By Taz Bareham — 27 Feb 2021
As a tour and activity provider, you need to be able to diversify your business not only by marketing directly to your customers, but also by networking with industry agents or tour wholesalers.
Agents whom you will want to engage and transact with might include OTAs, local visitor centers, travel agents and hotel concierges, to name a few. They can help launch your product to a larger audience, and will ensure that you generate more online bookings for your company.
However, they will expect a commission for these sales in exchange for the many benefits they can provide. It’s your job as a tour and activity provider to understand the tour operator commission options within the industry and set your rates accordingly.
You have two standard commission options when it comes to paying your agents – either through percentage commission or net rate. For the betterment of your business, let’s delve into the net commission definition and its difference from percentage commission.
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.
Percentage-based commission is the means by which many tour and activity operators pay their agents. However, is it the best way?
Well, it depends on what you’re trying to achieve. 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 it might be the best way. Customers could book with some confidence that there isn’t a lower price available somewhere out there.
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. So let’s see how this compares to the net rate commission option.
With a net rate commission, 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 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.
Net commission 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 if they have to in order to sell your tours.
Of course, this means that the retail price for your tours or activities can fluctuate depending on which agent the customer finds them through. It can also mean that the price may end up lower on an agent site than on your own direct booking site. While we often hear objections along the lines of “I don’t want direct bookings to be more expensive than agent bookings”, at the end of the day you need to know your marketing costs and how they relate to total sales. Here’s a question to help clarify the situation: Do you really want to pay $20 to acquire a single customer, or do you want to leave it to the agents who have a bigger marketing budget to play with in order to attract customers? By choosing net rate commission, you can still receive the same amount per booking while enjoying more bookings thanks to a wider reach.
We would argue that today’s travelers are deal hunters, and they are already comfortable with paying for hotels and flights in this way. Indeed, a net rate commission for tours and activities is fast becoming the industry standard and the way of the future. If it boosts your sales volume and your overall revenue, it’s a winner.
Rezdy’s tour operator booking software allows you to resell your tours and activities in both ways, and to adjust your tour operator commission rates and type to whatever both parties agree to. Your activity and tour distributors can sign into your Rezdy system, make bookings pulling from your live inventory, and Rezdy makes sure everyone gets paid.
Rezdy offers two options within Rezdy Marketplace for flexibility. Firstly, you can set up Marketplace Rates according to your preferences and then easily find and add agents.
Some OTA setups such as Expedia and Viator are a little different and as such can require a Negotiated Rate – but don’t worry, this is straightforward within Rezdy. With Negotiated Rates, you can set different rate tiers to suit various agents, and send and resend your rates any time you need to. For technical instructions on how to set a negotiated rate within Rezdy, check out the article How to create or edit a negotiated rate.
There is really no magic number for commission rates. Some local tourism councils will provide a breakdown of standard commission rates in that region as they might differ between travel agents, visitor centers, tour wholesalers and inbound tour operators. You can find a breakdown of these different agent types as well as common commission ranges in this article, How Much Commission Should Tour Operators Give Tour Agents for Bookings?
Although you could set-and-forget your commission rates if everything is ticking along brilliantly, there may well be changes and improvements over time. For example, your expenses and therefore retail prices might change. Your customers, the way they travel and the experiences they’re seeking out might change. Your preferred OTAs and travel suppliers might change over time too. Fortunately within Rezdy, adjusting prices and commission rates is a simple process.
For many tour and activity operators, the best balance might be a combination of direct website bookings, small agent bookings and OTA bookings. What’s right for you will depend on what brings you the best overall revenue and aggregate sales. Within Rezdy, you can view what each agent is bringing into your business and adjust as needed. You can even integrate TOMIS (Tour Operator Marketing Intelligence Software) to gain detailed insights and services across Google AdWords & Facebook Ads monitoring, keyword ranking, automated review generation and marketing reports. This can further expand your awareness and understanding of where and how guests are booking with you.
The process to setting commissions might seem overwhelming, but here at Rezdy we do everything we can to make each step simple for tour operators and agents. You can read more on getting started with commission rates (and some rookie mistakes to avoid), and contact our sales team to walk through the process with a free guided demo.