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.
Agents whom you will want to engage and transact with include OTAs, local visitor centres, and hotel concierges, to name a few. They 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. It’s your job as a tour and activity provider to understand the industry commission standards and set your rates accordingly.
You have two options when it comes to paying your agents – either through percentage commission or net rate. For the betterment of your business, let’s delve on the net commission definition and its difference from percentage commission.
As the name suggests, 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 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 is the best way.
However, you will fail to attract large, savvy OTAs with this type of rate because they won’t be competitive. They know how to market your tours and know the price points that work for their audience.
In this case, 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.
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 can resell your tour at $81, and another can resell it at $110. Either way, you know what you’re getting and you’re making a profit.
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.
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. But 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?
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 the way of the future.
Rezdy’s tour operator booking software allows you to resell your tours and activities in both ways. Your distributors can sign into your Rezdy system, make bookings pulling from your live inventory, and Rezdy makes sure everyone gets paid.