Transcription of Speech, "Turning Non-ARC Revenue into a Profit Center"
made by Gordon Barclay, Automated Travel Solutions, Inc.
at the Travel Weekly '95 Conference May 11, 1995
Chicago Hilton, Chicago, Illinois
Note: Any readers of this transcription who wish to get a copy of the handouts for this speech, as well as information on The Right Track, please e-mail your request to DBarc36900@AOL.COM or 70754.2313@Compuserve.COM. Please include snail-mail address, agency name, approximate sales volume and back-office system (the latter two pieces of information will determine which sales material you receive.)
Good morning, and welcome to our breakout session entitled, "Turning Non-Arc Revenue into a Profit Center." I'd like to introduce myself...my name is Gordon Barclay, president of a company named Automated Travel Solutions in New York. Now I want you to keep in mind, that's Automated Travel SOLUTIONS, not Automated Travel Systems, not Third Party Solutions, not Travel Automation Solutions or any of the other alphabet soup of travel automation companies that have any of the terms Automated, Travel or Solutions in their title. What my company does is sell third party software to the travel industry and our best-selling program is called The Right Track, the best-known third-party hotel and car commission tracking software available today. That, coupled with my industry background....which, despite my youthful appearance, and I can assure you that I'm not here playing hooky from high school!...I've actually been working with agency automation since 1977...I think gives me a unique perspective in giving a seminar such as this.
The question is...Why now? Why is now the time to start turning non-ARC revenues into a profit center? Does the date February 9, 1995 ring a bell? I'm willing to bet that a few of you might recall that date..it's been called anything from Black Thursday to a Day that Will Live in Infamy..and of course, that's the day that the airlines imposed their commission caps. And what I saw that as, more than anything else, was a message to travel agents...and that message is, You've Got to Become Better Business People. You have to overcome what I call the ARC Tunnelvision, meaning for years and years, all your sales efforts were directed at the ARC profits and what you could earn from air tickets. The airlines are telling you now, "Look, don't rely on us for all of your profits. Look for other sources. Look for as many profit potentials as you can, don't put all your eggs in one basket."
Interesting thing...in early March, as soon as the caps took effect, one of the trade papers surveyed their readers on how they planned to offset the effects of the commission caps. They actually offered agents four choices of ways to recoup their profits:
Impose Service Charges
Change your Business Mix to Include More Cruises and Tours
Cut Pay, Lay off Staff, and
Fold Up the Tent and Go Home, which I don't consider a very proactive approach
The thing that really amazed me was the fact that they overlooked the most obvious solution in my mind and that is to increase your hotel and car business and then make sure you go after every single commission that you are due!
I believe that agents who ignore hotel and car are missing a major profit opportunity. As a third-party developer, it's incredible to me that non-ARC is secondary. And I'm not just talking about corporate agents begging off on selling tours and cruises, or not taking advantage of consortium (override) deals. What I'm talking about here is everyday commission you could earn just by adding a hotel and a car to your airline bookings.
What I want to be able to do in this seminar and the objectives herein, first--explain why hotel and car is such an important and integral part of your business mix and exactly how much is at stake in actual numeric terms; 2. I want to show you how to analyze your hotel and car data to be able to act on it and make intelligent business decisions to increase your profit potential and profitability; 3. We will quickly go over the various methods available to track commissions and of course, analyze your data and 4. finally, I'll throw it open for a general Q&A session at the end.
What I want to do first is a little warm-up exercise. Let's dispel some of the major myths that surround "Hotel and Car." And the first one is:
Hotel and Car Commissions are Not Significant Enough to Affect an Agency's Bottom Line.
