Your ability to grow your tour and activity company depends heavily on your distribution strategy. Through your distribution strategy, you should be partnering with various tour agents who will resell your products to their own customers. Of course, when they resell your products and help you boost your bookings, they will be expecting a commission in return.
What are commission rates?
Commission is the fee that you pay agents who market your products and resell them to their own customers. For your tour agents, their commission is their income, and it’s what motivates them to encourage their own clients to book your products. While commission payments may seem like an extra expense, it is a necessary fee to pay if you want to increase your reach amongst your target market segments.
What is the industry standard for commission rates?
The standard rates for commission in the tour and activity industry vary based on the type of tour agent that you are working with. The following can be used as a guideline:
- Retail travel agents — These agents will make up a large portion of your distribution strategy. They are the traditional travel agents who resell your products directly to their own clients. Retail travel agents generally work for travel agencies, visitor information centres and other organizations that offer travel booking services. They often sell their clients packages that will include tour and activity products, so in all likelihood, you won’t be directly dealing with retail agents on a regular basis. However, they are part of the process, and they will expect a commission. Generally, retail travel agents earn about 10-20% of the retail price of your tours.
- Tour wholesales — Tour wholesalers are the agents that connect your tour and activity company with the retail travel agents who will package your products. They do not promote your products directly to travelers who are interested in your destination, but rather try to sell your products to retail travel agents who can use your tours to complete their latest vacation package. You can expect to pay a tour wholesaler a 25-30% percent commission, based on the retail price of your tours.
- Inbound tour operators — Also known as ITOs, these travel agents are based out of your destination. They generally work to promote travel products that are available in your destination with international distributors, such as wholesalers, event planners and retail travel agents. For the most part, ITOs work to create packages that appeal to specific groups of peoples. For instance, ITOs may create tour packages for religious organizations, for volunteers or for special interest groups. The standard commission rate is 25-30% of the retail price of your tours.
While the industry standards are important to know, you also should recognize that you can motivate agents to sell your products by offering a slightly higher commission rate. Even a commission rate that is 2% higher than the industry standard may be enough to develop loyalty amongst your distribution partners.
Now that you know how much you need to pay the agents who resell your tour and activity products, it’s time to start improving your distribution strategy. To learn more about creating an effective distribution plan and to discover how to partner with new agents, download the Rezdy distribution ebook today.