Pricing Your Product for the International Market
It’s very expensive for a U.S. Receptive Operator, Overseas Tour Operator or Travel Agency to put your product in their tariff or four-color brochure and to print and distribute sometimes hundreds of thousands of copies of that brochure. Therefore, the operator or agency must be able to make some money for marketing, distributing, and selling your product.
Expect to provide the following commissions, or a net rate reflecting the following discounts from your rack rate, when dealing with the international market:
|U.S. Receptive Operator||25-30%|
|Overseas Wholesaler or Specialty Tour Operator||20-25%|
|Overseas Retailer (travel agency)||10-15%|
As the above table indicates, the standard commissionable product in the market worldwide includes at least 25-30% for a U.S. Receptive, 20-25% for a Tour Operator and 10-15% for a Travel Agency. Does this all go to the Receptive Operator or Wholesaler? Absolutely NOT. If, and only if, your product is sold, the commissions are shared down the “Booking Channel” so that the client will (hopefully) be charged an amount that is not exceeding the actual rack rate they would have received had they contacted the supplier direct.
This channel is:
Supplier >>>>Receptive Operator>>>>Tour Operator>>>>Travel Agent>>>>Client.
The following is a formula for determining your net rate and pricing it for a U.S. Receptive Operator or Overseas Wholesale Tour Operator. It is essential that the rack rate be the same rate being quoted domestically to consumers.
*The $100.00 per night net rate is only an example figure*
*This example assumes you’re working with a U.S. Receptive Operator at 25% commission*
Determine your Net Rate - this should include overhead, print, promotion and profit, and should be the lowest rate you can live with. Let’s say $100.00 per night.
Now you need to add in the appropriate commissions that can be negotiated with the U.S. Receptive you’re working with. To add in a 25% commission, divide your net rate ($100.00) by .75. The result is $133.33and is your Rack Rate.
Now, when your product is sold, the U.S. Receptive will collect his commission and in turn, the Overseas Operator his share, and the Travel Agent who actually worked with the end client receives the remainder amount.
IMPORTANT: Recognize that Tour Operators and U.S. Receptives are your sales force, not people who want to take 25-30% of your revenue. Recognize that the commission is paid only when the sale has been made at no cost to, or effort from, you.
Finally, add local and state taxes for the total rate. Commissions should not be paid on tax.
Tips of the Travel Trade
- Know the difference between a wholesaler, Tour Operator and travel agent. See our glossary.
- Print up separate rate cards if necessary.
- If you’re in a bind, offer local rate to locals.
- Have prices available a year to a year and a half, in advance.
- Work with your local U.S. Receptive Tour Operators.
- Recognize that Tour Operators and receptives are your sales force, not people who want to take 25-30% of your revenue.
- Recognize that the commission is paid only when the sale has been made at no cost to, or effort from, you.
- Realize that his is the way