I get a lot of people who, during sales calls, tell me, "Yeah, it's nice, but $7 here, $8 there isn't going to do me much good!" Well the answer to that is: FALSE! Absolutely untrue. And the reason for that is on a typical domestic corporate transaction, hotel and car may only account for 39% of the gross revenue, but it actually represents 56% of the profit! To put that another way, if you add hotel and car to your bookings, you stand to increase your overall profit by 129%. Which is a pretty interesting statistic. What I'd like to do here is show you how we've actually graphed that out--the cost of an average domestic corporate air transaction is $511, according to Topaz Enterprises. So figure that at 10%, the commission would have been $51.10, but with commission caps, the average commission would be $50. Now, the average cost to issue an airline ticket (taking into account the cost of rent, salaries, the whole nine yards) is around $25, according to most industry experts. So by just selling an airline ticket, you're looking to spend $25 to make an additional $25. But, let's just add a hotel and car into the mix here and see what happens. By adding a hotel (we figure that average nightly room rate is $84, we multiply that by the average length of stay of three nights at an average commission of 10%), we earn $25.20 additional commission. If we add a (figure a $48 average daily cost, multiplied by three days, multiplied by 5% commission) we come out with $7.20. So if we add the hotel and car commissions together, you find an extra 129% additional commission, over and above air commissions, without any significant major increase in expenses. Most of the expenses you are going to incur are for issuing the ticket. Once you have them (the client) on the phone and you're in front of your computer, booking the hotel and car really isn't going to be that much more (effort).
Now I consider this the McDonalds' Philosophy of Profit. The real profit McDonald's earns when you order a cheeseburger, Big Mac, or whatever --does not come from the main course--it comes from the fries. No matter what you order there, they are going to ask you, "Would you like fries with that?" Now the fries are basically pure profit for them because it costs McDonald's very little to produce them. Now I look at hotel and car the same way you would look at fries...(of course, they don't taste as good!)...but you're looking at minimum expense and maximum profits. I really thing that's the main thing to hone in on for hotel and car.
Let's move on to our next myth:
We're Booking All We Can. There's No Room for Growth
And again, we hear that quite often. I'm going to give you an incredible statistic right now, which when I first heard it, absolutely startled me. And that is, according to the American Hotel and Motel Association, in their 1994 Survey of Lodging Services and Facilities, travel agents only account for 13% of all the hotels that are booked in the country. That is amazing--meaning that 87% of the people out there are booking hotels on their own. No commission can come to the agency. It looks to me like there's a whole heck of a lot of room for growth. I will say that some of the industry experts will dispute that figure...they think it's a little low...but even the experts say that 30% is about the maximum they can expect
agents to account for. So you have between 70% and 87% of the market available to you to increase and expand your hotel business. Even with rental cars, 40%-70% of bookings are attributed to travel agencies. Which sounds to me like there's an amazing amount of room for growth. Agents who give me this myth, who tell me there's no room for growth...these are people who basically don't want to be bothered and they're looking for any kind of excuse not to have to deal with increasing hotels and cars. And I'm here to tell you, in this business climate, you can't afford to do that. You really need to try to expand and book as many hotels and cars as possible.
Here is Myth #3 and this, I have to admit, is my personal favorite:
Why Should We Track? Our Agency is Collecting Almost all of its Commissions Without Tracking!
Now I tell you, if I had a dime for every agency I visited on a sales call or on the phone who told me that they don't track but they're getting 90%, I wouldn't have to be here doing this seminar. I could have videoed it in from my retirement house in Tahiti! The answer to that is a staggering NO WAY! There is absolutely no way that that is true. If you're not tracking your commissions and keeping on top of them, you're losing a whole lot more than 10%. The reasons for this are actually three-fold and we're going to break this down and explore each one. The first is Hotel Accounting Problems, then Low Expectations in terms of billing on behalf of agents, and finally, the Agent Error and Inaccurate Data that will come down into the back-office system.
First: Hotel Accounting Problems. It's very interesting...I was talking to an independent franchise owner of a few Comfort and Quality Inns last month about various things and for the sake of argument, here we will refer to him as Mr. X, although for a nominal fee, I might be able to divulge his real identity <g>...We were talking and he asked me what I did and I told him that I sold commission tracking software and he said, "Wow, that's really great because we only pay commissions on about 20% of the bookings we get from agents." And I was amazed at that, well, not that amazed, but a little bit...and I said, "How do you come to that figure?" And what he told to me was very interesting. He said, "Like many hotels, we have no system in place to keep track of agent bookings that come in from the CRS'. So, as a result, we only mail out commissions to agents sophisticated enough to send us invoices. Which ends up being about 20% of the agencies."
