A suggestion for a fundamental commission change
Last week, John Frenaye and I were debating a recent move by a major cruise line to cut the commission rate they paid on Interline rates (these are special rates for airline and other associated industry employees) to 10%. John’s concern was that cruise lines might in fact be looking to reduce their commission expense or even eliminate it on certain classes of bookings—early booking rates, groups, military, residency, etc. My first response was something I used to say to an occasional complaint call to my weekly cruise radio show in Miami, “He who pays for the new ships, makes the rules.”
I guess this whole topic stems back from my early banking days. I learned in graduate school, that when a business seeks to sustain its growth by expanding its asset base, it needs to carefully review how they will pay for this expansion. There are only three ways,
- Raise more capital or borrow
- Expand profitable sales though its existing distribution network
- Reduce existing operational or sales expenses in order to pay off the expansion cost
Having entered the travel industry in 1986, I have applauded the cruise industry’s bold move to continue to grow their industry by building such wonderful new ships. Agents need to appreciate that these new enhancements were designed to help travel agents sell clients their first cruise. And, it isn’t like the cruise lines haven’t been telling us how important that first cruise is to subsequent ones. I remember that mantra twenty years ago.
While most agents don’t want to think about it, I question if we have met the expectations of the cruise lines in filling all these new ships? Judging from all of the direct sales and alternative channels of distribution, I would say as an industry, we came up short.
So my question is, how can travel agents regain their prominence in the cruise selling business? Agents have a choice. They can be a true sales consultant and seek out new business or they can be order takers or worse yet, rebating their last nickel to close a sale. So the bottom line is, I think that the cruise lines are getting a little concerned about their distribution system. And don’t kid yourself; they are looking for ways to reduce operating and sales expenses, including how agents are paid.
Why Not Pay The True Sales Consultants More?
A parallel concern is that the small brick and mortar agencies are being forced out of business partially because the big host agencies are attracting their good agents. While large host agencies are aggregating the sales of mostly part time or hobbyist agents to attain the highest commissions, the smaller agencies are left in the dust—commission wise.
As John and I were hashing it out, it dawned on us that there is a possible solution. Why not pay each individual agent on a tiered basis? The qualifying host, independent, and brick and mortar agencies could earn an override based on total passenger days sailed year over year. As the cruise lines lower the prices and cut more deals to fill ships (are you seeing a trend here?), making an override is becoming more and more challenging. Something is fundamentally wrong with our existing programs. I would be very willing to spend more of my advertising efforts and dollars to attract new clients if I knew I could earn higher overrides based on my performance.
Here is how it could work. With the cruise lines building ships with more and balconies and suites, why not pay agents more to sell those categories? The order takers and non-salespeople will earn 10% commissions on the inside cabins and 12% on the Ocean View cabins—the bread an d butter for them. This would free up the money to help pay true sales consultants 15% on balcony or 17% on suite sales. This is a simple concept for the cruise lines, as they would pay a little more when they earn a little more on the higher per diems from a balcony or a suite. The agents who learn how to sell will earn even more; and more importantly increase their lifetime client value, as we all know that once a client sails in a balcony or suite, it is hard to go back to anything else. What do you think? Does it make sense? How would you make it better? Please leave a comment!
Larry Norman, CTC, MCC is an icon in the industry. He has been a consultant to over 5,000 Home Based Travel Agents and trained an estimated 22,000 travel agents over his career. He was Travel Trade’s 1996 Travel Educator of the Year. Larry owned a four state network of 17 agencies, with annual sales of $28 million. Larry is known as “The Outside Sales Agent Expert” for his presentations on outside sales at Travel Trade Cruise-A-Thons, ASTA, ARTA and NACOA travel agent conferences among others. You can share your views with Larry at LarryNormanCTC@Gmail.com or leave a comment here.