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New Year, New You, New TMC Pricing Model?

Sharon Stanley is a travel industry consultant, who has worked in the industry for over 20 years in various senior management roles with organisations such as CWT, Amadeus IT and Helloworld Travel. Now, she is on a mission to help business travel agencies thrive. 

Sharon Stanley is a travel industry consultant, who has worked in the industry for over 20 years in various senior management roles with organisations such as CWT, Amadeus IT and Helloworld Travel. Now, she is on a mission to help business travel agencies thrive. 

“We’re all in the same boat,” was an often-quoted line in 2020, however I don’t agree. To paraphrase a British author, we’re all in the same storm but in very different boats.

In this storm, the travel industry is a fleet of sailing boats of varying size and design, currently watching other industries in powerboats, motor on ahead.

Travel agents were hit hard at the start of the storm, trying to batten down the hatches as the wind and waves hit, pounding each boat with a seemingly endless onslaught of mass cancellations, refunds and credits.

When the barrage of cancellations eventually died down and the wind dropped travel agents were left becalmed waiting for the smallest breeze to
move forward.

When this happens there’s a choice the captain can make, sit back, and wait for the wind to pick up and power them on their original direction, or take the time to pore over their maps and chart a better course.

I’ve been inspired by the many travel business owners who have taken this time to map a new course, using this pause from business as usual as an opportunity to reflect, review and work on, rather than in, their businesses.

TMC Pricing Model

One such business owner is Karsten Horne, CEO of Reho Travel who not only spent time researching a new travel management pricing model but was happy to share his findings with the wider industry.

Karsten’s research indicated that most travel management companies weren’t charging a fee for the services their clients valued the most. The research also indicated a willingness from clients to explore alternative fee models.

Karsten suggests travel management companies would do well to split their service offerings into two streams: Travel Management and Booking Services and charge separately for both.

Karsten goes on to propose a simple retainer or subscription fee model for travel management services, noting it’s a model that is already gaining traction with global travel management companies.

So, if you’re interested in pursuing this model for your business, how do you go about it?

The key is knowing what you have to offer and understanding your costs.

Following his research, Karsten and I got together regularly to discuss his ideas and how such a travel management subscription model could be implemented, what we came up with can be summarised as follows:

  1. Identify each of the services you offer today and categorise them into Travel Booking or Travel Management buckets. Add any services you plan to offer in the future and remove any that serve no value.
  2. Review the services in the Travel Management bucket, these are the services that will make up your subscription offerings. Determine how many subscription options you want to offer; for example, Basic, Standard and Premium, and decide the right balance of services that will appeal to the clients in each category. List which services will be
    offered in each tier.
  3. Cost each individual service. Work out the annual cost to deliver each service. Don’t forget technology costs related to a service. Remember you’re only looking at costs to deliver the travel management services.
  4. Calculate your account management effort. Calculate the number of hours your account managers (or others) expend to deliver each of these services.
  5. Once you have a clear picture of the cost to deliver each service you can calculate the cost of service in each of your subscriptions tiers.
  6. Estimate how many clients you will be able to sign up to each tier. Allocate the costs to service accordingly.
  7. Once you have these figures you can determine your price by factoring in your margin, willingness to pay and return on investment for clients. Note, initially you may not cover all your costs, but remember currently if you’re not charging a fee for these services, you’re not recovering any of the costs.

This is a process that many businesses will work on regularly to refine and redefine the offering.

To make the process of costing and pricing easier for my clients, I created a Retainer Costing and Pricing Model which I’d be happy to discuss with any business travel agency that’s interested in knowing more.

When the winds of change finally blow our way, and they will, I hope you will be ready to hoist the sails, find the long tack and set off on an exciting new course.

Click here to contact Sharon and find out more.