Now I would figure that a lot of agents would get upset about this, figuring that look, this is their (the hoteliers') business, they should really be able to keep track of this. But to tell you the truth, it's really a pretty typical mindset if you think about it. I'll give you an example that will probably hit home. How many people here subscribe to cable television? Just about all of you. Now the cable company will bill you every month for your cable, and obviously, being good, honest citizens, you're going to pay that bill every month. And the cycle will continue. But what if, one month, they don't send you a bill? Are you going to send them a check without any sort of bill for it? I certainly wouldn't and I pay all my bills! What I am basically saying is, people react to invoices. People aren't going to fork over money unless they see that they owe it. All of you are probably that way; certainly the hotel and car firms are the same way as well. So I don't know if you can really expect to get all your commissions without sending invoices.
The next reason you're not collecting as much as you think you are is because of the low expectations you might have, in terms of billing. Now, real world statistics are not 10% for hotels, 5% for cars...that's just not true, especially now that the airline commission caps are in place and all the hotel and car firms are looking to take advantage of their position in the industry. Now, we've compiled a nice little list just showing some of the commission deals that are 12%, 15%, 20% and even 30%. Now keep in mind--these aren't negotiated consortium deals (a lot of agencies might think that only the mega-agencies would have the ability to get these kind of deals)--these are deals that every single person in this room could benefit from. But, since you're not billing them (the vendors) for that (extra commission), you're probably not going to receive it. Now we can take my cable TV analogy one step further. Let's say the cable company does bill you for your cable usage. However, you get a note from the cable company informing you that they have increased their charges by 10%--so you know exactly what you're going to owe them for the next few months. Yet, when the cable company sends you the bill, they're still billing you for the old amount. Are you going to pay the old amount or are you going to pay the new (higher) amount? Chances are, you're going to pay the amount that's on the bill. Now the hotel and car companies are going to figure that if agencies are sophisticated enough to send invoices, they're smart enough to know what they are invoicing for. If you're billing for 10%, even though they might be offering a 15% deal, there's a pretty good chance they are going to send 10% back to you.
Finally, we go to the topic of Inaccurate Data and Agent Expectations. The fact is, there's a lot of agent errors and there's a lot of problems with the data coming through into the agents' back-office system. Now, when people tell me that they are getting 90% of commissions without tracking, I explain the following:
Figure that if you were actually 90% , you would be receiving 90 cents out of every dollar you believed that you were owed. Now, based on my experience, 15% of all the bookings entered into the system are entered incorrectly, resulting in errors such as zero rates (now if you have a zero rate, obviously the amount of money you are expecting is going to be less than what you are actually due.) And if you take into account that another 5% of the bookings reported in the accounting system are billing for 10% when you may be owed 12% or 15%, that also adds to the mix. So if you add 15% and 5%, instead of collecting 90 cents out of every $1, you are actually receiving 90 cents but out of every $1.20 you are due. This equates to your receiving only 75% of your receivables.
Let's go for the rest of it....about 25% (actually, this figure is low, I estimate it at 15%-40%, but for here, we'll be conservative and say 25%) of all bookings aren't even entered into the CRS. Of course, there's nobody in here that would be guilty of that <G>, but there are an awful lot of agencies out there that employ old-time agents who are used to making bookings over the phone before the advent of technology, and have never abandoned that mindset, so they still make bookings over the phone, and never enter these bookings into the CRS. Now that's a big problem because not only are you not looking for that money (it's not there to bill and it's not there to be posted against or appear on reports), but you are probably receiving commissions for some of these bookings, and they are being posted against receivables that are appearing in your system. This means that you are really getting an unclear picture of your receivables. So if you take this 25% figure as an average, now 90 cents out of every $1.20 becomes 90 cents received out of every $1.45 owed to you. This adds up to 62% of commissions received. What that means is, if you don't track, most likely you are losing at least 38% of your non-ARC commissions.
