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Independent Agents Face Tough Host Agency ChoicesMarch 17, 2009 By: George Dooley
Independent agents and host agencies should develop strong relationships that go far beyond commission splits to marketing and technology support as well as “people support” that checks the typical isolation faced by independent agents, says Don Gould, CEO of both GTM Travel Group, an established host agency, and CEO of IT Group, a consortia.
In an interview with Travel Agent, Gould offered his views as an industry veteran of the changes underway among host agencies and independent agents. This includes changes in relationships, commission splits, the necessity for affordable technology, back-office and marketing support.
“The most challenging aspect of working as an independent agent is being able to stay focused and not allowing yourself to suffer the depression of being alone. Your host agency relationship should provide 'people support' and a means to stay in touch with colleagues. You should never feel alone as an independent. A good host agency relationship gives you the benefits of being able to call on others who face similar challenges and are striving to achieve similar objectives,” Gould says.
Gould sees that a majority of independent agents, especially those with industry experience, are questioning the benefit of working with a host agency and often give two reasons for not establishing a partnership with a host: “Why should I share my commission?” and “Why should I give up my identity?”
Noting the growth of the home-based agent segment of the distribution system, Gould says change has also impacted vendor/supplier attitudes to home-based agents and hosts. “A major factor is the change in commission splits offered outside agents. The 50/50 standard no longer applies—70/30 is now the standard with as much as 100 percent being offered tied to a monthly fee.
“The increased earning potential, coupled with vendor acceptance, has introduced a new model for the independent agent—they can truly operate their own business. That has contributed to creating all the buzz about home-based agents. Along with the increased growth in the number of independent agents, we are also seeing development of various host agency models, from 'travel like a travel agent' card mills to established agencies looking to add commission sales agents. “
Gould is a 30-year veteran of the travel industry. He is one of the first to recognize the importance of independent agents and launched GTM Travel Group in 2001. GTM now has 400- plus members. Gould also broke new ground with the consolidation of consortia with the IT Group formed in 2002 from International Tours, GalaxSea Cruises, BTS Travel Network and the Travel Authority.
“There is no pat answer to the question of working with a host agency," he says. "The benefits derived from a host association will differ from host to host and agent to agent. However it is a mistake to not consider the host option, even if you are one who has held the shared commission and identity issues as barriers to affiliation.”
Gould takes a tough stance on the commission issue. “The truth is most independent agents don’t book enough volume with a single vendor to qualify for anything more than the standard commission, or the first level of override commission. At a minimum, affiliating with a host agency should provide you with an effective rate of commission (the amount you receive after applying your split) that is at least equal to the vendor’s second level of commission for most of your business.
“In those instances when a vendor doesn’t pay volume overrides, your host should regularly provide negotiated value-added benefits in lieu of the higher commission. An example: Car rental companies generally pay 10 percent or less without any volume-related bonuses. Your host should be able to provide you with upgrade, free-day and dollars-off coupons. If you are not given value-added benefits to pass on to your customer, your better option may be to place the business direct and not share commission with a host.”
Agents must determine the effective rate of commission they will earn from a host relationship, Gould says. “This is critical. Host agencies aggregate the sales of their agents to achieve higher vendor commission plateaus. The success they enjoy has a significant impact on what you will earn. Affiliating with a host offering a 70/30 split of 15 percent commission makes more sense than signing on with a company offering a 90/10 split of 11 percent commission.
“Analyze your business and identify the top five vendors with whom you deal—you’ll probably find they represent 80 percent of your sales. Ask each host you talk to what commission levels they have achieved with your favorite vendors. Apply the split to that figure and you have identified your effective rate of commission – the money you’ll put in your pocket,” he suggests.
“In the final analysis, you should decide how and where it makes the most sense to place your business—direct as an independent agency or as a host-agency affiliate. Frankly, if you are working through a host and only earning the vendor’s standard commission on most of your business, you may be better off working independently—or begin looking for another host. “
The identity issue also matters. “While many agents use the 'I’ll lose my identity' position as a reason not to deal with a host, it begs examination of its validity. Partnering with a host shouldn’t have any impact on your identity as it relates to your clients. You will still be who you are and your company will be what it is. You should be able to pass on extra benefits because you are working through a host—but your clients will only know you are the one providing the value added deals.”
