This article has been edited by the author for clarification and accuracy.
For many small to medium-sized adventure tourism businesses, getting a deal with a large tour operator or travel agent can seem like a dream come true. Having attended marketplaces at ATTA Summits and events, I’ve seen that firsthand.
But is going the agent or operator route the most profitable option? That depends. Read on to learn about all variables to consider when working with an agent or operator.
Advantages of Working with Travel Agents or Operators
A good agent or operator should be able to deliver a steady stream of bookings so you can focus on running your tours. You can think of them as your marketing department since they are handling all the lead generation and expenses that go along with that.
Another advantage is they’re paid by commission, so if they don’t bring in customers, you don’t pay. If all your bookings are coming in this way, you may not even need a website.
Agents can also handle a lot of extraneous issues like dealing with airlines, language barriers, and other logistics that might be useful for your operation.
Disadvantages of Working With Agents
Most tour operators focus on those points above, but there are other realities to consider if this is your desired business model.
They Are Not Your Customers
In an agent model, the agent is in fact your customer. This is an important point that many business owners fail to realize. Large tour operators may rebrand your tour as their own, and the agent’s agreement usually forbids collecting any guest information, so you can’t add them to your email list or do any direct marketing to them.
They May Not Be As Profitable
Agent and operator commissions generally range from 5% to as much as 40%. Travel advisors selling airfares, packages, hotels, and cruises are paid in the low single digit commissions by these companies, often 5% or even less. However, tour operators or adventure outfitters who sell their tours through large inbound operators often see those higher commissions charged. But even on the low end, that can be a huge difference to your bottom line. Let’s assume that your trips sell for $4K and your fixed and variable costs are $2K per booking.
Agent Sale: $4K (trip price) less 25% ($1K agent’s fee) less $2K (fixed/var costs) = $1K profit
Direct Sale: $4K (trip price) less $2K (fixed/var costs) = $2K profit
So we can see from the above example, that by eliminating the agent/operator’s 25% fee, we’ve just increased bottom line profit by 100%.
Other Cost Considerations
Let’s also assume you do $2M in revenue per year using the above scenario.
Agent/Operator: Based on $2M revenue, 500 agent bookings, total profit would be $500K.
Direct: Based on $2M revenue, 500 direct bookings, total profit would be $1M.
But, if you’re wanting to sell direct, you’ll now need a sales and marketing budget. So let’s add that in, based on an outsourced marketing team, with no additional in-house staffing.
- Website build and branding (one-time fee): $15K
- Outsourced marketing and PR (monthly fee): $5K
- Paid ad spend, Google/Facebook Ads (monthly fee): $2.5K
Let’s assume it takes two years to fully replace the agent bookings. Total spend over two years: $195K, or $97.5K/yr, for a new net profit $902,500, an 81% increase in profit after accounting for marketing and sales costs.
Generally speaking, I find when your agents’ fees are exceeding 100K per year, you should be looking to invest that into developing your own marketing program.
Having a Diversified Customer Base Makes Your Business More Valuable
“76% of business owners plan to sell their companies within the next ten years,” says John Warrillow, CEO and founder of Value Builder, a system designed to increase the value of businesses. “And many of those owners have not thought about how to value their companies or how to increase that value prior to exiting.” Two major factors that contribute to a company’s value are owner involvement and the size and diversity of its customer base, explains Warrilow.
So let’s start with owner involvement. The more involved an owner is, the less the company is worth. Think of an artisan who creates unique furniture that no one else can make. In this case, the company is 100% dependent on the owner, and the only value the company has is its assets or whatever tools the craftsman was using. Let’s contrast that with a company where the owner is completely hands-off and has a team running things. The owner’s involvement is zero; they can step away and the business will keep running just fine. That greatly increases the company’s value.
In some cases, those relationships between the company and the operators or agents, are heavily dependent on the owner, further driving down the business’s worth.
What about the other factor, the customer base? If a company only has one customer, and something were to happen to that customer, it could put them out of business. If they have a broad customer base, they are much more likely to weather the loss of any one customer.
So by reducing owner involvement and increasing the customer base, you are reducing risk and increasing the value of your tourism business for a potential buyer.
The Hybrid Booking Model
Another option to consider is doing both agent/operator and direct bookings. Depending on your niche that might make sense. “We find most of our European guests book through our agents and most of our US guests book direct,” says John Forrest, owner and GM of Northern Escape Heli Skiing, a luxury adventure tour operator in Northern British Columbia. “In places like Germany, our agents' fees (20%) are essentially our marketing costs.” With their local language, the booking insurance they offer, and the fact that the travel advisor model is more entrenched in Europe, this hybrid model makes sense for Northern Escape.
But, if you decide to go this route, NEVER undercut your operators or advisors. You must sell direct at the same price or you’ll be burning your bridges with those operators/agents who have worked to bring their clients to you.
Start With a Goal to Double Direct Bookings
If you’re already getting most of your bookings through agents or operators and have a goal of moving toward a hybrid model, first aim to double your direct bookings. Booking software easily allows you to divide up trips and allot spots for agents without affecting other bookings.
As you broaden your customer base and build your own brand, you’ll be more profitable today and you’ll also be growing the value of your business for that point in the future when you decide to step away.
Darryl Leniuk is a marketing and media consultant with an extensive and diverse background in adventure tourism. His agency, Aventur Marketing, specializes in digital marketing services and Public Relations for premium tourism businesses He lives in Vancouver, British Columbia.
Contributing writers are invited to share their opinions in Adventure Travel News. The views and opinions expressed in this article are not necessarily those of ATTA.