Recently I had a great conversation with an agent who had built a very successful business in just a couple of years. In the previous 12 months she had booked $750,000 in travel. She was on a 90/10 commission plan and she thought that was the best available option in the industry (it’s not). When we started digging into the numbers, she realized that her 90/10 plan wasn’t as incredible as she thought. She thought it was a great plan because her host didn’t charge her any annual fee and kept just 10% of her commissions. Even though she paid a $25 per month technology fee, she was pretty sure that was the best deal out there. After all, she wasn’t paying much.
It’s very easy to look at these “little” numbers and think they don’t make much of an impact on your bottom line. But $25 here and 10% there and you are really talking about a lot money. Think about it: we’ve all the experience of looking at our bank balance and wondering where the money went, only to dig into it and find there aren’t any big purchases – just a lot of little things. Same thing with that credit card bill. Most credit card balances aren’t from big purchases, but smaller charges that quickly add up.
With hosting fees the important thing is to look at the total cost. What is it actually costing you to be with your host agency for a year? Are you getting your money’s worth? When you are first getting started it seems like your host costs you a lot of money in fees when you aren’t making any commission. Then as your sales – and commissions – start to grow you forgot about how much that commission split is costing you. You are just happy to be covering it every month.
If you dig into this numbers and look a little deeper you might be surprised at how much you are paying. When you look at the other options out there you might realize your hosting deal isn’t as good as you think, because it needs to change as your business changes. When you are brand new a 70/30 split is fine, but no one with $1 million in sales would settle for that!
The first thing to do is calculated your annual hosting cost. Add up everything you pay your host agency in a year: annual fee, technology subscriptions, booking fees or charges, and the commission they keep. Here’s an example for an agent with $732,511 in sales with average commission of 13%:
Annual Fee: $0
Fee for Technology: $300 ($25 per month)
Monthly Hosting Fee: $0
Commission Kept by Host: $9,522 (10% of $95,226)
Total Annual Cost for Hosting: $9,822
That’s a lot of money! While a plan with no annual fee, 90% commission payout and just $25 per month seems like a good deal on the surface, when you look at the numbers it isn’t!
There are host agencies – like Gifted Travel Network – that offer 100% commission plans and that’s what this agent needed. Yes, you are committing to an upfront fee every month, but you come out ahead. Using the same numbers as above here is how it comes out:
Annual Fee: $399
Fee for Technology: $0
Monthly Hosting Fee: $499 ($5,988 per year)
Commission Kept by Host: $0
Total Annual Cost for Hosting: $6,387
That is a savings of $3,435 per year! And that savings only increases as your sales increase. When this agent breaks the $1 million mark the hosting cost is the same. If they sell $10 million a year the hosting cost is the same. If you are selling that much you may think it’s better to operate under your own credentials, but you couldn’t hire someone to process your commission checks for $6,387 per year.
Bottom line: It’s important to know your numbers and make decisions based on them. They shouldn’t drive every decision you make, but you cannot ignore them. What worked for you a year ago or five years ago probably doesn’t work now.
There are many people who say, “I don’t want to change hosts – I love my host agency.” That’s wonderful! But you still need to be aware of the numbers. Perhaps you can use this knowledge to negotiate a better commission split. Just because they don’t currently have something better than 90/10 doesn’t mean they can’t create it. You won’t know if you don’t ask.