Commissions – what are they, who pays them and why?

Commissions are a form of distribution: the travel agent, wholesaler and inbound tour operator are selling your product on your behalf.

When setting your prices it is important to understand that you will not pay commission on every booking, as many will come direct. However, it is important to build in some level of commission.

As a general rule for businesses established and working in the international markets, approximately 60-70 per cent of bookings come direct, 20 per cent come via travel agents, wholesalers and inbound tour operators (ITOs), and approximately 10 per cent from booking services.

Therefore you will pay no commission on 60-70 per cent of your bookings. This will vary depending on the type of product you offer. Remember you only pay a commission if you get a booking!

If you are intending to work with travel agents, booking offices, tour wholesalers and ITOs, you must be prepared to pay commission levels of between 10 per cent (retail agent or booking service) and 30 per cent (inbound tour operator working on behalf of the international travel trade).

The commission must be included in your rack or retail rate, and should not be added to this rate. For example, if your product sells for $110, the nett rate you would receive from a retail agent would be less 10 per cent, i.e. $99.

If it is through the wholesaler it would be less 20 per cent, i.e. $88 and if you are working with inbound tour operators it would be between 25 and 30 per cent i.e. $82.50 to $77.

The maximum you would pay is 30 per cent, as the wholesaler or ITO would pass on the travel agent’s or wholesaler’s share (i.e it is not 10 per cent + 20 per cent + 30 per cent).

Retail agents, wholesalers and ITOs provide a vital link in the distribution and sale of travel product. (Remember that ITOs are only involved with the international markets and do not get involved at the domestic level.)

In return for the promotion and sale of a product, the product managers negotiating on behalf of the travel trade require a commission.

It should also be noted that almost all wholesalers charge a participation fee for product to be loaded on their central reservation system (CRS) and to be included in their brochures. This now also applies to online booking sites/engines used by the travel trade. This fee varies between wholesalers.