A good relationship with a host will also help with supplier/vendor relations. “Working through a host will provide you with a new identity—one that should work to your advantage. Vendors pay attention to volume and know which companies are producing the business. When a reservations agent looks at their computer screen, many times they will see a symbol that identifies the booking agent’s status—“A” high, “B” medium, “C” low volume. If you can’t achieve at least B status on your own, you would be better off working through a host. And if you achieve B status, can you do that for more than one or two vendors? Remember, you have control over where and how you place the business—do what is best for you.”
A good host relationship will also open doors to more perks and fam trips than agents can secure on their own. “Volume speaks and vendors listen," Gould says. "Seminars at sea, fam trips, training and educational programs and other special benefits should be made available by your host.
“If you deal with reality, you understand that the identity issue shouldn’t be an issue at all. Your customers come first and a host-agency relationship shouldn’t require you to change your identity. As far as vendors are concerned, most companies won’t call on locations producing less than $150,000 or more, whether those locations are traditional bricks-and-mortar offices or home-based agents.”
Back-of-the-house issues are also critical to agents, Gould says. “When evaluating a host relationship, be certain to gather information about business processes. Discuss the frequency of commission payments, the systems in place to build and maintain financial records, how compensation disputes are handled—in short, ask any question necessary to gain comfort back- office controls are in place to ensure you will be paid for your efforts. 'My host is late in paying me' is a too common complaint that often signals procedural problems and possible money problems.
“You have a right to expect meaningful backup will accompany your check. You have a right to know what efforts are taken to make certain you are paid what you are due. You have a right to know how the host handles commission they receive when the vendor doesn’t clearly identify the booking agent. If you have any doubts about whether or not you’ll be treated fairly, back away and take your business somewhere else.”
Gould believes that host marketing support must be relevant and questions complex segmentation programs. “Marketing support that has relevance—something you can personalize and use—is another reason to partner with a host. In as much as the bulk of an agent’s business comes from repeat business and referrals, it is imperative that marketing initiatives reinforce the agent’s position of being the 'go to' source for all leisure travel.
“The concept of segmented marketing that has become popular with many vendors, and is a major feature of several host agencies, is an example of a program that lacks relevance,” Gould argues. “While the concept makes sense from the supplier’s standpoint, it is of little value to the agent—and could have a negative impact. Why? Because the character and size of the typical agent’s customer list doesn’t support segmentation. Agents need to stay in touch with all their customers and keep sending a 'we cover the world' message.
“Your host should offer marketing support that features multiple options to stay in touch with your clients and reach potential clients. If you are not convinced the tools will work for you, you will have to design your own program—something that is a challenge for most independent agents.”
Gould questions the value of the GDS to many independent agents. “The best airfare values are most often available only through the individual airline sites, and the most popular low-cost carriers can’t be booked through a GDS. The reality is you don’t need a GDS unless you plan on issuing a large volume of airline tickets. To the typical independent agent, a system to process service fees—something you should expect from a host—is more useful than GDS access."
Independent agents must also look at fees charged by hosts carefully and ask if they deliver value. “Fees can have a significant impact your bottom line. Think about it—a $30 monthly fee reduces the effective rate of commission by 1 percent on your first $3,000 of earnings each month. When evaluating a host agency, be certain you consider the fees charged, if any, and what you receive for those fees. If you are charged a monthly fee of $30, and provided with a 'free website,' which is available in the marketplace for $25 a month, doesn’t the 'free benefit' really become a 'fee benefit'?
“The technology provided to support your business overshadows the availability of a GDS. Your evaluation should focus on what technology the host provides, and deciding if the benefits claimed support your business plan. Examples of things to determine include: Does the technology include efficiencies and controls that give you comfort the host is a business partner? What process is in place to provide access to travel-agent-only booking engines? Is there a cost to use the technology? As the National Association of Career Travel Agents (NACTA) advises, ‘The decision on which host to pick should not be based on the type of CRS access they offer, but on the level of support they offer as it pertains to your business plan.’”