The economy is a living organism. It expands and contracts. It goes through long-run cyclical shifts and short-run acceleration and drops. A million factors culminate in key measures like GDP growth, unemployment, and the value of the dollar.
As entrepreneurs, we spend most of our time thinking about how to drive improvements to our businesses. The quality of the product and service we deliver, the number of customers we deliver them to, the efficiency in delivering them, our revenue and expenses, the satisfaction our of customers, all pointing to the profit we can achieve and the good we can do for our customers and communities. Continually evaluating these drivers of success is essential, but we also must consider forces at play that are external to our business. The industry and the economy.
I believe any business can thrive, even in a down industry, even in a down economy. This is especially true for a small business, with almost unlimited growth potential through market share that can be taken from the universe of competitors.
The economy today is still quite strong, though history guarantees that it will not remain so forever. Today, there are still two job openings for every person seeking employment. Average consumer bank balances are very high compared to pre-pandemic levels. Travel spending is charging ahead. However, the market has performed poorly so far this year and inflation continues to press on. Interest rates will continue to rise and we will see the impact on the broader economy, eventually (we’re already seeing some impacts to the housing market).
Don’t mistake, I am not pessimistic on travel despite some economic headwinds. I still believe travel businesses can be wildly successful in the years ahead, but as travel business owners, how do we prepare for the eventual changes in the economic cycle?
How do we best position ourselves today for success in the future as the world inevitably changes over time?
1. Increase your economic awareness.
You do not need to be an economist to be a successful business owner, but understanding the economy is very helpful to making the right decisions at the right time. The gutters of history is littered with businesses that did the right thing, but at the wrong time (trust me, one of my former businesses is laying in that ditch too). Developing a high-level awareness of the economy can be quite easy. Establish some quick daily habits that will pay long-term dividends.
Here’s some suggestions:
- Watch CNBC for 20 minutes every morning. You don’t need to analyze stock charts or corporate financials. You don’t even need to be totally focused while you watch it. Have it on in the background. Perk up when they talk about something of interest. If you’re not in tune with the economy or its jargon, it may sound confusing at first, but give it 3 weeks. You’ll start to understand what they’re talking about. After 3 months, you’ll feel like you have a much better command on where the economy is likely headed.
- Read Morning Brew with an eye for the economy and business stories. This is a quick way to stay informed to start the day.
The next three strategies focus on ongoing and regular evaluation of you, you business, and the world around you.
2. Establish a regular economy and industry review cycle.
Understanding the economy and what the cyclical changes mean for the travel industry and in turn what they mean for your travel agency business is not a single point-in-time exercise. Establish a regular cadence to sit and think about the economy and the industry. I suggest marking some time on your calendar every two months as a good starting point. Every other month think about what has changed in the last two months and what you think will change over the next couple of years. Each time you sit down to think about the economy and the industry, see what has changed and update your thinking.
This does not have to be a complicated exercise. Ask yourself some of these questions. You don’t even have to have the answers. If you don’t know, Google does. See what other leading minds think. If you build a habit of doing that, you’ll find that you’ll eventually start to form your own opinions.
- What is happening with employment? Will there be more people employed next year or less?
- What is happening with wages? Will people earn more or earn less in the coming years?
- What is happening with inflation? What is the expected inflation over the coming years? Oil/gas/jet fuel prices are a key input cost to travel, so pay extra attention to this one.
- What is happening with interest rates? Is it going to get more expensive to borrow money (higher rates) in the future?
- What is the prospect for the stock market over the coming years (the stock market’s performance is a primary indicator of how wealthy people feel).
- Are travel prices for future years increasing or decreasing?
- Are travel partner suppliers building new ships and hotels? (If yes, that means more supply, which puts downward pressure on prices. If no, that means the same or less supply, which puts upward pressure on prices.)
- Is anything in the world likely to impact long-term general consumer demand for travel (up or down)?
- Are certain types of travel increasing or decreasing in their long-term popularity?
3. Evaluate your niche.
As you increase your awareness of the economy and its impact on the travel industry, you are armed with the power to really evaluate the long-term prospects of your selected niche for your travel business. You don’t want to change your niche regularly, but you should be prepared to if you think economic or industry changes are likely to have a major impact on your niche.
