 • Profit = $750 - $600 = $150.00 • Realised Margin = $150 ÷ $750 = 20.00% (matches target exactly)
Configure Agency Pricing Rules
Navigate to Operations → Hotels → Pricing Rules. You can set rules at three automated tiers: 1. Agency Default Rule (e.g. 20% markup across all hotels) 2. Star-Rating Rule (e.g. 25% markup for all 5-Star luxury properties) 3. Hotel-Specific Rule (e.g. 18% markup for Hilton Colombo due to competitive market pricing)
Understand the Priority Hierarchy
When a hotel is added to a quotation, TourVilo resolves pricing in this exact order (the most specific rule always wins): 1. Manual Line-Item Override (highest priority, set inside the quotation) 2. Quotation Overall Margin Override 3. Specific Hotel Rule 4. Star-Rating Rule 5. Agency Default Rule (fallback)
Field-by-Field Breakdown
Detailed definitions for every form input, why it is needed, and realistic travel agency examples.
| Field Name | What it Means & Why Needed | Example Value | Required? |
|---|---|---|---|
| Supplier Net Cost | The base rate billed by the hotel supplier to your agency before any profit is added. Why: The starting financial baseline of all price calculations. | $600.00 USD (5 Nights at $120/night) | Yes |
| Markup (%) | A percentage added directly on top of the supplier cost. Why: Standard method used when an agency wants to add a fixed percentage markup over net cost. | 20% Markup | Optional |
| Target Margin (%) | The percentage of the final client selling price that your agency retains as gross profit. Why: Essential for agencies with strict gross margin targets (e.g. targeting 20% margin on all sales revenue). | 20% Target Margin | Optional |
| Client Selling Price | The final retail amount presented to the customer on quotation proposals and invoices. Why: The price the traveler pays. | $720.00 (under 20% Markup) or $750.00 (under 20% Margin) | Yes |
| Gross Profit | The monetary difference between the Client Selling Price and the Supplier Net Cost. Why: Shows the exact dollar earnings your agency keeps from the hotel booking. | +$120.00 USD (Markup) vs +$150.00 USD (Margin) | Optional |
| Gross Margin (%) | Gross Profit divided by the Client Selling Price, expressed as a percentage. Why: Universal financial health metric monitored by agency owners and accountants. | 16.67% under Markup; 20.00% under Target Margin | Optional |
Real-World Travel Agency Example
Real Agency Comparison: Markup vs Target Margin on a $1,000 Hotel Booking
Best Practices & Pro Tips
- When using Target Margin, remember that the margin percentage cannot be 100% or greater (dividing by zero). TourVilo safely restricts Target Margin inputs to between 0% and 95%.
- Inside the Quotation Accommodation builder, consultants can see both the Net Cost and the calculated Selling Price side by side, ensuring total transparency before sending quotes to clients.
Common Mistakes to Avoid
- Promising your management a '20% gross margin' while configuring a '20% markup' — as shown above, a 20% markup only yields a 16.67% margin. Always use Target Margin if your agency KPIs are evaluated on gross margin percentage.
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