Many travel agents and agencies, especially the growing number of home-based agents, are not totally independent, but instead are Independent Contractors (ICs) for what is known as a Host Agency. Instead of having their own relationship with travel suppliers, they work through this larger agency and generally pay a fee and/or a part of their commissions to the Host Agency for the privilege of using their credentials. Is this relationship really necessary?
Let’s take a look at the pros and cons of being an IC for a Host Agency versus being totally independent. With respect to commissions, unless you are a high volume agent, you will generally do better working through a large Host Agency. As a small independent agent, you will likely not receive much more than 10% from most suppliers. A larger Host Agency might receive 16%. Suppose you are working on 70%/30% commission split (you retain 70% the Host Agency retains 30%), you would effectively raise your commission to 11.2%. That might not seem significant, but it is giving you a 12% increase in your income. If your split is 80%/20%, then the difference is even more.
As an IC, you generally can work under the Host Agency’s Seller of Travel (SOT) registrations for those States that require such registration. This will save you the time and expense of filing bonds and paperwork. Florida still requires ICs to register anyway, though no separate bond is required. In addition to SOT registration, by using a Host Agency’s credential to make bookings, you save yourself the annual costs associated with obtaining IATA, CLIA, or TRUE numbers for yourself.
Many Host Agencies are part of a larger consortium, and as an IC, you generally have access to the features of that consortium, without having to pay a separate membership fee. This could save several hundred dollars per year. Other things a Host Agency can do for you is to provide back office support (receiving commissions from suppliers, tracking and shipping travel documents to clients, and more), provide sales leads, provide training, and provide backup for you when you aren’t available to clients.
Some Host Agencies claim to provide Errors and Omissions Insurance for their ICs. I don’t count this as a plus though, as I would recommend that whether you are an independent agent or an IC of a Host Agency, you should have your own E&O policy anyway.
What is downside of using a Host Agency? The biggest issue is loss of control. As an IC, you have your own agency identity. Usually, that identity is different from that of the Host Agency (franchises are an exception to this). This means that while you advertise your services under one name, travel documents will arrive with the name of the Host Agency on them. You may have to explain this difference to your clients. You also lose control over how you make reservations. Each Host Agency will have its own procedures that you must follow, whether you think that is the best way to do things or not.
While it has been shown that your commissions will generally be higher with a Host Agency, those agencies usually pay commissions only after a client’s travel has been completed, whereas the supplier may pay the commission as soon as final payment is received. Thus, the Host Agency has the use of your money in the interim. You are also dependent on the financial stability of the Host Agency. While it is not common, Host Agencies can and do sometimes go out of business, often very suddenly, meaning you may not collect that commission at all.
So, is a Host Agency really necessary? The correct answer depends on the individual. For those just starting out as a travel agent, it is critical. Until you are comfortable with the policies and procedures and understand what is required to be independent, the safe choice is to affiliate with a Host Agency with good back office support and a good training program. If you are an experienced agent, and you do not mind the loss of control issues noted above, then a Host Agency is probably the best route for you as well. Just be sure to thoroughly investigate the host you want to work with to be sure that it is a good fit for you, and that they are financially sound. If you truly want to operate only under your own name and have control over everything, and don’t mind trading some commission dollars for that added control, then go totally independent.
By the way, you don’t necessarily have to choose one or the other. Personally, I operate The Vacation Stop as an independent agency most of the time, but I still have a Host Agency relationship too. That is mostly used for clients from those states in which I have not established my own Seller of Travel number as of yet. That allows me to legally serve those clients. Sometimes you can have your cake and eat it too.
Steve Mencik is the owner of The Vacation Stop in Gambrills, MD. He specializes in cruises, all-inclusive resorts, and fundraising travel for charities. He is an Accredited Cruise Counselor, a Commodore agent for both Princess and Cunard, and holds many certifications for other suppliers as well. He can be contacted by email at firstname.lastname@example.org. His website is http://thevcationstop.com.