Pricing, rates and commissions
To make a profit in your business, you need to set the right price for your products and services.
Setting your price
Setting the right price is important to attract your target customers and to help create sufficient profit margins, which will allow your business to grow.
Factoring in commission means your product can be sold through more channels of distribution.
Download How to Price your product.
Why pay commission?
When initially setting up your pricing strategy it is important to identify how you plan to distribute your product. If you want to join the trade distribution system, or in simpler terms work with online travel agents or retail travel agents etc you will have to build a commissionable component into your pricing strategy.
Commission should be considered as a marketing expense and is a type of payment for a service provided to your business. For tourism, the service is the introduction of a customer to your business that leads to a sale.
Travel agents, booking agents, visitor centres, wholesale agents and inbound agents charge a fee for the service they provide. They each play a different role and charge different levels of commission — generally up to 30 per cent.
An agent or online distribution channel’s role is to reach consumers and offer them products. Their goal is to generate sales, and their income is derived from commissions of those sales.
As a tourism operator, you can generate your own sales. If your business is at full capacity all the time, there is no reason to use agents. That rarely happens, so many operators use agents who are specialists at selling to reach people to purchase their products.
How much commission do I have to pay?
Depending on who you choose to work with you may be asked to pay between 10% to 30% commission. This may seem daunting at first, however many owners and business managers are surprised when they sit down and work out the actual cost of working with trade distribution partners.
Generally speaking you can expect to pay:
- 10% for retail travel agents
- 12.5% for visitor information centres
- 20-30% for wholesale travel agents
- 25-30% for inbound agents
- 15-25% for online travel agents
Pricing to incorporate commission
The price of your product is made up of the following cost components:
- fixed costs – your overheads, including utilities, marketing and wages
- variable costs – the costs associated with supplying the service, such as inclusions and cleaning
- profit margin – the amount that will contribute to your end-of-year profit
- average commission – an allowance for travel agents
- GST – if you operate in the GST system.
The total of all the above costs is your market, retail or gross price - the price you charge the consumer that is listed on your marketing collateral. This rate should not differ whether you are selling directly to the consumer or through a wholesale distributor.
The amount excluding commission is the net price. This is the amount you receive after commission.
You can provide rate sheets to your distributing partners and third party sellers.
What is a package?
A package features one price, but includes a combination of individual products that can be purchased by the consumer in one transaction.
Before creating a package you need to consider who the package is for, what is motivating the consumer to purchase your package, what will the package include and how you plan to promote the package.
Download how to create a tourism package including pricing and package samples.