LINDA MOORE: Affiliate discounts and your mark-ups

Posted on September 9, 2009 by LCT Magazine

Well here we go again! I will take my chances.  It seems that affiliate discounts have gone from 20% across the board down to 10% and that some companies even raise the rate that they charge affiliates so the discounted rate is even less!  How is that for industry courtesy?

 

Try this exercise.  Call four companies in a major market and tell them that you have a group of 200 coming in for a meeting and you need airport transfer rates to the hotel (pick one).  Don’t tell them that you are another transportation company.  Wait a week and call as an affiliate to those same four companies asking the rate and for your discount.  Let me know the results.

 

The exercise above is being done by your clients if you are booking meetings out of town for them.  They call you and ask you to bid on the group but they also call the city and ask operators to bid.  Meeting planners are getting much more sophisticated and they are also being held accountable for their vendor selection.  Although it might be easier to have a single source, it may not be as cost effective as going direct. 

 

It’s time now for you to quote your client.  Assuming that the affiliate you use is truly giving you a 10% discount, how do you mark up?  Let’s face it folks—we are in business to make money! Margins are what it is all about and you should be aiming for a 25% margin which means that the markup is 30%.  If you are only getting a 10% discount, that would mean that you would need to mark up at least 20% to maintain that 25% margin.  How can you when the client can buy it themselves then for less from the same provider?

 

Let’s say you only charge the price before the discount to your client.  How do you make any money if you are only getting a 10% discount off of the base?   Let’s do the math.  A $100 ride with a discount of10% nets $10.  How much does it cost you to enter and dispatch this ride as well as follow up and close it out?  I would have to say much more than $10. 

 

I recently spoke to a manager at one of the largest networks.  He shared the fact that meeting planners are being called to the carpet when they book with national providers and the national providers are being forced to cut their prices to get the group work.  They in turn then push back to their affiliates asking them to take it on the chin for the group.  Margins are shrinking.  How do you walk away from a group from a national provider?  Do you want them to go to your competitor?  Of course not; so you take the hit this once.  Let’s hope though that it doesn’t become a norm. 

 

Commoditization is the dirty word for the transportation industry.  These practices move us closer to it. When clients shop only on price and negate service, we are going down the path of the airline industry.  Soon we will be sending email blasts in conjunction with those from Spirit advertising our $10 transfers—oh wait, they already exist it is called taxi.  UGH!

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