Now 38% is a pretty interesting figure, especially if you look at our next chart, where we quantify what an agency stands to lose by not tracking this 38%. Now on this column, we show typical agency sizes between $1 million and $200 million, figuring they generate an industry average of 17% of revenue attributed to hotel and car bookings. If a $1 million agency loses 38%, they are losing a little more than $6,000; a $15 million agency loses close to $100,000; and at the bottom, a $200 million agency is losing almost $1.3 million--just by not tracking. Now, to translate these figures into what they would equal as airline ticket commission yielding $50 apiece, a $1 million agency would have to issue 129 more domestic transactions to make up the difference; $15 million agency would have to generate 2000 more tickets each year; and a $200 million would have to produce almost 26,000 more tickets. Pretty telling stat.
The question is, how can agencies recoup this 38% or more of their potential hotel and car commissions? Now I believe that turning non-ARC revenue into a profit center is more than collecting what you're owed. We have a little equation here that pretty much sums up what I believe about collecting maximum non-ARC revenues. You must:
Obtain Accurate Hotel and Car Booking Data
+ Analyze that Data to Increase your Overall Productivity
What we are going to do now is go over each of these items that will lead you to revenue increases of up to 300%. First thing, I can't emphasize enough the importance of cleaning up your back-office data. If your back-office data is flawed, then any kind of bills, any kind of reports, any kind of analysis, is meaningless, because it is not based on your real live data. Now we have a few tips on how to clean up your data.
All Hotel and Car Bookings must be entered into the CRS. You've got to get your people to enter all bookings; otherwise all tracking efforts are a waste of time.
All Hotel and Car Formats have to be entered accurately, so as to eliminate errors such as zero rates, weekly rates that show as daily rates that skew your data, the foreign currency amounts that appear incorrectly, either as USD or with a misplaced decimal, such as an agent who enters in a rate as 250UKL, forgets the decimal sign and two zeros after the amount and it comes down as 2.50UKL--and this is the bill that gets mailed out.
All Hotel Addresses must be entered correctly to avoid property dupes, meaning that you might have 50 booking records, all with slightly different addresses, for the same hotel. If you try to run hotel profit analysis reports, in order to see how much business you're doing with one particular hotel, this incorrect data is going to prevent you from coming up with anything worthwhile. You need to consolidate information and weed out your duplicates.
Accurate Commission Amounts must be tracked. You can't rely on a default of 10% for hotels and 5% for cars. So you have to make sure the amount you are owed, the amount you deserve, is reflected in your reports and on your invoices.
Commissions for Special Services must be tracked--This is something that is often overlooked. Basically, there is very little functionality in the front office (computers) or back office (computers) to track this, but these are all commissionable. Say, car mileage and drop-off charges, commissionable to you--if you bill them for it, I'm sure they'll pay you for it. Costs for meal plans, rollaway beds...you really have to be watchdogs to be able to keep a careful eye on all the money that you're able to earn.
Records must contain all pertinent booking data. A record of the booking agent, the booking branch, of the client or customer--if you don't have that information, how can you create any sort of accurate analysis reports? For example, Branch Analysis or Customer Analysis Reports will be incorrect if you don't have the information there.
Next, and probably what you'll be most interested in hearing, are some ways you can analyze your data in order to make intelligent business decisions regarding your hotel and car booking trends, decisions that consultants feel will help you bring up your yield and your profitability tremendously.
Let's go over these one by one.
Comparing Number of Bookings/Room Nights Against Commission Receipts to Decide How to Redirect Business for Maximum Profit. What this basically means is shifting business from a non-profitable vendor to a profitable one. An example would be: say you want to examine how many hotel bookings your agency, as a whole, is generating in Chicago. Now let's say your number one hotel in Chicago is the ABC Hotel, and you're giving them $10,000 worth of business, but you see that they've only paid you 25% of what you are owed. Underneath that listing, you see that you're giving their competitor, the XYZ Hotel, $5,000 worth of business and they're paying you all you are due. You can look at those figures and make an intelligent business decision to attempt to move as many bookings as possible to the hotel that pays and away from the hotel that doesn't. In this way, you'll reduce your receivables and turn hotel bookings into more of a profit center.
