The role of procurement departments has certainly shifted over the last few years. Value, levels of service and duty of care have all become significant considerations when taking on a new supplier. However, there is one aspect of the procurement process that has stood the test of time and underpins everything that a procurement departments work towards…
Correctly assessing fees is always a top priority for organisations who are looking take on a new travel management company (TMC). Key stakeholders are eager to find out how a TMC will be remunerated for their services and the impact that has on an their organisation’s travel spend.
How can you benchmark travel management companies?
Understanding transaction fees and how they relate to your overall spend is a crucial element when selecting a TMC, but the topic itself can feel like somewhat of a minefield. Although a simple benchmarking exercise might feel like the most straightforward way to do things, benchmarking can’t be relied upon to provide accurate results when it comes to TMCs, as prices within the business travel industry are always subject to change. This means that the prices used in a benchmarking exercise are not necessarily the prices that you’ll receive once you’ve contracted your new supplier.
So, to make things smooth and simple, here’s a short guide to accurately assessing the fees put forward by TMCs to decide which are best for your organisation:
#1 Preparation is key
Equipping yourself with as much industry knowledge as possible is the best way to get the procurement process off to a good start. Reading business travel industry press publications and researching relevant customer case studies whilst keeping your business travel goals in mind will help. It will also give you an insight into the kind of results that have been achieved for customers in the past – these results can have a significant impact on the fees that you will pay.
For example, if you’re keen to drive online bookings then, by doing research, you should be able to find a realistic online adoption rate expectation. The volume of online bookings your organisation makes will have a direct impact on the fees you pay, as online bookings are usually charged at a much lower rate than offline bookings.
#2 Don’t focus exclusively on offline fees
In recent years there has been a real drive within the business travel industry to increase the amount of bookings made online. With transaction fees for online bookings being typically lower, this has been a great result for travel buyers.
However, the same kind of fees should not apply to offline bookings. When it comes to offline assistance, it really is a case of you get what you pay for. If you’re looking for a high level of service then don’t be lured in by low offline fees – treat them with caution and look into customer case studies if you can.
#3 Don’t forget your business travel objectives
It’s worth considering whether a TMC’s fees line up with your organisation’s business travel goals. If you’re hoping to maximise your online adoption and choose a business travel agent that can genuinely help you achieve your goals, then online fees need to be your biggest consideration. You will, of course, want and need to utilise your TMC’s offline services. But this will not be where your main activity lies and should account for a very small proportion of your total fees.
Use existing management information to work out the likely split between online and offline transactions for your organisation. Combine this with average rates achieved by your prospective choices to calculate a rough estimate to benchmark travel management companies.
#4 Don’t see all TMCs as being the same
Organisations often apply an assumed online booking percentage to all prospective TMCs’ fees to assess what the total cost of travel would have been for the previous year. Whilst it may be tempting to think that this analysis will provide you with a list of suppliers that ranges from most cost-effective to least cost-effective, that is often very far from the reality.
Under these benchmarking conditions, all things aren’t equal. TMCs do not all have access to the same fares and so will not deliver the same online/offline booking ratios. If you really want to know what it would cost to work with each TMC you need to tailor your analysis based on your research and their figures.
Once you’ve done your calculations, based on a tailored online adoption per TMC, you can then work out what percentage of your total travel spend the transaction fees would equate to. The industry average sits at around 5%, so if your preferred TMC comes in less than this, with excellent customer service and a great all-encompassing solution as well, then from a cost perspective they are very much worth considering.
So there you have it! We hope that’s helped you work out how to benchmark travel management companies.
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