Direct vs Agent Bookings: Which add more to your bottom line and company net worth?

By Darryl Leniuk | Adventure Business

Dec 03

As a tourism marketing and PR consultant, I’m usually spending my time and energy getting leads for tourism businesses. I’ve seldom thought about the effect this has for the long term value it adds to a business and how I can become a more trusted advisor. 

However, I recently attended a workshop by Value Builder CEO and founder, John Warrillow, that got me thinking. Value Builder’s raison d’être is to help business owners increase the worth of their businesses prior to exiting or selling their companies. John went through some case studies and principles that apply to all businesses, in all industries, but as I heard him speak I couldn’t help but think that what he was teaching was directly applicable to tourism businesses and in particular, the ones that are heavily dependant on a very few number of agents for most of their revenue. 

What Makes a Business More Valuable

“76 percent of business owners plan to sell their companies within the next 10 years,” says Warrilow. “And many of those owners have not thought about how to value their companies or how to increase that value prior to exiting.” Two major factors that contribute to a company’s value are owner involvement and the size and diversity of its customer base, explains Warrilow.

So let’s start with owner involvement. The more involved an owner is, the less the company is worth. For example, let’s say there’s an artisan who creates unique furniture that no one else can make. In this case, the company is 100% dependent on the owner, and the only value the company has is its assets or whatever tools the craftsman was using. Let’s contrast that with a company where the owner is completely hands off and has a team running things. Her involvement is zero; she can step away and the business will keep running just fine. That greatly increases the company’s value.

What about the other factor, the customer base? If a company only has one customer, and something were to happen to that customer, it could put them out of business. If they have a broad customer base, they are much more likely to weather the loss of any one customer. 

So by reducing owner involvement and increasing the customer base, you are reducing risk and increasing the value of your business for a potential buyer.

Company Worth and Agent Bookings

I often see small-medium sized tourism operators aggressively courting large booking agents. It’s easy to understand why: one big agent could deliver hundreds of bookings, a potentially large amount of profit and save the owner time and effort, in sales and marketing. Many owners even think these big contracts are adding value to their business in the event they sell. But that’s not the case. Having only a very few number of ‘customers’ i.e. agents, actually makes your business appear more risky and less valuable to a potential buyer.

And those relationships, between the company and the agent, are often heavily dependant on the owner, so owner involvement is higher, further driving down the business’s worth.

Diversify Your Customer Base to Add Value and Profit 

By building a broad base of customers and reducing involvement by the owner, the value of your company will increase. So how do you move from an agent model to direct bookings and would that be as profitable? Let’s do the math.

Let’s assume that your trips sell for $4K and your fixed costs are $2K. Let’s also assume you do $2M revenue per year and pay an agent fee of 25%. 

Agent Sale: $4K (trip price) less 25% ($1K agent’s fee) less $2K (fixed costs) = $1K profit

Direct Sale: $4K (trip price) less 0% (direct sale) less $2K (fixed costs) = $2K profit

So we can see from the above, that by eliminating the 25% agent’s fee, we’ve just increased bottom line profit by 100%

 

Now let’s look at overall bottom line profit.

Agent: Based on $2M revenue, 500 agent bookings, total profit would be $500K.

Direct:  Based on $2M revenue, 500 direct bookings, total profit would be $1M.

But, if you’re wanting to sell direct, you’ll now need a sales and marketing budget. So let’s add that in, based on an outsourced marketing team, with no additional in-house staffing.

Website build and branding (one time fee)                 $15K 

Outsourced marketing and PR  (monthly fee).             $5K 

Paid ad spend, Google/Facebook Ads (monthly fee) $1.5K

Let’s assume it takes 2 years to fully replace the agent bookings. Total spend over 2 years: $171K, or $85.5K/yr, for a new net profit $914,500, an 83% increase in profit after accounting for marketing and sales costs. 

Can You Compete with Those Agents? 

Unless you’re dealing with some ultra-exclusive cohort of billionaires or Royals that would require years to cultivate, your agents are likely using the same digital marketing tactics that are available to you. And here’s the thing: you have an advantage. 

Google My Business is Google’s flagship property for small business local SEO. If someone searches for ‘Your Activity + Your Region’ AND you have optimized your GMB page, you will appear on organic Page One search results. But, overseas booking agents will never show up here in these GMB listings, because they’re not local. 

And that’s not all. When it comes to social media, what people want today are authentic stories from a business, not trite salesy puff put out by overseas marketing hacks. Nobody knows your stories, your destination, your sport, your company culture, like you. So use social media to your full advantage to show what makes your business unique.

The same goes for content. You’re there, on the ground, and can be creating photos, videos and compelling stories that will give you a huge leg up in travel SEO. Consider creating a Hub Page for blog content that will bring in traffic, give you authority and further grow your mailing list.

Start With a Goal to Double Direct FIT Bookings

Ok, so you’re probably thinking this sounds good, but also risky. But it doesn’t need to be. Aim to double your direct bookings without burning any bridges with your agents. Booking software easily allows you to divide up trips and allot spots for agents without affecting other bookings. And never undercut your agents on price, that’s just bad business. 

As you broaden your customer base and build your own brand, you’ll be more profitable today and you’ll also be growing the value of your business for that point in the future when you decide to step away.