Setting the Stage
The hot topic today is the continued growth of the home-based agencies segment of the distribution system. In reality the “home based” agent has been around for years. Agencies have used outside independent agents for as long as commission income could be shared.
What has changed is the stigma formerly attached to operating without airline appointments has gone the way of paper tickets. Vendors who wouldn’t think of doing business with anyone not appointed by ARC have found new ways to determine with whom they will do business.
Another major factor is the change in commission splits offered outside agents. The 50/50 standard no longer applies – 70/30 is now the standard with as much as 100% being offered tied to a monthly fee.
The increased earning potential, coupled with vendor acceptance, has introduced a new model for the independent agent – they can truly operate their own business. That has contributed to creating all the buzz about home-based agents.
Along with the increased growth in the number of independent agents we are also seeing development of various host agency models, from “travel like a travel agent” card mills to established agencies looking to add commission sales agents.
A recent Agent@Home magazine survey found that 40% of home-based agencies are affiliated with a host. The majority of independents, especially those with industry experience, appear to question the benefit of working with a host. Our research shows the two most common reasons given for not establishing a partnership with a host are “Why should I share my commission?” and “Why should I give up my identity?”
This document has been prepared to help you evaluate whether or not to work though a host agency. There is no pat answer to the question and benefits derived from a host association will differ from host to host and agent to agent. However it is a mistake to not consider the host option, even if you are one who has held the shared commission and identity issues as barriers to affiliation.
The Commission Issue
The truth is most independent agents don’t book enough volume with a single vendor to qualify for anything more than the standard commission, or the first level of override commission. At a minimum, affiliating with a host agency should provide you with an effective rate of commission (the amount you receive after applying your split) that is at least equal to the vendor’s second level of commission for most of your business.
In those instances a vendor doesn’t pay volume overrides your host should regularly provide negotiated value added benefits in lieu of the higher commission. An example – car rental companies generally pay 10% or less without any volume related bonuses. Your host should be able to provide you with upgrade, free day and dollars off coupons. If you are not given value added benefits to pass on to your customer your better option may be to place the business direct and not share commission with a host.
Determining the effective rate of commission you will earn from a host relationship is critical. Host agencies aggregate the sales of their agents to achieve higher vendor commission plateaus. The success they enjoy has a significant impact on what you will earn. Affiliating with a host offering a 70/30 split of 15% commission makes more sense than signing on with a company offering a 90/10 split of 11% commission.
Analyze your business and identify the top five vendors with whom you deal – you’ll probably find they represent 80% of your sales. Ask each host you talk to what commission levels they have achieved with your favorite vendors. Apply the split to that figure and you have identified your effective rate of commission – the money you’ll put in your pocket.
The table below makes it easy for you to identify that figure. The Base Commission column represents the commission for which the host qualifies. Find the column with the split offered and read down – the figures represent the effective rate of commission (your money) given the host’s base commission.
Base Commission |
|
90/10 Split |
|
80/20 Split |
|
75/25 Split |
|
70/30 Split |
16% |
|
14.4% |
|
12.8% |
|
12.0% |
|
11.2% |
15% |
|
13.5% |
|
12.0% |
|
11.3% |
|
10.5% |
14% |
|
12.6% |
|
11.2% |
|
10.5% |
|
9.8% |
13% |
|
11.7% |
|
10.4% |
|
9.8% |
|
9.1% |
12% |
|
10.8% |
|
9.6% |
|
9.0% |
|
8.4% |
11% |
|
9.9% |
|
8.8% |
|
8.3% |
|
7.7% |
10% |
|
9.0% |
|
8.0% |
|
7.5% |
|
7.0% |
In the final analysis you should decide how and where it makes the most sense to place your business - direct as an independent agency or as a host agency affiliate. Frankly, if you are working through a host and only earning the vendor’s standard commission on most of your business you may be better working independently – or begin looking for another host.
The Identity Crisis
While many agents use the “I’ll lose my identity” position as a reason not to deal with a host it begs examination of its validity. Partnering with a host shouldn’t have any impact on your identity as it relates to your clients. You will still be who you are and your company will be what it is. You should be able to pass on extra benefits because you are working through a host – but your clients will only know you are the one providing the value added deals.
What about your vendor relations? Working through a host will provide you with a new identity – one that should work to your advantage. Vendors pay attention to volume and know which companies are producing the business. When a reservations agent looks at their computer screen many times they will see a symbol that identifies the booking agent’s status – “A” high, “B” medium, “C” low volume. If you can’t achieve at least B status on your own you would be better off working through a host. And if you achieve B status can you do that for more than one or two vendors? Remember, you have control over where and how you place the business – do want is best for you.
