Starting a travel agency can be a lucrative business venture. However, to build a profitable business it’s important to understand how travel agencies are compensated for their services. In this article, we’ll explore the various ways that travel agents get paid and discuss how to choose the payment model that is best suited for your business.
Travel Agency Payment Models
There are three primary ways that travel agencies can get paid:
- Commissions from suppliers
- Service fees
- Markups
Commissions from Suppliers
One of the most common ways that travel agencies make money is through commissions from suppliers. When an agency books a hotel room, tour, or other service for a client, the supplier will often pay the agency a commission. Commissions vary based on the type of service and the supplier, but typically range from 10-to 20%.
Who Are Travel Agent Suppliers
- Online travel agencies like Expedia and Travelocity
- Hotel chains like Marriott and Hilton
- Car rental companies like Hertz and Avis
- Tour operators like Tauck and Globus
- Cruise lines like Carnival and Royal Caribbean
- Airlines
Service Fees
Another way that travel agencies make money is through service fees. Travel agencies charge service fees to cover the costs of planning and booking trips for clients. Service fees are typically a flat rate, but they can also be a percentage of the total cost of the services provided.
- Booking airfare
- Making hotel reservations
- Arranging car rentals
- Planning tours
- Ticketing cruises
Markups
The third way that travel agencies make money is through markups. Markups are the fees travel agents add to the cost of a product or service. For example, a travel agency might add a $50 to$100 markup to the price of a hotel room. Markups are typically a percentage of the cost of the product or service being sold.
- Hotel reservations
- Car rental reservations
- Airfare tickets
- Tour bookings
- Cruise tickets
Choosing the Right Payment Model for Your Business
The best payment model for your agency will depend on g the type of services you offer, the suppliers you work with, and your target market.
It may be easiest to rely on commissions if you’re just starting out. Commissions are easy to negotiate and you won’t have to worry about charging clients for your services. However, as your business grows, you may want to consider switching to a service fee model. Service fees allow you to control how much you make per booking and can be a more stable source of income.
Markups can increase your profits, but they may alienate your clients if they feel they’re being overcharged. If you decide to use markups, be sure to be transparent about how you price your products and services.
Whichever payment model you choose, the most important thing is to provide value to your clients. By offering high-quality services at a fair price, you’ll be sure to build a successful travel agency.