Some tourism operators believe they save money by not paying commission to third-party sellers. But, there's another way to look at it - what do you lose by not paying commission?
Before you read anymore, consider these two simple questions...
- Are you generating enough bookings directly?
- Are you consistently full and happy with the way your business is performing?
If you answered YES to both of these questions, CONGRATULATIONS! Maybe you don't need to pursue tourism distribution as you seem to be doing very well on your own. If you answered NO, then maybe another sales avenue could be beneficial.
Retail Travel Agents, Tour Wholesalers and Inbound Tour Operators can open up new markets for you in a very cost effective way, but they also need to be paid. Commission is usually their major source of revenue.
Tourism operators need to understand how commissions are divided between the different levels of sellers and allow for the payment of commission in their prices. Always remember that the costs associated with international marketing is often beyond the reach of small operators. For example, it can cost up to $10,000 to attend just one international tourism trade show.
You need to weigh it up, do you want to open up new markets? YES! Then the most cost effective way to do this is through the commission structure.
HOW MUCH COMMISSION SHOULD I PAY?
The level of commission varies depending on who sells your product and which distribution method is used. For example, working directly with a Visitor Centre you will pay less than working with an International Tour Wholesaler. Here are the average commission levels payable to third-party sellers.
THIRD PARTY SELLER
|Travel agents/ Visitor centres||10% - 20%|
|Tour wholesalers||25% - 30%|
|Inbound tour operators||25% - 30%|
WHERE DOES THIS COMMISSION GO?
CALCULATING THE CORRECT COMMISSION
NET RATE OF PRODUCT
TO CALCULATE GROSS RATE DIVIDE THE NET RATE BY...
GROSS RATE THIRD PARTIES WILL SELL TOUR FOR
DIVERSIFYING YOUR INCOME STREAM
"Don't put all your eggs in one basket," is a common phrase for investing, but it also applies to your business income.
Diversifying your income stream is a great way to protect your business against the unknowns such as a downturn in the market, or loss of a major third-party seller. It is a good idea to spread your sales through avenues such as wholesalers, inbound tour operators, direct bookings, retail agents and Visitor Centres.
Direct sales will give you instant money and help your cash flow. Tour wholesalers sometimes take four to eight weeks to pay an invoice which may impact on your cash flow.
TOOLS & RESOURCES
Template | Wholesale rate sheet for a tour operator
Template | Wholesale rate sheet for an accommodation operator