What is a purely commission mindset costing your business?

When we started roomsXML in 2007, one of the very first questions were asked was “what is your commission rate“.

I would duly explain we did net rates , to be told “ but that is not how the travel industry works”.

Many agents have seen “the light” and the issue of net rates versus commission is now no longer a problem. But for those who stay hooked on commission, I often wonder if they understand the “price” that a purely commission business model costs them.

Here is five reasons why running your business on commissions is costing you more than you can gain.

1.         Commission creates a bad cash flow

Commission based sale: you make the sale, somewhere between two and six weeks later, you get a commission. Net rates:  you make the booking, collect cash from your customer, 4 to 6 weeks later pay a wholesaler.   

2.         Commission stops you standing out from the crowd

Using the same commission as all your competitors (or the same as everybody else in your franchise body) means you are charging the same price with minimal room to move and no room for competitive advantage.

Why let a wholesaler determine your price?

3.         Commission costs money

Think about the cash flow, particularly around issues like refunds. Transactions made using a commission  means double the number of transactions take place, wholesale payments and commission refunds. This not only adds time (which is money) but will potentially cost more in transaction fees in the long run.

4.         Commission can be manipulated

10% commission, 12% commission, 15% commission… 20% commission especially for you! 

In most cases this is simple manipulation – a 10% increase in commission is likely to be underpinned by a 10% increase in the net cost, with no end benefit to the agent.

 5.        Net rates are simple

Here is the price, here is what you pay, determine the profit you want or need to make, that’s the price you tell the customer.

It can't get much simpler than that