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How travel agent commission rates work: net vs percentage commission rates

Get the latest industry knowledge and best practices on travel agent commission tips, tailored specifically for tour operators.

9. Jan 2024
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How travel agent commission rates work: net vs percentage commission rates

As a tour and activity provider, expanding your business reach goes beyond direct customer marketing; networking with industry agents and wholesale travel partners is equally important. Engaging with a diverse array of agents, including OTAs, local visitor centers, travel agents, and hotel concierges, among others, can help launch your products to a wider audience, ensuring increased online bookings for your company.

However, they will expect a commission for these sales in exchange for the many benefits they can provide. When determining your travel agent commission structure, it’s essential to consider the cost of working with resellers and strike a balance that benefits both your business and the agents involved.

 

 

What is commission and why do travel agents change it?

Commission is a fee or percentage that tour operators pay to travel agents for promoting and selling their products or services to customers. Travel agent commission structures serve as an incentive for agents to promote and prioritize your tours or activities to their clients.

By offering commission percentages, you motivate agents to work actively on selling your products, resulting in increased bookings and exposure.

How agent commissions work?

As the name suggests, with a percentage commission you agree to give your agents a percentage of the retail rate of your product. In this case, you set the retail rate, and your agents have to sell your tour or activity at that flat rate.

For example, you run a kayaking tour, and you sell it at $100 per tour. Your agents must also sell it at $100 per tour. You offer your agents 20% commission because you know that to make a profit, you need at least $80 per tour. Thus, you keep $80 and they take the $20 commission.

Pros

If you want to make sure all your customers see the same price for your tour or activity (whether it’s with you or your agents), then this travel agent commission structure might be the best for your business. Customers could book with some confidence that there isn’t a lower price available somewhere out there.

Cons

However, you may fail to attract large, savvy OTAs with the percentage commission option because they won’t be competitive. OTAs know how to market your tours and they know the price points that work for their audience.

How net rates work?

With a net rates, you tell your agents the flat dollar amount you want to get paid per tour, and leave the retail price to be determined by the agent. Hence, they set their own commission markup level.

For example, you sell your kayak tours on your website for $100 per tour. You tell your agents to pay you $80 per tour at a net rate. This means that one agent could resell your tour at $81, and another could resell it at $110. Either way, you know exactly what you’re getting and you’re making a profit. This can also make your cashflow easier to manage and plan for.

Pros

Net rate is a better scenario, because you are guaranteed to make a profit for each tour, and you give your agents flexibility in the marketplace. They can apply pricing strategies that allow them to be more competitive with each other, cutting into their own commission markup if they have to in order to sell your tours.

Cons

On the downside, with net rates, you may encounter challenges in maintaining price consistency across different agents. Some might undersell tours to gain a competitive edge, potentially leading to price discrepancies and customer confusion.

How to come to the right agent rate?

Determining the appropriate agent rate involves a few key steps to ensure a fair and mutually beneficial agreement between your business and the agents you work with.

Research the market

If you’re unsure about how to find the ideal commission percentage for your business, conducting market research can help you determine the typical tour operator commission rates prevalent in your industry. This will provide you with valuable insights into the prevailing norms and help you set competitive yet profitable rates for your agents.

Negotiate with transparency

Remember to maintain open and transparent communication while negotiating with agents. After all, finding the right kind of travel agent to partner with is crucial as it can significantly impact the success of your tour and activity business.

Discuss your business needs, profit margins, and the value they can expect from promoting your tours. A clear understanding of each other’s expectations will lead to a more equitable commission structure.

Offer incentives for agents

Consider offering performance-based incentives to motivate agents to achieve higher sales volumes or meet specific targets. Incentives can be in the form of bonuses, higher commission rates for surpassing sales goals, or exclusive access to special offers.

Be flexible

Stay open to adjustments and revisions when setting commission rates, especially if you notice certain agents consistently outperforming others. Being flexible with your travel agent commission structure allows you to maintain mutually beneficial relationships with high-performing partners.

Stay in touch

Above all, maintaining regular communication with your agents is crucial. Keep them updated about new products, promotions, and any changes in commission rates. A strong, collaborative partnership is much more likely to lead to long-term success for both parties.

 

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