For example, if you expected a long and sustained multi-year recession, then you may consider adjusting your niche to focus on clients who are more recession-proof or even making a complete change in your niche (this should not be done without careful consideration and planning). Conventional wisdom is that luxury products continue to perform in bad times. Basically, rich people will still be rich. It is true for Louis Vuitton and it is true in travel. Gently shifting your focus within your niche to higher-end travel products can serve you well in long periods of depressed economic activity.
The key is to proactively think about what changes in the economy and industry will do to your business. Don’t overthink this though. There is a temptation to run for the hills at the first sign of trouble. Don’t be fearful, but be prepared by arming yourself with knowledge and proactive thinking.
4. Evaluate your efficiency.
I’ve talked about your Return on Time before. To me, it is the most important measure for a small business. Time is the one resource you can’t get more of. You Return on Time is how much profit you can generate for a given amount of your time. Whether you are a part-time travel advisor or a full-time travel agency owner, increasing your Return on Time will deliver more profit in the same amount of time, or the same amount of profit in less time. This is especially important in a down economic cycle in situations where travel prices decline. To maintain commission income, you need to sell more travel. How do you do that? You get more efficient with your time.
Regularly sit down and consider where you are spending your time. How long does it take you to research an itinerary? To generate a proposal? To conduct a client consultation? To make a booking? And so on. Measure them! Know that, for example, it takes you an average of 47 minutes to prepare a proposal. Brainstorm a way to reduce that by 5 minutes. Seek out new tools. Develop a repeatable process. Focus your business within a niche to make research, pricing, proposals, and booking more efficient. This exercise is a great practice no matter the state of the economy or the industry. Continuous improvement to your efficiency.
The next four are all elements of your Sales Plan. If you don’t have a Sales Plan, you need one. A Sales Plan starts with a desired level of profit, considers your expenses and helps you calculate exactly how many Prospects, Proposals, Transactions, and Sales you need to achieve that profit outcome. This is not a full discussion of a Sales Plan, but here are some key drivers:
5. Improve your gross margin.
Your Gross Margin rate is the overall profitability of each trip you sell. This includes all forms of revenue, like commission and service/planning fees. Each travel product has a stated commission rate. So how do you improve your gross margin? You change what you’re selling, you change who you’re selling, and/or you change what you’re keeping.
You can change your product niche to focus on higher-margin products. Again, this is a major decision and there’s more to consider than just the commission rate of a product category, but it is an option. You can also change your average gross margin by always ensuring that you are offering third-party travel insurance to every client.
Even within a product category, considering the travel partners you recommend most can impact your gross margin if one supplier’s commission rate is higher than another. You should always recommend the right product for your client, but all else equal, you should support Strategic Partner travel suppliers with higher commission rates.
Finally, you can impact your gross margin by changing what you’re keeping. Travel Quest Network’s new Executive plan (www.travelquestnetwork.com/plans) offers commission revenue shares up to 97%! If you are currently on a plan offering 70%, 80%, or even 90%, that could be a massive difference in your margin.
6. Increase your average sale.
Your Average Sale is the average sale price of each trip you expect to sale, including all add-ons (air, hotel, car, activities, etc.) and fees. Beyond margin, the average sale price is a key driver of your profit. I’ve addressed your travel niche a few times, but your niche is one way to impact your average sale. Even without changing you niche, you can still impact this key driver a great deal with some easy strategies:
Upsell. Position higher value options more prominently in proposals. Start with suites and work down. Start with premium travel partners and work towards value options. Stay within the general budget guidance of your client, but just like every great realtor, you always show a nicer option that is just a little bit outside of the stated budget. You’ll find that budgets are often flexible when people see something they really want, but you must start there first.
Extend. Always offer pre-departure and post-return extension options. This is a great way to easily increase your average sale value.
Gather. Always, always ask every single client who else they are traveling with. If no one, ask them who would they like to travel with them. You will be surprised how often this will add an extra passenger, or four, to your booking.
Insure. Just like with increasing your margin, offering third-party travel insurance can increase the average sale value.
7. Increase your close rate.
Your Proposal Close Rate is the percentage of proposals that you successfully close a travel sale (meaning it results in a Transaction). Your Proposal Close Rate will be directly impacted by your marketing system, lead qualification process, and overall sales system effectiveness.
