One of the frailties of the travel agency business has been its
emphasis on top-line results. We still talk in terms of $4 million
or $10 million agencies, the numbers referring to gross sales. But
as consultants Evelyn Engert and Pat Stack have pointed out in
their work for Carlson Wagonlit Travel, gross sales are a poor
measure of an agency's financial condition.
"With the commission caps, gross sales are no longer important
because they no longer indicate how much an agency makes," Engert
said. "It's more important to understand where the revenues are
coming from."
Engert makes a good point. With commission caps, the more gross
air sales agencies produce, the lower their average commission
becomes.
So continuing to measure an agency's business in terms of gross
sales can give a misleading picture of its performance.
Instead, agencies need to find new yardsticks that are based on
the bottom line. That might mean modification of back-office
systems that use gross sales as a barometer.
Engert and Stack, who run the Jasper Group in Chicago, sampled
26 independently owned Carlson licensees to try to set up some
benchmarks for profitable operation. The agencies were
predominantly selling leisure travel. The consultants learned some
valuable lessons that were reported in Travel Weekly's Agent Life
section in the Oct. 2 issue.
Here are some of their principal findings:
Air commissions were 36% of total retained revenue in the 26
agencies. Tour commissions accounted for 24%; cruise, 9%; hotel and
car rental combined, 9%; service fees, 11%; miscellaneous income,
4%, and overrides, mainly from air, 7%.Service fees charged by most agencies were in the $10 to $20
range, but a few smaller agencies charged less. All the agencies
expect this year's revenue from service fees to be greater than in
the past.Emphasis on preferred suppliers drives average commission
revenue up almost one percentage point on tours and cruises, and
Engert says that point "drops straight to the bottom line."Having a business plan with formal budgets raised the average
agency's profitability by nearly 3%, but the study found that one
of three agencies don't have such a plan or budget.Agencies with 401K plans had profits that were 7.2% higher, and
those with a profit-sharing plan had profits that were 11.3%
higher.Keeping the cost of non-selling employees, such as an owner or
bookkeeper, as low as possible contributes significantly to
profits. Agencies should keep those costs below 15% of retained
revenues.