Comparing Room Nights between Agents, Branches and Clients, and thus Detecting where Re-education Efforts May Be Necessary. Now this is very important--say you run a report showing which agents are booking a great number of hotels and cars versus those who are booking just a few. What this might point out are the weak links in your sales team. The agents who are booking very few might benefit by being retaught how to book a hotel or car in the CRS. They might have a lot of problems with that. Having this data at your fingertips will allow you to go to those agents, re-educate them--send them for training or train them in-house, and thus boost productivity. You can say the same thing for your clients. They might not realize that you are a full-service agency...you can host seminars telling them how you can book their hotels and cars for them. There are a tremendous amount of customers that book hotels on their own--as evidenced by that AH&MA statistic we covered earlier. These rates are not necessarily be commissionable to them, but would be to the agency!
Next, Studying Agent and Client Bookings to Determine where Preferred Supplier Relationships or Corporate Travel Policies have been Overlooked. This is self-explanatory, but why have these in place if you don't take advantage of them? Having this data,analyzing it, and taking better advantage of your agreements, will allow you to maximize your profitability.
Using Data as a Baseline to Institute and Monitor Incentive Contests between Agents, Branches and Clients. This is a major competitive advantage. Let's say you go to your agents and institute an incentive program which pays them $1 per every hotel or car booking in excess of 100 bookings per month. You know that your agents are gong to be very quick to ask clients, "Would you like a hotel in that city? Would you like two hotels in that city?" They are really going to want to book for you because they are going to feel the result of those bookings in their pocketbook. Again, allowing the agents, the branches and even the clients to try to work for you as an agency owner, will increase the yield of hotels and cars, and again you need to have that data to analyze and police these programs.
Studying Numbers of Non-Commissionable Bookings and Cancellation Patterns in Order to Determine Which Clients Should Pay Service Charges on Non-ARC Bookings. This is important, especially now, because with the commission caps, you might not be in the position to be doing a lot of net rate, non-commissionable bookings for your clients without imposing a service charge. This data will allow you to study these kinds of trends and then go to your clients and say, "Look, it's costing us more to handle your bookings than we make. We'll handle these types of bookings for you, but we'll have to charge you a certain service fee to be able to do it."
Offering to Share Your Hotel and Car Revenue with Your Corporate Clients as a Competitive Advantage. First, this will make your clients more diligent about directing all their non-ARC revenue through your agency because obviously, they will be able to get money back. Also, if you can provide them data as to which hotels are paying commissions and which aren't, they will be quicker to institute policies of booking those hotels which do pay. In such a case, an agency will likely recoup the monies spent in shared commissions, thanks to this increased volume and profitability.
Being Able to Study your Clients' Booking Patterns and Then Negotiate on Their Behalf for Better Rates Based on Consolidation of Bookings. Maybe, for one of your top clients, you study what hotels they're booking in Chicago...perhaps they're spreading their bookings out over twenty hotels...you could approach each of these hotels individually and ask, "What could you do for my client if that client is able to steer more business in your direction?" This is the kind of pro-active travel management type of service that would justify any service charges you might have imposed on your clients.
We will now discuss how to select the best tracking method for your agency. There are really about five main methods of tracking that are used in the industry today; we're going to go over three of them: Tracking through your Back-Office System; Tracking though a Tracking Service; and of course, Using Third-Party Software. The other two methods would be: Tracking Manually, and of course, my least favorite method: Not Tracking at All. I'm not going to cover these, not only because I don't think these methods are not cost-effective, but also because I consider them a waste of time.
When choosing your particular method of hotel and car tracking, you want to make sure it's the most cost-effective method for your agency and it's what you feel will garner the best results.
I estimate through my own personal experiences with my clients, tracking with one of these systems over not tracking at all will help you gain at least 25% more. So if you use that as a measuring stick, you can make a fairly good estimate of what you stand to gain (more on figuring this out later.)
Obviously, you want to consider the costs and the potential gains of the three major types of as well as something I consider very important but is often overlooked: Go to your vendors, especially the ones you have good relationships with, and ask them what they'd prefer. Get a little insight from the hotels companies and from the car companies about what they'd prefer. Because really, you have (hopefully) a good relationship between yourself and the hotel or car chain, and it's very important to retain that type of relationship. If they have any ideas of what kind of invoices they like to see, what will help them to pay quicker, it's to your benefit to act on that kind of information. They obviously want your business; you obviously want to see them pay you faster and more accurately.
