I want to take few moments to discuss a concept that will become very important to every travel professional in the coming years. It is so critical to understand this concept that failure to do so will likely result in a complete collapse of your business. I am talking about something that is, a lot of times, typically used to save someone; but this time it is something that will likely kill you if you are not prepared. Nets. Not fishing nets. Not safety nets. I am talking about net pricing from suppliers.
Over the past few years, I have had the opportunity to talk with hundreds of suppliers about this industry which has become a fabric of who we all are. Topics have ranged from the resiliency, ingenuity, and the determination of today’s travel professional to the love-hate relationship between suppliers and the MLM/Card Mill agencies. However, the topic of net pricing has been coming to the surface more frequently. This is not a surprise to me as I have said net pricing is inevitable. What is disturbing is that I feel many agencies are woefully unprepared to handle this significant shift in their business model.
Last week I participated in an online discussion about a net payment for a client’s trip. The travel professional kept referring to her “mark up” as “commission”. Let’s be clear—“commission” is a payment made to an agency by a supplier as compensation for a sale. “Mark up” is the additional money an agency adds to a trip above the amount remitted to the supplier to cover their costs and profit. If you are waiting for money from a supplier you are waiting for commission. If you are sending a supplier a net payment, you have retained your mark up.
That is a critical concept for you to keep in the front of your mind as we move to these uncharted waters. To survive and thrive in this new world of net pricing, you will need to do a lot of research and determine exactly how much it costs you to do business. Remember, in a net environment you now need to cover costs as well as profit. Don’t make the fatal mistake of treating this step lightly. You need to look at every cost associated with running your business. It is a good idea to look at several years to discover those infrequent hidden expenses. Next, figure out how much profit your want or need to make. Make sure you include your salary and associated costs, and some money to reinvest into your business—remember if you are not growing, you are dying, so you need to have some money to grow your business. Once these two numbers are known you can now begin to analyze your market and see how you will fare. Remember, if your market will not support your profit, you may need to completely revamp your entire marketing strategy. If you need some ideas on a marketing strategy, TRO is offering you a step by step course.
But, how do you set yourself apart if everyone is working with the same rates? Well, hopefully you have been doing that for many years and establishing yourself as a professional with a good reputation. As was noted in the TRO video of the 7 Characteristics of Top Travel Agents, cost does not equal value; and you need to make sure your clients understand that. And then you need to bring the value to the cost! The value is your overhead and your profit.
With a level playing field, you are going to need to set yourself apart from the competition each and every day. You need to add something to the transaction that is not available anywhere else—or at least it should not be easily shopped someplace else. Are you offering your clients Destination Guides at no charge? Do you have a standing discount at an airport hotel for your clients? Do you have a relationship for a day or two of free parking? Do you routinely follow up to make sure things are going as planned during the trip? Do you offer concierge services? Are you working your network on behalf of your clients? After all, you are the expert they turned to for their trip, they deserve the benefit of your connections.
Your suppliers also will be selling direct. In case you had not heard, most already are, so it is not like you will be seeing any additional competition. They are not likely to undercut you. They have fixed costs and profits to maintain as well. Their overhead is likely a lot higher than yours. To be honest, I believe the suppliers are looking forward to this day. They will eliminate commissions as a liability on their balance sheets and they will now be in a position to offer more support and more sales to the best sales team they have ever had—the travel professional. Think about it.
So, for now, get your house in order, figure out your costs and what you need to achieve in terms of profit. Be proactive and discuss this with your supplier representatives. There is no reason we should be taken by surprise when this happens. As long as you are bringing value to the cost, you will be well positioned to succeed in a net environment.
Who will be the first supplier to make the move? When will it happen? I have my theories and I am sure you have yours. Why not discuss them in the comments!