YTB International, the controversial multilevel travel marketer, advised the Securities and Exchange Commission last week that it is considering replacing its current business model, built on the concept of "referring travel agents," or RTAs, with a franchise system, possibly as soon as next year.
The company's statement referred only to its travel-selling business; YTB is expected to retain its multilevel marketing operation to sell the franchises.
YTB's CEO, Scott Tomer, also said in a statement that the company had retained iFranchise of Chicago to consult on the planning and development of the franchise model.
YTB advised the SEC that it expected that franchising, "if adopted, would facilitate the company's expansion into additional markets by providing more comprehensive training and a new proprietary e-commerce platform."
YTB said details about price, products and a plan for converting the business model were "under consideration, but the company anticipates that its existing RTA base would be treated favorably under its forthcoming proposal."
A look at YTB's current operating structure and the marketplace offers hints about how things might change at the company.
YTB International is parent to three subsidiaries, two of which are involved in selling travel. The third is the tech vendor REZconnect Technologies.
YourTravelBiz.com, aka YTB.com, is the company's marketing arm. It recruits and supports a sales force, which totaled 341,305 as of March 31. Members of its sales force are called independent marketing representatives (or IMRs or reps) in YTB's Web postings. They are compensated on a multilevel commission structure.
Anyone can join the rep roster at no cost. The reps sell the online travel agency package to investors, who then become RTAs. As of March 31, YTB reported it had 138,814 RTAs. These investors had paid a $449.95 entry fee and were paying a monthly $49.95 for their individual YTB-hosted websites.
The third subsidiary, YTB Travel Network, is the travel agency and essentially the host to all the RTAs. The bulk of its business is in the U.S., including Puerto Rico and the U.S. Virgin Islands, but YTB has recently opened operations in the Bahamas, Bermuda and Canada.
Because participating in the rep program is free, almost all RTAs sign on as reps for the possibility of earning additional commissions by bringing in other RTAs, which means that anywhere up to a maximum of 40% of the YTB selling reps are also RTAs.
The fact that some RTAs take on both roles has been the source of controversy, because RTAs have pitched the RTA package while attending events at which they were officially participating as travel sellers. This role confusion has occurred on cruises and at the ASTA TravelTradeShow, among other venues.
Although YTB was not ready to reveal more last week, it is possible to make a few observations and educated projections about aspects of a YTB franchise program.
For one thing, the initial investment will be higher for travel sellers. How much higher is uncertain, but there are two U.S.-based franchise programs designed for the home-based agent, CruiseOne and SeaMaster Cruises. Their entry fees are $9,800 and $9,500, respectively.
YTB's fee will probably be less than those of CruiseOne and SeaMaster Cruises. For one thing, YTB traditionally has targeted sellers who are not only home-based but also employed elsewhere; that seems likely to continue. By comparison, both CruiseOne and SeaMaster say a majority of their franchisees are in the travel-selling business full time.
To the extent that the YTB entry fee rises, selling will be more difficult and financial success less frequent. This could dampen the interest in the rep network, although it is not clear how many of the 340,000-plus contracted reps are active now.
In addition, regardless of how generous YTB is with existing RTAs, their numbers could be expected to fall, perhaps dramatically, if their monthly costs rise by much.
A reduction in the RTA or franchisee count would not be all bad. In the first quarter of this year, YTB collected $38.37 in travel commissions per RTA and paid out $27.75 per RTA in commissions.
Indeed, the company's quarterly reports showed that in the last quarter of 2007 and first quarter of this year, it was attracting new RTAs at a slower rate than previously, and its RTA retention rate had also dropped significantly in the two quarters.