Before I go on, I want to emphasize, more than anything else in this seminar, it's important for you to understand that ALL of the methods we are going to go into REQUIRE WORK. They require ADMINISTRATION, they require a COMMITMENT to manpower and monetary outlay. You cannot just institute a program and have it operate like a 'black box,' figuring "I'm going to start tracking commissions, I'm going to pay $5,000 for some software and magically, I'm going to see the checks start coming in." Unless you really dedicate time and manpower, there's no way you're going to see any kind of results. That's what I tell all my clients--Administration, Administration, Administration.
I love this next chart because I'm willing to bet that not one of you thought this would be an algebra lesson. And I'll say this...if we can get through this, I'll show you a little about the quadratic equation after lunch!
Actually, I'm just kidding--it looks intimidating, but these are actually a fairly simple set of formulas that are going to show you what commissions your agency is probably generating now, how much you are probably losing, and how much more you stand to gain with an average of 25% .
First, take your agency's total sales, multiply it by 17% (the average percentage of hotel and car) and then multiply it by 10% (the average commission), and you'll determine (X), the amount of hotel and car revenue you are earning, if, of course, your agency is average.
Next, if you multiply (X) by 62%, that is probably what you are collecting, and conversely, multiplying (X) by 38% will show you what your agency is probably losing.
Finally, if you take (X) and multiply it by 25%, you'll discover your Estimated Incremental Profit--the amount that you will probably take in by instituting a tracking program.
Let's go over the Pros and Cons quickly of the three methods:
First, there's Back Office Accounting Software. Now, of course, most of the major back-office systems will have a tracking module available, and will not track extra for that module, so this is, of course, the easiest way of starting out.
The Pros: First, it's already in place, there's absolutely no need to buy any additional hardware or software. Second, no duplication of data will be necessary; you won't have to get data in a different format or rekey it in. And third, there's no ongoing fees involved. Aside from manpower and mailing costs, whatever commissions you get are yours to keep.
Let's go over to the Cons: We have found from our clients, and I imagine that most people who have tracked through their back-office might agree, it's not a cost-effective solution. Due to the amount of data in the whole back-office system, and the language and machinery in which it's programmed, it becomes very, very slow to operate. What I mean by that is, if you have 300 checks you have to post and it takes two minutes to post each one, most likely it's going to take you more time in effort and work to track than you will be collecting in the first place. Next, the data is inaccurate, as we've stated before. There's an inability to store multiple commission deals, such as overrides or promotions, which results in inaccurate and therefore meaningless customer data. Also, most systems lack artificial intelligence and quality control to be able to clean these errors up BEFORE doing your billing, so what you might have to do is print out reports of all your hotel bookings and pinpoint the errors, which is not only extremely laborious but many times you'll miss things that need correction because you can't see everything. Finally, from what we have seen, all the systems lack one or more of the following money- and time-saving features, which are extremely important in doing your commission tracking:
Centralized Billing (being able to send a bill to the head office of a hotel chain instead of sending individual bills to each individual property)
Being able to Partially Post (that way, if there's a dispute, you can rebill for the remaining amount)
Billing in Foreign Currency (which is important because when you're sending bills overseas, it often helps the foreign properties to pay faster)
Instantaneous Data Retrieval
The Ability to Easily and Accurately Track Net Commissions Earned by Agents and by Clients, should you wish to share revenues
Electronic Reconciliation of Posting Data (which I consider to be the most important.) Some chains will give you your posting information on diskette, along with your check. Posting electronically is using software that can take that data off the disk, without having to rekey the data, and then having that software match up the payments against the open bookings. This is an extreme time-saving feature!
Next, we move onto Tracking Services. There are really two types of tracking services and what they will do is allow you to outsource the tracking function. You would provide data to them, either on diskettes or tapes. The service has their own employees who will actually go through the posting and the billing and the reporting, and they will possibly provide you with management reports, either free of charge or at cost, depending on the service. Some services want you to photocopy and mail them all the checks you receive and they will keep track of them and at the end will keep a certain percentage of what they recoup. Some other tracking services would have you send them all your checks and what they will do is maintain an account for you. They will deposit the checks there for you and deduct whatever service fee they are charging you, leaving the balance there for you.
