The three ways travel agencies earn, which are commission, markup on net rates and service fees, with worked examples, the pros and cons of each, and how to combine them.
1. The three earning models
Agencies earn in three ways, often at the same time: a commission paid by the supplier when the agency sells at the supplier's public price, a markup the agency adds to a confidential net rate, and a fee the client pays for the agency's time.
| Model | Who sets the client price | Typical use |
|---|---|---|
| Commission | The supplier (public rate) | Cruises, tours, some hotels and packages |
| Markup on net rates | The agency | Tour operators, DMCs, tailor-made trips |
| Service fee | The agency | Complex planning, flights, corporate travel |
2. Commission
The supplier pays the agency a percentage of the booking value, set in the supplier's agreement. Commission rates vary by supplier, product and market, and are sometimes paid only after the client travels, so plan your cash flow accordingly.
The advantage is simplicity: the client pays the published price. The drawback is that you don't control the price or the margin.
Example: a commissionable tour
- 1Public price of the tour: US$2,000
- 2Commission in the supplier agreement (example): 10%
- 3Agency earns US$200, usually after the client travels
3. Markup on net rates
The supplier gives the agency a confidential net rate and the agency sets the selling price. This is how most tour operators and DMCs work, because they combine many components into one package.
Know the difference between markup (added to cost) and margin (share of the selling price), and check every quotation against a target margin.
Example: a package built from net rates
- 1Net cost: US$1,600
- 2Markup: 25%, so selling price = 1,600 × 1.25 = US$2,000
- 3Profit: US$400, which is a 20% margin on the selling price
4. Service fees
A service or planning fee charges for your expertise and time, independent of the supplier. It works well for flights, complex itineraries and corporate clients, and it protects you when a client takes your plan and books elsewhere. Explain what the fee covers and whether it is deducted from the booking.
5. Choosing your mix
Most profitable agencies combine models: commission where suppliers pay well, markup on net-rate packages, and a fee for time-heavy work. Whatever you choose, record cost, selling price and profit on every booking so you can see which products actually make money.
Frequently Asked Questions
Is markup or commission better for a travel agency?
Markup gives you control of price and margin and suits agencies that build their own packages. Commission is simpler and suits agencies reselling suppliers' products. Many agencies use both.
Can I charge a service fee and earn commission?
Usually yes, as long as you are transparent with the client and follow your local consumer rules and supplier agreements.