If you're already working with a travel management company (TMC) you'll no doubt be familiar with the term 'transaction fee'. Whilst this isn't the only financial model for paying for a TMC's services, it's certainly the most popular - especially when you're using an online booking tool.
Transaction fees are a way TMCs charge for their services. Every transaction type will incur a fee that the travel management company will agree with the client at contract commencement. Online fees refer to those transactions that are booked using the online booking tool and offline fees are for those bookings made by more traditional methods such as telephone or email.
So, if you're speaking to your existing or potential suppliers of travel management services, you may be wondering how to negotiate and evaluate online and offline transaction fees. The only constant between suppliers is that online fees are cheaper than offline fees; this is because using an online booking tool removes the need for a travel consultant to process your booking. How much cheaper will vary substantially from supplier to supplier with some only offering a marginal discount, while others will show you a huge saving. Here are some top tips you need to consider if you want to make sense of it and negotiate a better deal for your organisation.
1. Technology costs
TMCs started off as travel agencies selling people-based services, but when their clients demanded online booking technology, they didn't have the expertise to develop their own. So to meet customer demand, they chose a technology provider to provide their online booking technology - often in the guise of their own brand. So, effectively, these TMCs are technology resellers, and they need to include the costs they pay for this technology in their online fees. Understandably, these costs will vary depending on the technology provider(s) they partner with and this is why you'll see differences in the online fees given to you by different TMCs.
Make sure you know which technology you're buying. Forget that it looks like the TMC's own solution, dig deeper into it and get an understanding of the third party technology costs that make up the online fee.
There are some TMCs who develop their own software. You may find they have more flexibility to lower their fees when you're negotiating with them as technology represents a central overhead as opposed to a bill from a third party.
2. Your travel data
You need to share as much data as you can with prospective suppliers, in order to get the best advice and best pricing from them. If you don't have any data, prospective suppliers are likely to price defensively to ensure their worst-case scenario is covered (eg you only book low-cost carriers, and budget hotels from which the revenue stream for the travel provider is negligible and therefore your fees will be higher). If you're in this position it's worth ensuring there is a break clause in your contract, so that you can renegotiate prices based on actual data once you have been working with your chosen supplier for 12 months.
3. Online adoption
This is crucial to consider when you're negotiating online and offline fees. A lot of people will evaluate all suppliers with the assumption that they'll all achieve the same level of online adoption. This is never going to happen! Do your own research into the TMC's track record when it comes to getting their clients booking through an online tool.
Most publish their adoption statistics in Buying Business Travel's leading 50 TMCs feature each year, and you should be suspicious of those that don't. The rates from 2014 range from 0 - 98%! To see how good they are, you need to understand how their turnover is split across travel types. Any TMC worth their salt should be achieving close to 100% online bookings for domestic rail, but if domestic rail makes up the majority of their turnover, their performance on hotels and air might not be so good. Ideally, you want to know that they can achieve high adoption for rail, air and hotels. Speak to their clients and find out what their adoption rates are and how easy it's been to achieve.
Once you've got figures for each TMC, use this information to calculate the total annual cost. You'll probably end up with a different adoption figure for each supplier, but this will give you a realistic indication of the total cost of their fees based on the adoption levels you're likely to achieve.
4. Calculate total annual costs
Don't compare the individual fees at face value; work out the total annual cost for each TMC based on the same transaction numbers and each TMC's average adoption rate. It's sometimes surprising to see how it all adds up, the one that looks the cheapest at first glance may not necessarily be so and vice versa. If you're objective is to drive adoption, you need to make sure the online fees are competitive as this will account for the majority of your transactions.
5. Get a guarantee
If your chosen TMC is so confident that they'll deliver a certain level of online adoption, ask them to guarantee it. You can use this figure to come up with an accurate projection of the fees you will pay. Even if you don't manage to reach those levels, the guarantee means you'll pay the online fee for X% of bookings even if you book them over the phone.
6. Be realistic
Even if you want to get as many bookings online as possible to minimise your costs, there will always be times when you want support from the TMC's experienced travel consultants. Paying a higher fee for a high quality service when you need it will ensure you get an impeccable offline service when it's required. High customer satisfaction will encourage users to support the service and keep noise to a minimum. Don't push the TMC to reduce their offline fees to the point that they won't be interested in giving you a great service.
7. Be aware of additional charges
There are sometimes extra charges that you may not take into consideration when evaluating the online and offline fees. If you want hotels to be billed back to the TMC, there may be a bill back fee. If the TMC uses third party technology, you might get charged a fee for holding a flight booking even if you don't confirm the booking. If you book a lot of rail tickets for ticket on departure check what you will be charged for this - TMC fees for TODs typically range from £0 - £15 (yes, you read that correctly!) Make sure all these fees are taken into account and check the small print (and any assumptions) in the financial proposal before you agree to any contract.
8. Watch out for annual price increases
Finally, once you're happy you've got the TMC's best deal on the table, make sure they haven't slipped an RPI (Retail Price Increase) clause into the small print. If you're contracting for a set period of time, your TMC should commit to that price for the entire contract.