by Sarah J.F. Braley | January 30, 2018

Marriott's move to reduce third-party commissions is clearly a disruption - and forces much-needed change in our industry, some independent meeting professions believe.

The hotel-company's rate change from 10 percent to 7 percent is a blow to planners who rely solely on commissions for their livelihood, but many planners who charge set fees for their work have commented in support of the hotel company's move. They note that the time might be now to stop relying on commissions from hotels for compensation and offer advice for how to make the change.
"As an agency founder, I support this. I understand the old business model, but it is ripe for, dare I say it, disruption," said David T. Stevens, principal of the Event Marketing Authority. "I know this is going to outrage a lot of people, but it is high time for planners to step up and realize their time is worth more than 10 percent. This is really an opportunity for maturity in our industry. There are plenty of other industries that aren't offering 'free services' and then collecting a fee on the backend. We should be charging for what we do! Besides, this then allows us to truly negotiate with the client's bottom line as the paramount concern and not our own. How can someone getting paid off the rate really truly fight for the best rate when for every $10 they save, they lose $1? Simple, they can't."

Still, there can be a place for commissions in this industry, said Joan Eisenstodt, a long-time, fee-based independent planner and industry expert, who works out of Washington, D.C. "I think commission can be fine and ethical and work," she said. "However, what I've seen -- from clients, from testifying as an expert -- and what I've heard shows me that many are collecting commissions for doing little work. There are no standards at all for this industry's work for contractors who work on fees."

She cites a worst-case scenario she learned of, where meeting planners had set up a side company to collect commissions on business booked for their employer and the hotels never checked.

"If there were standards of work, if our sales colleagues were not losing their jobs in droves because of these additional booking channels, if those who operated these companies weren't saying they'd do meetings for free and thus eliminating jobs -- if, if, if -- I could be more comfortable if I knew their work products equaled what they make," Eisenstodt added.

Are we witnessing the end of third-party commissions? Mark Jordan, president, Practical Communications Group, thinks we are. "I absolutely believe that the commission model has effectively died -- it just doesn't know it yet," he said. "And it may take years yet before it's buried. Basically, if you cannot charge a customer directly for the service you provide because they wouldn't pay for it, why would you ask someone else to pay on their behalf? And if what you're doing is actually functioning as a sales lead contractor for hotels, then charge hotels for the leads you provide them -- one level for the lead itself, and higher level if the lead becomes a contracted piece of business. When one party simply gets to take a portion of revenues from another party because they are the middle person, then issues like value of service, necessity of service, and quality of service rarely get discussed. Yet we define ourselves, for the most part, as service businesses. In most middle-person industries, either the end buyer or end supplier reach a point of disenchantment with the costs involved and try to tip the applecart."

Why go to a fee structure?
Getting paid for your services from the actual client for whom you do the work isn't the only argument for setting up a different compensation structure.

Stevens thinks going with a fee structure, where the client knows up front what they will be paying you, frees up all subsequent interactions. "When price isn't a part of the conversation with your client, you can talk strategically and focus on what their end goal is and what the true objective is," he said. "This shows the client you genuinely have their best interest at heart. From a business standpoint, it helps forecast and set goals more realistically. If someone wants to stay at a Fairfield vs. a Ritz, I just don't care. But we can have the conversation about how it impacts the program's objective."

Eisenstodt says her work as a fee-based planners is "cleaner." "There is not a conflict of interest," she said. "I can explain in a proposal what I'll do, estimate the time, and negotiate the work and fees, and it's done. I am not dependent on room pick-up or fees if the meeting is canceled by the hotel or the group, or is stopped because of force majeure or another factor. I give advice on-site based on what's best for the client and not what goes into my pockets. And when a company again says they are cutting the percentage, there is no chance I'll threaten to stop booking them even if they are the best fit for a client."

How independents can make the switch
For independent planners who want to switch from commission-based compensation to either fee-plus-commission or a full fee-based structure, it's time to figure out what to charge and how to have the necessary conversations with your clients.

Approaching existing clients, this is where the relationships are really going to matter, according to Stevens. "Have they heard about this change? Have you talked with them about it?" he said. "Transparency is going to be key. Change is always difficult,  and this will potentially be a tough sell to start with. If your clients really like working with you, they will figure it out. However, if this starts to happen, they are going to be a part of a revolution in our industry. I have heard plenty of clients state, 'Third parties save me hundreds of hours and budget I don't have.' Do they understand the scope of work involved with site selection? If not, it's time to educate them. Help them understand how much you do. All of a sudden this goes from being an additional task someone gets dropped into their lap because it's 'free,' to an additional line item in the budget or possibly a headcount."

Eisenstodt offers the following suggestions:

1. Realize you may not make the same amount of money you made before.

2. Get an attorney who can help you create a solid contract with clients and also advise you on the contracts you negotiate for your clients with hotels, vendors, etc.

3. Determine, based on experience, what amount of time you have spent on the tasks performed previously to estimate the scope of work (the actual duties) and the fees.

4. Determine what you want to charge for expenses and/or overhead and how to factor that in.

5. Find a good way to track your time and determine if you'll do it in 15-minute increments (which Eisenstodt does) like an attorney or in some other way.

6. Consider a fee-plus-incentive model on registration numbers (or exhibit sales, if you do that), if you also market the meeting and/or exhibits.

7. Reread the codes of industry ethics, especially if you are a CMP, and see how you will be impacted in whichever model you decide to work.

8. Remember that hotels and other vendors also want to make money and that the models will continue to change. Business may always exist -- and going after it will allow you to see your strengths and determine how you can work and make money.

9. If you are currently affiliated with one of the third-party companies that makes X percent on your work and you only get a smaller cut of that, determine if, in fact, charging fees might be better.

10. Stop listening to the noise about Marriott and consider the bigger industry picture.

For corporate planners whose departments rely on commissions, M&C contributor and consultant Kevin Iwamoto offered these suggestions.

Visit M&C's dedicated landing page for more articles related to hotel commissions for third parties.