To increase your close rate, begin to look at your sales system. What do your proposals look like? How do you manage follow-up? Are your sales emails great? Each of these are meaty topics on their own. The key here is to evaluate your sales system or begin to build one if you don’t have one, and then seek to improve one aspect at a time. In the end, your sales system will be better, and your close rate will be higher.
To get started, send the last 5 sales emails that you sent to someone you trust. Have them read them and ask them if they are clear if there are any typos or errors, do they convey your personal travel brand effectively, and ultimately, would they be buyers?
8. Increase your proposal request rate.
Your Proposal Request Rate is the percentage of your Contacts that you are able to connect with, understand their needs, explain your services, and then request a proposal. Your Proposal Request Rate will be directly impacted by your marketing system effectiveness.
As you start and grow your travel business, you need to build a list of contacts, potential clients. These usually start with your personal network of friends and family, then grow to include some of their friends and family, and ultimately total strangers that you are attracting through your website, social media activity, and local networking interactions.
In each of these steps, your personal travel brand must come through. You need to be crystal clear on how you’re trying to present yourself and your value proposition. Your website, social media presence, and your local networking interactions need to pass the blink test. In a blink, can these prospects understand what you offer? If you specialize in the South Pacific and your website has a picture of the Eiffel Tower in Paris, you are missing the mark. Your personal brand needs to be personal. You are not really selling a trip. You are selling you.
Look for ways to communicate your personal travel brand more clearly and you will find that more Contacts request a proposal. More proposals, more sales. More sales, more profit.
The last strategy focuses on extending your travel business beyond yourself and should only be considered after you’ve made great progress on the first eight.
9. Build a team.
There is a point in every business journey where you have optimized your travel business just about as far as it can go within the constraints of your personal time. If you reach this point and you still want to grow your business and your profit, it is the time to consider building a team.
Building a team can take many forms. Hiring employees, partnering with other independent travel advisors (often termed sub-agents), or partnering with/acquiring other travel agencies are time-tested pathways. The most common of these is partnering with other independent travel advisors (sub-agents) and there are two basic structures:
New entrant that you can mentor: Finding someone with a great attitude that wants to break into the travel business. In this model you provide mentorship as they begin to develop their own network of contacts. You can also make an arrangement where you can share a client/booking with specific tasks they can perform as they learn, for which you will pay them a defined percentage of the commission. The key is to make it clear at the beginning what their share is and to specifically agree on what they are going to do. Things like qualifying new prospects, performing research and pricing, handling pre/post trip communications, etc. are good tasks. Depending on the level of involvement you both want on your bookings, you can determine an appropriate commission share. If this individual is not an employee, it is important that you do not direct the work, but approach it like realtors who are sharing a listing would. You agree who is going to do what and you agree on the revenue share, in writing ahead of time. Over time, you may begin assigning new inbound leads to them that you can't handle. You may have a different revenue share for these leads since they are leads that your agency is generating.
An example structure may be:
- They pay a monthly fee as their sub-agent fee (this can be a pass-through or it can be marked up)
- X% commission share for clients they bring in and service on their own
- Y% commission share on shared bookings they assist with (with the specific roles defined)
- Z% commission share on leads you deliver to the sub-agent
This structure can be scalable beyond one person.
Specialization: The other approach is to seek out a sub-agent who can specialize in a different segment of travel than you do. This can be an experienced advisor or someone new with a desire to specialize. The important thing is to decide what area of specialization(s) you want for your agency, not to just take on whomever comes knocking at your door. For example, you may decide you want a European river cruise specialization and it may take time to find the right person.
If you are already attracting new clients for products/destinations that aren't in your wheelhouse and those leads are focused in a particular product/destination, this approach makes a lot of sense. Likewise, if you want to take your agency in a specific direction and create a strength in a new niche but don't want to do it yourself, this approach makes sense.
You can combine these two approaches as well.
In either case, as you bring in additional advisors, this is the point at which your role in the agency begins to change. You begin to spend less time selling travel directly and start spending more time focused on marketing and lead generation. This is a gradual change though. This is a very scalable approach and eventually, if it is your desire, there is really no limit to the number of advisors in your agency. It all comes down to the outcomes that you are seeking.