Procuring the right travel management company (TMC) for your organisation is a big ask. If you’re the person who’s trusted to deliver this, then you’re probably already aware of how challenging it can be and in need of a guide to travel management fees. Everyone in the business has their own opinion and agenda, and it’s your job to try and find the best fit!
One thing that many of your stakeholders will be concerned with is the commercial model of your prospective corporate travel management provider. It’s essential to know the pros and cons of each fee structure so that you can find a model that best works for your organisation, as although each model serves the same ultimate purpose, they do work in fundamentally different ways.
But first you need to get to grips with the three most common commercial models found within the travel management industry. Here’s our quick guide to travel management fees to get you up to speed:
1. Pure Transaction Fees
This model sees a TMC charge a transaction fee for each applicable transaction – these transactions typically consist of bookings, amendments and cancellations. The TMC retains all supplier commissions, which in theory enables them to keep their transaction fees low.
When it comes to comparing TMCs on fees, pure transaction fees make things fairly transparent. It allows clients to analyse transaction fees offered by different TMCs and core travel costs by comparing prices offered on their self booking tools, without the results being artificially skewed by the promise of returned commissions.
However, it’s worth bearing in mind that as different suppliers offer different levels of commission, the TMC may apply a bias in its own favour. A high rate of online adoption can mitigate against this, as travellers will have full choice via their online booking tool, allowing them to make their own informed decision.
2. Transaction Fees with Commission Rebate
Similar to a pure transaction fee model, a commission rebate sees a TMC apply a fee to each transaction; however the difference occurs in the fact that the TMC also returns all (or a large proportion of) all commissions and other revenue streams derived from the supply chain to the customer. This often results in slightly higher transaction fees in order to compensate for this lost income.
Following best practice, the transaction fees with a commission rebate method results in a client paying a fixed fee for what is seen as a fixed scope of work, with the idea being that the rebate received would help offset any costs. However, this method does mean that it’s impossible to compare prospective TMCs’ financials as commission received will vary from provider to provider.
3. Management Fees
Different from the previous two approaches, a management fees model sees a TMC assign a cost of labour to a fixed amount of work that the TMC believes will fulfil a client’s requirements. The cost of this labour is then charged to the client in the form of a management fee.
Management fee models are actually declining in popularity as more and more organisations shift to a transaction fee model, as this sees the client only paying when they actively use their TMC – the management fees model means that clients pay a set sum, regardless of how much they actually use the service.
More practical procurement advice…
So, that’s a whistle-stop tour of the three most common types of commercial models within the travel management industry. However, the course of true TMC love never did run smoothly and we appreciate that your organisation has its own nuances and specifications which is why our in-depth, comprehensive and complimentary guide to the ins and outs of the procurement process is the perfect next stop in your corporate travel procurement journey.
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