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Do you really understand the numbers of your business?

I started full-time employment in 2000, and after three years of dealing with various financial challenges, I became a keen observer on what makes people successful in business.

I started full-time employment in 2000, and after three years of dealing with various financial challenges, I became a keen observer on what makes people successful in business.

Here are some of the lessons I learnt:

  • You have to know your product/service
  • You need to know how to run a business delivering that product or service
  • You need to understand math

The “math” is not just “the cheapest way to get things done”. “Cheap” is normally “cheap” for a reason but not always the most economically viable pathway.

It’s no different when it comes to travel.

Here are five financial areas that Travel Agents must understand to run a successful business.

 

1. The concept of the override

travel agent

A true conversation with a Travel Agent:

“We do net rates and from what you have shown me when you break back your retail rate to a net rate, our price is 5 percent better.”

“Yes, but if we hit the sales target with our preferred we get a 2 percent override.”

“But if our price is 5 percent better, and you are getting a 2 percent override from XXX, it is in fact costing you 3 percent more.”

“Sorry Mark, maybe you didn’t listen. XXX gives us a 2 percent override…”

The lesson? Do the maths on the override.

 

2. Net rates versus commissionable rates

I have a comfortable saddle on this high horse and its called cash flow, a killer of many businesses.

With net rates you collect the money and pay the bill later. With commission, you make the booking, pay the bill, pay some other bills, and up to 3 months later, get your payment. Refund? Time to freak out.

The lesson? It’s not just a simple division to get back to net rates but understanding the cost of the cash flow.

 

3. Knowing the value of your time

travel agent

You may appreciate your time, but what is it worth?

Banks and consulting companies regularly work on multipliers of 3 or 3.5. So if your salary is $60,000 a year, round that up to $200,000, divide that by roughly 50 weeks, get $4000 a week which is about $100 an hour.

Pop quiz; is spending half an hour to save $12 a smart decision?

Spending a day once to save yourself $12 each time something happens, which happens several times every day, is a great financial decision.

The lesson? Know thyself.

 

4. Sucked in by the scheme

True conversation with a travel agent:

“We have recently been using xxx xxxx because they give us points for our transactions.”

“How many points?”

“500 bonus points”

“What is the dollar value of the points?”

“I don’t know. “

“So why use them?”

“Maybe you aren’t listening Mark, I got 500 bonus points.”

The lesson? Weigh the cost and the benefits of any scheme you sign up to.

 

5. The value of service

travel agent

True story about an agent we have in northern Australia. The first couple of times we met, we made polite small talk. He had a great rapport with our competitor’s rep and never booked with us.

That rep left, he came across to us and became a great client.

Two years later the bookings had dropped off. When I asked him about it, he explained he had started using a large online travel agency who, whilst he acknowledged competed with him, sometimes had better rates. The more he spent the higher the override.

Eventually there was a problem. The online retailer did not have a focus on service. You’re only as good as the service your wholesalers provide you. He lost a big client as he could not help them when the chips were down.

He came back to us and politely explained “most of the time your prices were comparable. But on occasions I will spend a little bit more, because I know if there’s a problem you will solve it; if I am not happy with your staff, you gave me your number.”

The lesson? Cheap is cheap. Service is invaluable. This is why suckers use WebJet.

Do you understand the numbers of your business?