Let's go into the Pros here: First of all, there's no need to hire any additional new staff. By being able to outsource the function, you don't have to staff it in-house. Next, there's no or minimal upfront cost involved in the collection efforts themselves. Of course there are some services that may charge you upfront for management services, but most likely these costs are minimal. There's also no risk involved because if they are unsuccessful in collecting, they are not going to charge you for what they've done. They get money if you get money; if they don't collect money, you don't have to pay them. Finally, and this is what I most like to emphasize, I think these services are very good as a SUPPLEMENT to in-house tracking efforts. I personally have clients who do this. They track in-house through our system for six to nine months, they'll continually send bills to the hotel and car vendors. After that, they'll take the rest of the data and send it to the tracking services saying, "Look, we've beaten this to death. If you can get the money out of these people, great, keep your 50%! That's 50% more than I am expecting to collect at this point!" And that's a service that the tracking services can provide for you.
The Cons? First of all, service charges amount to up to 50% of the commissions collected. They charge a premium for that service, whereas if you perhaps did the same function in-house, it would cost you less money. Secondly, the services base their invoices and reporting the information from your back-office systems--so if you just create a diskette and send it to them, without cleaning up the data, the reports and invoices that they are going to send out are just as inaccurate as the ones you might have sent out yourself. True, some of the tracking services have the ability to clean up some of the data, but they don't have access to your agency's individual PNRs. They aren't going to know how to accurately change a zero rate booking, or what have you. So even with tracking services, you must make a commitment to cleaning up that data to ensure maximum effectiveness. Next, if a service is used only for commission collection, then that is not really a pro-active approach to change overall booking strategies to increase sales. Meaning that if you feel you're just going to throw the commission collecting over to a service and not worry about it, there's still a lot of money you would be missing in terms of increasing your yield and increasing your profitability. And last, some services are limited to tracking only hotel bookings; they cannot adapt to tracking cars, cruises and tours. It's a matter of checking with them. And finally, there's one bit of information that's not in your handouts and it's a reason that many of our clients came to us instead of opting to use a tracking service, and that is really a control issue. A lot of people didn't want to lose control of their financials; they wanted to keep an eye on everything that was going on. It's a major issue in terms of the mindset of the agency--whether they want to keep control over everything or they just say, "Okay, you do it."
Last, but not least, we come to Third Party Tracking Software. Now this category encompasses not only our Right Track software, but any tracking programs that are on the market, or even proprietary systems that agencies have developed in-house. For the sake of this seminar, since I am most familiar with OUR software, I'll be using The Right Track on which to base my Pros and Cons.
The Pros: Third-party software is feature-rich; it's specifically targeted to increase non-ARC commission retrieval. A lot of the back-office tracking systems, although they do have tracking modules, are not comprised of executives who wake up late at night, sweating over how you are going to collect your non-ARC commissions. Third-party software, however, is specifically geared to that goal; the developers have tunnelvision in terms of helping you maximize your hotel and car profits. Second, as we said before, it's cost-effective. It's easy to use, there's instantaneous retrieval, so you can post your checks out immediately. There are electronic reconciliation capabilities, such as with different hotel chains--in our case, with HCC and Marriott--which will save users quite a bit of time. And obviously, that time-savings helps give you a higher return than any of the other methods available. Next, it's flexible: you can track, not only for hotel and car, but also for cruises and tours. The invoices and reports can be sorted in any way possible to suit users. And next, it's not just for tracking and invoicing; these reports can be used for some of the analysis we mentioned earlier to increase non-ARC productivity. Finally, our system offers quite a lot of built-in artificial intelligence that corrects a lot of the errors from the back-office system, not only duplicate hotels, duplicate cars, what have you, but will sift errors like zero rates onto an error log for easy, pre-invoicing correction. That way, a lot of the tedium involved in error correction is solved by the third-party software.