Concerned that you will forgo the “perks” if you sign on with a host? A good host will open doors and provide more options than you could secure on your own. Again – volume speaks and vendors listen. Seminars at sea, FAM trips, training and educational programs and other special benefits should be made available by your host.
Are industry association memberships important to you? A good host will hold membership in professional organizations and you’ll be able to maintain associate status. You’ll save money on fees and still receive the benefits of membership.
If you deal with reality you understand that the identity issue shouldn’t be an issue at all. Your customers come first and a host agency relationship shouldn’t require you to change your identity. As far as vendors are concerned – most companies won’t call on locations producing less than $150,000 or more, whether those locations are traditional bricks and mortar offices or home based agents.
Examine the Back of the House
When evaluating a host relationship be certain to gather information about business processes. Discuss the frequency of commission payments, the systems in place to build and maintain financial records, how compensation disputes are handled – in short ask as many question necessary to gain comfort back office controls are in place to insure you will be paid for your efforts. ” My host is late in paying me” is a too common complaint that often signals procedural problems and possible money problems.
You have a right to expect meaningful backup will accompany your check. You have a right to know what efforts are taken to make certain you are paid what you are due. You have a right to know how the host handles commission they receive when the vendor doesn’t clearly identify the booking agent. If you have any doubts about whether or not you’ll be treated fairly back away and take your business somewhere else.
The Importance of Marketing Support
Marketing support that has relevance – something you can personalize and use – is another reason to partner with a host. In as much as the bulk of an agent’s business comes from repeat business and referrals it is imperative that marketing initiatives reinforce the agent’s position of being the “go to” source for all leisure travel.
The concept of segmented marketing that has become popular with many vendors, and is a major feature of several host agencies, is an example of a program that lacks relevance. While the concept makes sense from the supplier’s standpoint it is of little value to the agent – and could have a negative impact. Why? – because the character and size of the typical agent’s customer list doesn’t support segmentation. Agent’s need to stay in touch with all their customers and keep sending a “we cover the world” message.
Your host should offer marketing support that features multiple options to stay in touch with your clients and reach potential clients. If you are not convinced the tools will work for you will have to design your own program – something that is a challenge for most independent agents.
Evaluating the Technology Offered & Fees Charged
While a number of hosts promote GDS access as a benefit, the move by vendors to reward bypassing the systems diminishes the importance of the relationship. The best airfare values are most often available only through the individual airline sites, and the most popular low cost carriers can’t be booked through a GDS. The reality is you don’t need a GDS unless you plan on issuing a large volume of airline tickets. To the typical independent agent a system to process service fees – something you should expect from a host - is more useful than GDS access.
Another factor to consider are fees charged by a host. Fees can have a significant impact your bottom line. Think about it - a $30 monthly fee reduces the effective rate of commission by 1% on your first $3,000 of earnings each month.
When evaluating a host agency be certain you consider the fees charged, if any, and what you receive for those fees. If you are charged a monthly fee of $30, and provided with a “free website” which is available in the marketplace for $25 a month, doesn’t the “free benefit” really become a “fee benefit”?
The technology provided to support your business over shadows the availability of a GDS. As NACTA advises “The decision on which host to pick should not be based on the type of CRS access they offer, but on the level of support and overrides they offer as it pertains to your business plan.”
The Importance of a Shoulder to Lean On
The most challenging aspect of working as an independent agent is being able to stay focused and not allowing yourself to suffer the depression of being alone. Your host agency relationship should provide “people support” and a means to stay in touch with colleagues.
A well-designed company intranet will let you ask for help when you need to and provide a way for you to assist others if they need it. You should never feel alone as an independent. A good host agency relationship gives you the benefits of being able to call on others who face similar challenges and are striving to achieve similar objectives.
In Conclusion ….
The growth of the independent home-based agency segment of the travel industry continues to be in the news. Suppliers focused on the leisure market have been vocal in their support of this growing channel of distribution.
While vendor interest in the home based market will continue, the companies will become more selective as they develop a better understanding of the market. Suppliers will spend time and money to support those whom they consider serious about growing their business while separating themselves from those who think, “Being a travel agent is fun.”
Agents are also searching for solutions to the challenges facing the distribution system. Many are skeptical of host agency offers that seem to be too good to be true. They value a straightforward approach and are looking for a host affiliation that provides the means to earn more money and run a more efficient business. Forget the hype – at the end of the day the knowledgeable agent will chose a course of action that is best for them.
The bottom line - a host relationship should provide more value than simply being a source of higher levels of commission.
