How does a travel agency make money?

If you are thinking of buying a travel agency, you are buying an income stream, so it helps to know where each part comes from. The headline number most owners quote is the value of travel they sold. That is not what the agency keeps. Ask the owner for both figures.

Supplier commissions

Most income arrives as commission paid by the airline, cruise line, tour operator, hotel or other supplier once a client travels. Rates differ by supplier and by product, and the timing matters: commission may arrive after the trip, not when the client pays. Ask to see statements from each major supplier, not only a summary prepared by the owner.

Incentives and overrides

A host agency or consortium often negotiates extra payments from suppliers for reaching sales targets. Those can be a real part of income, but they depend on the group’s agreements and on the agency’s membership. Ask whether they would continue after a sale and whether the host or consortium must agree to the new owner.

Service and planning fees

Many agencies charge clients for planning, changes or complex itineraries, and some rely on these fees more than others. Fee income is steadier when clients accept it as normal, so ask how fees are set, how often clients pay them and whether they are written into client agreements.

• Gross bookings: the value of travel sold, most of which goes to suppliers.
• Commission and incentives: what the agency actually keeps.
• Fees: what clients pay the agency directly.

To see who holds the client relationships behind that income, read how much of a travel agency’s business leaves with its advisors.