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Travel agency business
Startup costs for a home travel agency
What’s It Gonna Cost Me?
Many beginners want to know what it will cost them to “get started” as a home-based travel agent. It’s a somewhat tricky question to answer, because everyone is different, with different goals and different needs. I like to say that the initial investment to getting started can range from pocket change to several thousand dollars. But no matter what business you’re in, keeping business start up costs to a minimum is vitally important. Let’s take a closer look.
It is actually possible to start for “free.” The quotation marks are there to indicate that even what’s free can cost you something in time, energy, postage, phone calls, shoe leather, business fees, transportation, and any number of other miscellaneous expenditures. But the fact remains that it is possible to become an outside agent with no “upfront fee.”
The classic way to do that is to find an agency, usually a local agency, to take you on as an outside sales representative. No money changes hands. You agree to find clients and book their travel. The agency agrees to allow you to use their IATA number with suppliers and to collect and disburse commissions to you according to an agreed-upon formula, which is negotiated when you and the agency draw up your contract.
The problem with this scenario is that it can be difficult to find an agency willing to take you on. It’s a little different, of course, if you are an experienced agent with an inside track record and (preferably) a following. But even experienced agents can find it hard to locate an amenable local agency. Another issue (it’s not quite a “problem”) is that the commission splits offered in this situation are typically lower than the splits you can find elsewhere.
My very first association with a host agency was under an arrangement like this and it didn’t cost me a penny. If you’re interested in pursing this strategy, my home study course surveys the pros and cons and offers advice on how to “sell” yourself to an agency.
Most fledgling home-based travel agents, however, start out by paying a fee to a host agency that specializes, to a greater or lesser extent, in dealing with outside agents (or “running an outside agent network” as it’s sometimes referred to in the trade). The fee can range anywhere from a few hundred dollars to nearly $10,000.
Why Agents Pay To Join A Host Agency
I suppose one reason newbies pay a fair bit of money to join a host agency is that many new agents don’t know there’s any alternative.They don’t know there are host agencies that require no fee. They don’t know that they don’t need to ally themselves with a host agency at all!
But there are a number of very good reasons to take this route. In fact, many experienced agents and even former agency owners have chosen to start their home-based ventures in this fashion. I examine the reasons in some detail in the home study course but among the most important are:
* It’s fast. You can be up and running in a matter of days in many cases.
* You get a better commission split. I have found that commission splits of 60/40 and 70/30, with no hidden costs, are pretty common with a moderate upfront fee. Commission splits of up to 80/20 are possible (although these deals usually come with some strings attached).
Beginners should be leery of 100% commission offers. Usually those deals will only make financial sense to experienced agents who can produce volume quickly.
* It’s convenient. All host agencies — the cheap ones and the expensive ones — perform one very important function for the independent contractor, home-based agent. They handle all the “back office” functions of running a travel agent, freeing the outside agent to concentrate on what (theoretically) they do best — finding and booking customers.
* It gives them access to preferred suppliers. Most host agencies have a list of so-called preferred suppliers. Because the host agency (through the hard work of its outside agents) brings a supplier considerable sales volume, the supplier rewards that host with a better commission rate. It’s a good example of the old saying “there’s strength in numbers.”
But why should a beginning agent pay $495 or $1,200 to form a relationship with a host agency when they could get pretty much the same deal and the same preferred supplier relationships for a fraction of the cost — or even without paying any upfront fee at all?
The sad truth of the matter is that many don’t know any better. They browse through the website come-ons of a bunch of slick hosts and pick one more or less at random.
Variations In Host Agency Costs
One host agency wants $495 of your hard-earned money for the privilege of becoming one of their independent contractors. Another wants $9,995. A surprising number want nothing at all.
So why do the upfront fees vary so widely? In theory, the more you pay the more you get — in terms of training, support, and miscellaneous hand holding. That’s the theory. In some cases, there’s a certain validity to that. Some agencies that charge nothing my have lower commission splits. In fact, there are some host agencies that charge a sliding scale for sign-up fees: you pay more to get a better commission split. On the other hand, it seems that some host agencies are charging a given fee because they think they can get it.
The host agencies, to give them their due, have a valid interest in discouraging those who will not become productive agents and a high sign up fee is a good way to do that. A productive agent will quickly amortize his or her upfront investment. Of course, that’s truer of an experienced agent than it is of a raw beginner.
In addition to any costs of signing up with a host there are an array of miscellaneous expenses that are common to starting up any business, although a home-based agent can keep those to a minimum.
Probably the must-have accessory is a business card and these are very cheap. You should also register with your local and/or state government if that is required. Surprisingly, many people don’t bother. However, once you want a business checking account (and you will sooner or later) you will have to register with the county courthouse in your business name. I did that recently, after a move, and it cost me all of $7.
Many of these “additional” business expenses can be spread out over time so as to keep your upfront cost to a minimum. Hopefully, many of these initial outlays will be quickly recovered in commission income.
I suppose I could say that one essential start up cost is my home study course and that, given its low cost, it is a true bargain. But would I be that presumptuous?
Seriously though, it is a small price to pay for knowledge that will put you on an equal footing with the host agencies and suppliers with whom you’ll be dealing. The two modules on host agencies have the potential to save you thousands of dollars in sign up fees and earn you thousands more in the form of more generous commissions.
On top of that, I offer the most generous guarantee in the industry.
If you are ready to make this investment in your future as a successful home-based travel agent, CLICK HERE.