A few months back we introduced Partner Accounts for third-party and agent bookings. These unique accounts can be given to agents or resellers, who can log into the back end of your system to make bookings in real time and track their sales without affecting your inventory or any other vital structural components. You can set up as many partner accounts as you’d like, and set commission rates on your items as well as more complex group rates and bonuses.
But how high do you set commission rates for strategic partnerships? They need to walk a fine line between being profitable and being fair to the agents who sell them. Every business is going to be different, but here are some basic guidelines to help you determine a commission rate for your products.
The industry standards
There are some basic outlines for what you should pay online travel agents, wholesalers, and inbound tour operators; Small Business Washington has a very useful chart with recommended rates, which depend on how complicated the sales process ends up being. There are two major types of sales processes which involve separate agents: working with the travel agent directly, or working with a larger tour operator.
In the first situation, you work with a handful of travel agents who have Checkfront partner accounts and can put your online booking page on their websites. What does an online travel agency offer? The agents interact directly with customers, and bring your product to new markets. In this case, you would pay them a direct commission, which is usually around 10-20%.
Working with inbound or outbound tour operators is a little more complicated, because there are several tiers of salespeople and, as a result, a larger commission rate. If you’ve ever gone on a cruise, you’ll know that the cruise line has a list of suggested excursions and activities to book during the days when you’re in port. You select the tours you want, and the cruise line takes care of the details and books the individual activities for you. This sort of packaged deal has several steps: first the customer indicates their interest in your tour or activity; then the agent contacts a larger wholesaler, who gets in touch with the individual tour owner to actually make the booking. In this situation, you’ll likely be dealing with either wholesalers (who market your product to individual agencies) or with inbound tour operators.
ITOs operate in your home country on behalf of foreign visitors; a distributor contacts them with the details of how many people have booked which excursions or tours, typically as part of a larger travel package. The ITOs do the heavy lifting, so to speak, and actually make all the bookings. If you’re dealing with a wholesaler or an ITO, the standard commission is around 20-30%; you pay it to whoever does the actual booking, and they spread the shares around to everyone else who was involved in making the sale.
Will I have to raise my prices?
Many of you will have recoiled at the thought of giving a third of a sale away to someone, and that’s understandable; when you run a small business, every dollar counts. While you may need to do a little raising here and there, research shows that the increased rate of business from those partners can offset the commissions you’ll pay out. It is cheaper to drive an affiliate sale to your site than to deal with Google AdWords, where you may end up paying quite a lot for your visitors; if you partner with the right people, commission-based sales can actually end up cheaper than dealing with pay-per-click campaigns—and with a guaranteed sale every time you pay out, rather than just a visitor.
As with all things, setting commission rates for your products will take some effort, but it’s a very doable process. It’s important to remember that you should never sacrifice profit in the pursuit of working with online travel agencies or tour distributors; it may take a little time to make the changes, but they’ll be well worth it in exchange for the benefits—new markets, increased attention, and more customers coming your way.