Inclusive Cost and Its Effects on Travel Agent Commissions
One of the new concepts LetMeGo is trying to bring into the lodging industry is “inclusive cost”. Inclusive cost means that the buyer gets to see, by default, the total cost of the service that he/she is buying. In contrast, most online travel agencies today use “non-inclusive pricing”. That is, they first display the base price of the booking, only revealing the added cost of fees and taxes once the customer has made a purchase decision. Here is a USA Today article about this issue. Inclusive cost is common in many other industries. We, at LetMeGo, will try to push it into the lodging market. We think that inclusive cost will help improve the reputation of the industry and facilitate the booking process for travelers.
Here is how it works: when submitting a bid, lodgings will be required to provide only one figure, representing the total cost that the traveler would have to pay. When a traveler books the lodging, the staff can then generate an invoice or receipt for the traveler in which the base price, fees, and taxes are properly itemized, as required by law. By doing this, travelers can better compare different options and lodgings can submit bids much faster. Complex tax laws (see NYC example) are left to be managed by the property management software, as usual.
There is a drawback to this approach, however. As an online lodging agency, LetMeGo is paid a commission for every booking, a standard arrangement enjoyed by many other travel and lodging agencies, as well. Traditionally, the industry has paid commissions on the value of the booking minus the taxes. LetMeGo, however, will only be aware of the total cost of the booking and not the base price, the additional fees, and the taxes. In order to keep things simple, we charge a commission based on the total cost of the booking. Clearly, this means that lodgings will be required to pay a percentage of the taxes in commission, a situation they are not accustomed to.
This problem, fortunately, has a solution. In order to simplify things, and in order to pass savings along to travelers, we have decided to charge one of the lowest commission rates of any online lodging agency: 10%. Since this commission is charged on the total cost, it is equivalent to a commission of between 10% and 13% of the pre-tax price. Other online travel agencies charge a 20% commission (Zonder.com, BedandBreakfast.com) and some regularly earn more than 25% (Expedia, Priceline). Thus, we believe that our low set rate more than compensates lodgings for the tax-inclusive commission approach we employ.
We look forward to working with lodgings that see the benefit of inclusive cost. We may fail, but we will stay true to the KISS principle: Keep it Short and Simple.
As usual, your comments are welcome.
Alexander Torrenegra