Now the Cons--now obviously, I don't want to admit that my software has any cons, but for the sake of fairness <g>: There is an initial cash layout required for the software (as well as the hardware, if it's not already in place) in order to get involved in a system such as ours. Agents must be prepared to make a commitment in terms of time and resources in order to assure effectiveness. If don't put anything into the effort, chances are that all your initial cash outlay will be down the drain. Next. there is some risk involved; your initial cash outlay is non-refundable if commissions are not recouped. And finally, electronic reconciliation is limited only to those vendors who can provide their commission payment data on diskette; however, we feel that the number of vendors providing this data will increase, based on pressure by agents.
Finally, we put together this little chart which indicates the profit potential of implementing third-party software in your agency. Of course, we have different volume gradients here...and we do figure that the software will help you recoup an average of 25% additional commission. We've also included estimated costs of postage and manpower; the manpower estimate is based on one man-hour per week for each one million dollars of total ARC annual revenue, based on an annual salary of $17,500. So, as you can see, manpower costs increase based on the volume of the agency. The annual mailing costs are based on the experiences of our current users. Of course, these figures are exclusive of any hardware or software costs, as these can vary depending on the company you purchase them from, or if you produce the software in-house. As we can see, a $1 million agency should earn at least $3,400 per year, but if they bought our software at $5,000, they would start realizing this savings on their third year of ownership. (No savings during year one; $1,600 earned during year two). Every subsequent year, they would be earning $3,400. You can see incrementally the money that can be made here; if we look at a $200 million agency, they can stand to make nearly three-quarters of a million dollars, and that's per year. So those kind of figures, especially now, are extremely important.
Finally, to wrap up, I just wanted to include a little dialogue on future directions for the whole area of non-ARC tracking. We've found that some agencies have discovered some unconventional uses for hotel and car commissions.
First of all, we've found customers of ours who use their ownership of The Right Track as a benefit for recruiting personnel, since the agents can be assured of collecting the maximum hotel and car commissions. They put ads in the paper saying, "We have systems in place that can maximize your profits, so you should definitely come with us!"
I've also spoken to quite a few agents lately who have switched to working on a completely net basis with their clients (they're rebating all commissions back to their clients and are charging management fees, based on every single booking.) So, in that situation, you know you're going to need the most sophisticated system possible to be able to keep track of your hotel and car bookings so you can see what to charge your clients.
Next, we've found that some of our clients like to equip THEIR clients with the means to track on their own. They will purchase the system, give it to clients who have a lot of net, non-commissionable bookings or who receive 100% of their commissions. If the agency feels that this is going to be a burden for them to track, they'll say, "Here. We'll give you the data to track. You track on your own. That way, we don't lose money and you'll be able to create your own reports and do your own negotiations."
Another very interesting thing...one of our clients have actually made the tracking function the responsibility of some off-premises personnel, such as workers on maternity leave. Programs can be run off-site; all you have to do is prepare the data and send it to them. That way you can keep employees on-board who you might have lost otherwise due to family commitments.
In the future, you'll probably see more direct electronic payment--we've seen this already with the Hotel Clearing Corporation--they can actually wire you your commissions rather than mailing you a check.
Next, of course, is electronic reconciliation, and as I've said before, I feel that more and more hotel and car vendors are going to make their commission data available electronically. Eventually, most of your posting will be done for you--eliminating most of the day-to-day grunt work involved in tracking, as long as you have the software in place that will allow you to do it.
Finally, this might be a little self-serving, but it is important to me: I want to see tracking become the norm of agencies of ALL sizes and software such as mine become accessible and affordable via distribution networks. Now, personally, my software is geared toward the mid-sized and larger agencies, but I feel now, especially with the commission caps, it's important for every single agency out there to be able to have access to this technology so they can increase their profits and hopefully stay in business. What I have tried to do, and I've had some successful talks with the res systems and some other bodies, is to be able to distribute my software through the networks at an affordable monthly fee, scaled by the agency's size, so that everyone can get involved in it. And I really feel a commitment in doing that for the future.
Questions can be posted to DBarc36900@AOL.COM or 70754.2313@Compuserve.COM or can be called in to Automated Travel Solutions at 212-838-4559.
