TMCs traditionally charge travel management fees on a transaction-by-transaction basis, but some are now shifting to a service-based approach.
Transaction fees are the greatest factor making businesses reluctant to work with travel management companies (TMCs). Most businesses are interested in savings when they search for a TMC — but they fear that transaction-based fees will add up to more cost, not savings.
And, to some degree, this fear is well founded. The average transaction fee is 2%, which means these fees can add up over time. But it’s important to understand that the business travel industry is changing. Today, you can actually find TMCs that take more of a service-based than transaction-based approach.
To help you make the best TMC choice for your company, here’s a look at travel-management fees today and how you can expect fees to change in the years to come.
What are Travel Management Fees?
Once upon a time, TMCs made their money on commissions. When they booked flights, hotels and car rentals for clients, the vendor would pay the company or agent a commission for choosing its airline, hotel or rental company.
Over time, commissions started to go away. Businesses and consumers started to get reliable Internet access, and airlines, hotels and rental car companies built self-booking platforms — diminishing the role of TMCs and travel agents. As travel service providers needed TMCs and agents less and less, they stopped paying commissions.
And so the transaction fee was born. Today, many TMCs lean heavily on transaction fees to make their money.
Why the Shift on Travel Management Fees?
Throughout most of the 21st century, companies that use TMCs for business travel have become accustomed to paying transaction fees, absorbing these one-off fees as part of the cost of travel. But there’s another approach that some TMCs are starting to use, one that makes far more sense in this new era of business travel — zero transaction fees.
Some TMCs are taking a service-based rather than transaction-based approach to travel management in an effort to simplify cost for the client and reduce confusion. They negotiate a service charge that’s paid out over the term of a contract, no matter how much support a company needs and no matter how many individual transactions it makes.
This service-based approach is superior to transaction-based travel management fees in several ways. A service-based approach means:
- More Value: Because all of the costs associated with a TMC are represented up-front in the contract, a business is better able to assess the value a TMC will provide.
- Better Service: When TMCs are incentivized on a transaction-by-transaction basis, agents and representatives are always going to push for more transactions, whether or not that’s the best thing for the client. With a service-based approach, agents and representatives are able to make recommendations and provide service that best supports the client.
- Long-Term Savings: Under a service-based approach, a client company is able to fully realize and enjoy the benefits and savings that a TMC can provide.
In short, the value of a TMC rests in the services it offers — not individual bookings. And a service-based approach emphasizes that value. When you choose to work with a TMC, embedded technology means that agents are assisting your travelers with high-touch situations that demand direct contact, meaning even greater value.
The shift to a service-based approach is a good thing for companies with traveling team members, allowing them and their employees to enjoy a higher level of service that might include trip disruption assistance, risk management and duty of care — rather than a focus purely on transactions.
Time to Shift to a Service-Based Approach
At JTB Business Travel, we believe that transaction fees are an outdated concept, which is why we’ve been shifting to a service-based approach. Three years ago, we eliminated transaction fees for online bookings. In 2020, we plan to eliminate all transaction fees.
We’ve always taken a common sense approach to business travel, providing services and making recommendations that help companies save money and that help travelers enjoy the best possible experiences. This change to a service-based approach makes common sense, and it will allow us to continue providing industry-leading service and value to our clients.
Contact us today to learn more about what we can do for your business.