Two Friends, One Loan, and a Season That Ends in April
Two friends in Tezpur, aged 24 and 25, want to register 'North East Trails'. One has worked two seasons as a freelance guide; the other holds a hospitality diploma and a firm job offer of ₹18,000 a month in a Guwahati hotel. They have ₹3.5 lakh in savings, and a MUDRA loan of up to ₹10 lakh is available at about 10.5% interest. Two plans are on the table. Plan A: buy a used 12-seater tempo traveller for ₹8.5 lakh and run their own transport. Plan B: stay asset-light, hire vehicles per tour at ₹4,500 a day, contract three homestays in Nameri, Bhalukpong and Dirang, and sell 4-night packages at ₹12,500 per person. A competitor with nine years of reputation already dominates the local market. About 70% of revenue would fall between October and April, with near-zero monsoon months. They want to be profitable in year one and have no insurance or licences yet.
1. Do a rough break-even for Plan A and Plan B over a 7-month season and recommend one. State your assumptions clearly.
Read the worked answer
Assumptions: loan ₹8.5 lakh at 10.5% over 5 years, EMI about ₹18,300; diesel ₹90/litre at 12 km/litre; all figures rounded and pre-tax.
Plan A - own vehicle
- Fixed per year: EMI ₹2,19,600 + commercial insurance, permits and fitness ₹45,000 + maintenance and tyres ₹45,000 + parking/office ₹30,000 = ₹3,39,600.
- Driver for the season: ₹18,000 × 7 = ₹1,26,000. Total before fuel ≈ ₹4,66,000.
- Contribution per 5-day trip (versus hiring the same vehicle): ₹22,500 saved − fuel ≈ ₹6,750 − wear ₹2,000 ≈ ₹13,750.
- Break-even ≈ 34 trips a year, about 24 of them inside the 7-month season - roughly 3.4 departures every month without a gap, plus off-season charter to keep the vehicle earning.
Plan B - asset-light, at the stated ₹12,500 price Per departure with 6 passengers: revenue ₹75,000. Costs: hired vehicle 5 days × ₹4,500 = ₹22,500; homestays 4 nights × ₹1,000 × 6 = ₹24,000; meals ₹9,000; guide ₹7,200; permits and entry ₹3,600; marketing 8% ₹6,000; contingency ₹3,000. Total ≈ ₹75,300. Contribution ≈ −₹300.
That is the finding: at ₹12,500 the package barely breaks even before a single rupee of overhead. Repriced at ₹14,500 the contribution is about ₹11,700 per departure; at 18 departures that is ₹2.1 lakh against roughly ₹1 lakh of overhead, a modest but real profit.
Recommendation: Plan B, re-priced - not Plan A. Seasonality is 70/30, the asset cannot be un-bought if the first season underperforms, and a nine-year-old competitor means they cannot win on being slightly cheaper. Revisit the vehicle in year two only when 25+ departures or off-season charter work can fill 120+ vehicle-days.
2. Which registrations, licences and protections should they put in place before the first departure, and why does each matter?
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Register the business properly. A partnership deed or LLP agreement with a written profit-share and exit clause, PAN, a current account, Udyam/MSME registration and the state shop-and-establishment registration. The partnership deed matters more than people expect: the most common failure in two-friend ventures is an argument in year two with nothing written down.
GST. Services cross the ₹20 lakh threshold; once they do, a tour operator typically charges GST on the package at the notified rate without input tax credit. Track turnover monthly so registration is not a surprise in the middle of peak season.
Ministry of Tourism recognition as an approved tour operator is not legally mandatory, but it opens state subsidies, trade fairs and buyer-seller meets, and it signals credibility to banks and corporate clients. It requires an office, qualified staff and the paperwork to prove them.
Insurance, in this order of priority:
- Travel insurance for every client with medical evacuation cover - a helicopter evacuation from Tawang can cost more than a season's profit, and the operator will be blamed if it is absent.
- Public liability and professional indemnity for the firm.
- Commercial vehicle insurance with a valid permit for any hired vehicle - check the papers yourself rather than trusting the owner.
Contracts and paperwork: written terms and conditions with cancellation, force majeure and a liability cap; vendor agreements with each homestay and vehicle owner; a medical declaration and emergency contact form for every guest; and a documented Inner Line Permit procedure with a cut-off date.
Skills and accreditation: a recognised guide licence where the state requires it, first-aid training for both founders, and a written emergency protocol with phone numbers for each district.
Why all of this before departure: each item maps to a loss they cannot absorb in year one. The cheapest insurance is the paperwork done before the first booking.
3. They ask whether they should price 10% below the established competitor to win the first 50 customers. Advise them with reasoning.
Read the worked answer
Say no, and show them the arithmetic. At ₹14,500 a 10% cut removes ₹1,450 per person - about ₹8,700 on every six-person departure, which is most of the ₹11,700 contribution. They would be buying customers with money they do not have, and they would need roughly 25% more departures just to stand still.
Three reasons the discount is the wrong lever
- It signals 'same product, cheaper', which invites comparison shopping and attracts the most price-sensitive, least loyal customers - exactly the ones who leave when someone undercuts them next.
- It anchors the price low. Raising a published price later is far harder than discounting from a fair one, and past guests will feel cheated.
- They cannot win a price war against a nine-year-old competitor with lower unit costs and a full booking book. They can win on attention, which the competitor cannot easily copy at scale.
What to do instead
- Differentiate on things that cost little: groups of six rather than a full coach, guaranteed window seats, a guide from the village being visited, transparent inclusions with no hidden entry fees, and free cancellation up to 15 days.
- Use value-adds, not price cuts, for the first 50 customers: airport pickup, one dinner, a post-trip photo album. The list price stays intact.
- Build referrals deliberately: ask for a review within 48 hours of return, and offer ₹1,000 credit to any past guest whose referral books.
- Sell the itinerary document itself - a clear, honest day-by-day plan with realistic drive times is the single cheapest way to look more professional than a competitor coasting on reputation.
The judgement: for a new operator, the first 50 customers are evidence, not revenue. Win them with a product that is visibly better organised, and they will pay a fair price and bring others.