Service Fees: Know Your Competition, Know Your Client Base

For years, industry trainers and experts have advised agents to charge service fees for leisure transactions to make up for declining commissions. Yet many agents remain reluctant, saying they have to remain competitive. Is this an example of the experts being out of touch with reality?

“It would make sense if I had an affluent client base,” said one Nebraska agent. “But I tried, and it didn’t work in this economy.”

On the other hand, Menno Travel Services, a storefront location in Goshen, Indiana, an area hit hard by the recession, implemented a set fee system five years ago and reports ongoing success. “If we customize a vacation, the fee is $50 on up for the booking,” reported Menno Travel’s Dorothy Shirk. “On cruises, we charge a standard $50 per booking — if you can get two cabins on one reservation, we only charge the $50.”

Customers have not resisted significantly, but response does depend partly on the local business dynamics, Shirk observed. “If you have two storefront agencies in a medium-sized town and one is charging zero and the other is charging $50, the truth is, unless they really give lousy service, you’re going to lose the customer.”

However for once, the bad economy is helping agents. “We don’t have another storefront in town, and we no longer have a lot of competition in the general area,” said Shirk.

Most importantly, she noted: “We have a reputation of good service. People do care about service. Some shoppers are totally driven by price, and they do go to the Internet, but a lot of people care about consultative selling.”

Has the easy information and booking possibilities of the Internet led to resistance to fees? “There’s a glut of information on the web,” responded Shirk. “Clients come in with an idea of what they want after researching online. But online doesn’t answer most questions, because they don’t find out about you. When someone says, ‘This is what I saw online; this is what I think,’ so often we respond, ‘This idea doesn’t fit you at all, and I know you.’ It could be because there are tons of kids at these resorts, and the people hate kids. That type of consultative selling ultimately makes for a better vacation.”

With tours, she added, there’s value, because they are even more complicated:  “We have people coming in saying, ‘I already booked the air.’ We respond, ‘I could have booked you air, car, hotel, and, at all inclusive, for less than you pieced it together.’”

Examples such as that are why industry veteran Rod McLeod, of Applebaum Partners in Florida finds service fees are an instance where the so-called experts are on target: “One of the worst mantras that the distribution system ever embraced is, ‘Our services are free, we don’t charge you.’ How many things can you think of in this world that you get absolutely free and there’s a high level of quality associated with it?”

While admitting it pays to look at your competitive surroundings before implementing fees, he advised agents not to undervalue the importance of consultative selling. “If you’re dealing with the right market and saving people time and giving them a good value — not necessarily the cheapest price, but providing a smooth, hassle-free trip — if they get that and everything went well, that’s great. If things aren’t going well, the agent is there, steps in, and deals with it. People are willing to pay for that.”

In any business, small- and medium-sized businesses can’t compete on price and still expect to get the highest margins in return, McLeod noted. For instance, he said, many online agencies have eliminated service fees, but they’re getting volume overrides, and there are deals out there for them as well.

“There are Home Depots or Lowe’s for do-it-yourselfers, and that’s where they go for needs in that area,” said McLeod. “There’s no retail price business that competes on price and gets the highest margins. WalMart competes on price, their profit is significant, but it’s volume, volume and volume.”