How to Set Agent Commission for Tours & Activities [Slides]
24 Oct 2014 | Simon Lenoir
Setting the right commission rate for your agents is a tricky task for tours and activities. It’s about maintaining a delicate balance of motivating your agents to sell your tours, while also remaining profitable.
We break down the essentials of what you need to know to get your rates right in distributing your tour products.
1. Know your basic rate lingo
There are two types of rates that you will be dealing with.
Retail rate
- What customers pay
- Should be consistent across distribution network
- Based on consideration of your operating costs, profit margin, and distribution network costs.
Learn more about pricing your tour or activity products.
Nett rate
- Operation costs + profit margin you want to make per sale
- The lowest amount you can sell your tour or activity for while still making a profit
- What distributors see to add their commission to
Never sacrifice your profit for the sake of commission – even if it’s a really good agent.
2. Understand industry standard commission rates
In direct distribution – where you deal directly with the person who deals directly with the consumer (for example, when you deal with a concierge, a hostel, or an OTA), it’s pretty straightforward. You should give at least 10% commission in this case.
In the case of more complex distribution – where you make the deal with an inbound tour operator – it’s a bit more complex.
- A tourist walks into the office of a retail travel agent, booking travel accommodation and tours.
- The retail travel agent books the itinerary through tour wholesaler’s brochure.
- The tour wholesaler contacts an inbound tour operator to book in each element of the itinerary.
- The inbound tour operator contacts individual suppliers, including tour and activity operators (that’s you!).
You pay 30% commission to the ITO. The ITO keeps 10% and gives 20% to the tour wholesaler. The tour wholesaler keeps 10% and gives the remaining 10% to the retail travel agent.
3. Quoting commission rates
Use Small Business WA’s commission rate formula for each of your products. You may want to add ‘over-ride’ commission to encourage sales as well (usually 2-3% on top of existing commission rates).
4. Ongoing management
Consider how you will manage agent bookings on an ongoing basis.
Does your online booking software manage agent bookings? This means that it:
- Allows agents to check availability and book in real time.
- Manages commission reconciliation payments.
- Produces agent sales reports.
Having robust software with this functionality is imperative to the long-term success of your agent relationships. It will eliminate unnecessary admin work on both ends, while allowing you to maintain maximum profitability from avoiding overbooking your tours.
Rezdy certainly makes agent booking management easy, by managing all your offline, online, and agent bookings in one platform. Take a free trial of Rezdy today or request a demo.
You can also download the complete guide to choosing booking software by clicking here.
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