UNDERSTANDING the basis for transaction and management fees is a workshop study all of its own.
In the US, travel companies have developed this to a science. Agencies and corporations there can tell exactly how much time and cost is involved in making a booking, issuing a ticket, delivering a ticket, producing management information etc.
If you have no idea how much it costs you to handle a booking, issue a ticket, or raise an invoice, then now is the time to take a long, serious look at your business and to carry out a few basic exercises with a stop-watch and a calculator.
Determine not only what appears obvious on the transaction front but also look at what else an agent has to provide.
Credit is the first issue to consider. Do you have to bankroll the client for 14, 28, or 42 days? Or are you able to get the client to pay by credit card?
What about management information? Can you provide sensible management information and not just half an Amazon forest with meaningless paperwork. If so, how much time does this involve your staff?
When analysing a client’s business, do not ignore domestic rail. As any travel counsellor can tell you, it takes approximately five times as much time and effort to issue an accurate rail ticket for a fraction of the value, but don’t be fooled into thinking that rail commission is static either.
In 1987, the old British Rail tore up agents’ agreements at that time and reduced all agents rail income by 15%-20%.
One global tender request we reviewed recently listed no less than 68 individual component parts of a travel transaction and the client wanted the cost per transaction for each component part!
In this country we are not that complex yet, but what happens in the US today will happen here tomorrow, so Lord Baden-Powell’s watchword for the boy scouts is appropriate here: be prepared.
As sure as night follows day, we will see similar documents here soon.
When preparing a management fee arrangement, it is a good idea to try to ensure that all your costs are clearly identified. You will also be required to provide your client with an honest breakdown of costs and profits as relating to the client’s proportion of the business which can be hard to identify if it is not being handled as a dedicated outplant or implant.
Direct costs will normally fall under easily identified categories such as staff costs, National Insurance, health benefits, pension, personnel training and personnel hiring.
It is also fairly easy to identify communication and office costs such as property costs, phones, e-mails, faxes, postage, stationery, technology – and don’t forget technology credits – delivery costs, travel guides, office equipment, licence costs and security.
Once you have totalled direct costs, you then have to address your central costs such as accounting, administration (document production, promotional material and management information) and other central costs.
It is also important to discover how the client does business and whether the client can accept any changes or modification to work methods.
For example, does the client make shopping enquiries for things like train times or flight information?
If so, is it possible for you and the client to jointly invest in some practical alternative solutions, such as Rail Planner or the OAG flight guide that their travel bookers can use?
Once all these issues have been taken into consideration you have to decide on your anticipated profit margin, but remember to write in a proviso into any agreement to the effect that estimated earnings are conditional to commission changes.