Exploring expert fee models

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Revenue is the real top line

Travel agency revenue is different from sales. It includes commissions, fees, override bonuses and net price markups.

Sales represent the amount of money clients pay the agency for a cruise, hotel or other travel product. Most of this, less any commission earned, is passed on to the supplier.

Robert Joselyn, president of Travel Agency Management Systems, put it this way: "Sell a cruise for $5,000, and that is $5,000 in sales for the agency and $5,000 in revenue for the cruise line. If an agency makes a 10% commission, the agency revenue is $500."

Agencies still are defined by their sales volume, mainly out of habit, a holdover from the days when the commission-only model reigned supreme. When commission rates rarely or never changed, it was a stable and easy-to-understand measurement, said Nolan Burris, president of Future Proof Travel Solutions.

But, said Burris, in today's agency environment, revenue is a far more accurate measure of an agency's productivity. Today, he said, he sees agencies getting the bulk of their revenue from fees instead of from commissions or overrides.-- K.R. 

Commission-based sales, the traditional revenue model of the travel retailer, continue to fade as suppliers shrink their percentages or compete with tight discounting. So savvy agents are turning to the one revenue model that enables them to determine their own margins: professional fees.

Unlike traditional transaction fees for services like booking airline tickets, agents who embrace a professional fees model are charging for their brainpower. In some cases, fees are already accounting for between 10% and 50% of revenue, and that share is widely expected to grow in the future.

Depending on the size, duration, complexity and nature of the travel being planned and sold -- and depending, too, on the level of expertise required to assemble a given vacation -- those fees can add up to as much as hundreds, thousands or even tens of thousands of dollars for a single trip.

There are several fee models from which to choose: flat fees, hourly fees, access fees, membership fees, even subscription fees. They can also be described variously as consulting fees, professional fees or planning fees. But whatever they are called, fees are designed to achieve the same result: leverage an agent's expertise to achieve fatter bottom lines and increased respect from clients.

They often also result in higher self-esteem for agents who embrace the professional fees model because the model attracts only clients who value the retailer's knowledge and professionalism.

Nolan BurrisNolan Burris, president of Future Proof Travel Solutions of Vancouver, said he has witnessed a steady shift toward professional fees in the past several years. Between five and seven years ago, he estimated, fees rarely approached more than 15% of revenue. Today, he sees leisure-only agencies charging fees that account for between 40% and 60% of revenue.

ASTA reports that more than 60% of its members charge for planning FITs, while the number of agencies charging fees overall has increased to 85% in 2012 from 64% in 1999. While the ASTA numbers include transaction fees for booking airline tickets, they also include fees for booking hotels, all-inclusives, tours, cruises, ancillary services, shore excursions and car rentals.

Brownell Travel, a Virtuoso member based in Birmingham, Ala., with about $100 million in annual sales, instituted the adviser model six or seven years ago, positioning its agents as professional travel consultants who charge for their services. Since then, the agency, which has three offices and associates in 20 states, has seen its revenue increase by 50% per staffer, according to Brownell President Troy Haas.

Haas said that the change to the adviser model increased overall productivity and has resulted in better pay for everyone on the team.

That's important, said Robert Joselyn, president and CEO of Travel Agency Management Systems in Scottsdale, Ariz., a financial benchmarking and networking group of agencies. Typically, Joselyn said, commissions do not give agencies a rational return on their business investment.

Eric Maryanov, president of All-Travel.com. a Los Angeles-based agency that is a member of the Signature Travel Group, attributes part of that to noncommissionable fees (NCFs). As a result of NCFs, he said, cruise commissions have shrunk to the point that a $6,000 or $7,000 cruise commission is now less than 10%, even though All-Travel is technically performing at a 16% commission level.

Nor do commissions enable agents to make the kind of living they ought to earn given their expertise, skill set and the time they spend acquiring those skills, Joselyn said.

Exploring expert fee models"Supplier revenue doesn't cover the time the travel agent spends providing the service to the customer," he said, adding that FITs are the perfect example of how irrational the commission model has become. They can take hours of time, but many of an FIT's components generate no commissions, small commissions or irregularly paid commissions.

Charging consulting fees for building an FIT, on the other hand, brings rationality to agency compensation, he said.

In addition, fees decrease agencies' vulnerability to suppliers' whims. Relying only on commissions puts the entire financial well-being of a business into the hands of another business that has very different priorities.

"It makes your business susceptible to their financial pressures, shareholder demands, corporate restructuring and supplier industry changes," Burris said. "One boardroom decision in the middle of the night and your entire business can be thrown into turmoil. Anyone who lived through the airline commission cuts, caps and eventual elimination remembers that period."

In addition to introducing financial stability and independence to travel agencies, the fees model contributes to a self-perpetuating, positive cycle.

"They are the vehicle for establishing us in the client's eyes as a professional, and that is the most important thing that fees do," Haas said. "At the end of the day, the adviser is happier, more productive and working less with the people who do not value you and working more with the people who do."

Even agencies that get the bulk of their leads from the Internet -- the most price-sensitive channel -- are charging professional fees. All-Travel.com does most of its marketing online and sells cruises. The Web is a great commoditizer, narrowing consumer focus on price, and cruises are a very competitive product to sell, attracting some very price-focused customers.

But All-Travel has long charged a booking management fee, and All-Travel is very clear about what the fee is for.

"It is for professional consultation and advocacy throughout the booking process," Maryanov said.

Generally, resistance to fees tends to come more from the agent community rather than from consumers.

"Travel advisers are their own worst enemy," Haas said. "Clients have many, many fewer problems with fees than agents."

Diana Hechler, owner of D. Tours Larchmont, N.Y., a member of the Ensemble Travel Group, instituted fees when she opened her agency in 1999. Ever since, she said, she has had customers who ask of the fees, "Is that all?"

On the other hand, shifting to the professional fees model is not simply a matter of owners telling agents to do so. It requires preparation and training.

First, agents have to recognize their value.

"We are an industry of caregivers, and caregivers don't value themselves as highly as they should," Maryanov said. "We always want to take care of people and fix their problems. There's nothing wrong with that, but if you're bringing value, people will pay for it."

And Hechler observed that to achieve success with the fees model, "You really have to believe in your heart that you are solving people's problems."

Robert JoselynVictoria Boomgarden, president of the luxury travel division of Best Travel Gold, a Virtuoso agency in Naperville, Ill., has agents go through specialist training so they can internalize why they are charging a fee and not merely "parroting back what I say."

To help agents see the value that they provide, Joselyn conducts workshops in which he has them log all of what they do for clients, much like lawyers do for per-hour fees. He has agents log the date, exactly what they did, the value that added to the client's vacation and how much time they spent doing it.

"They start forgetting themselves that they are doing all these good things," Joselyn said, adding that the exercise helps them articulate the value they bring to the customer.

Joselyn's workshops include exercises in which agents explain the reasons for charging fees and create responses to objections customers might raise.

Brownell provides agents with a short list of what each of them does, as a way of helping them explain their value.

"It just goes back to being confident in stating your 30-second commercial and not be offended when asked what you do to justify a $300 fee," he said.

The goal in all these training exercises is to raise the agent's self-image.

"Once advisers start charging fees, what it does for their morale is amazing," Joselyn said. "You just see them blossom."

Follow Kate Rice on Twitter @krtravelweekly.
 

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