Commission cuts were a hot topic at Northstar’s sixth annual Independent Planner Education Conference, happening now at the Hyatt Regency Hill Country Resort & Spa in San Antonio, Texas. On the rich educational agenda at the hosted-buyer event was a panel discussion called “The Realities of Life as an Independent Planner,” in which three buyers shared how their businesses have weathered the change.
A year ago, IPEC 2018 took place just one week after Marriott announced plans to reduce third-party commissions from 10 to 7 percent. That development led to ongoing coverage by Meetings & Conventions and other Northstar Meetings Group brands. For this year’s event, Northstar revealed exclusive research on how that shift has affected independent meeting professionals and how they price their services. For 20 percent of the respondents, the research revealed, the change will result in revenue losses of more than $20,000 annually.
The panel participants represented independents with varying pricing structures:
• Jerald Vaughn, president of CEALS - Meetings and Incentive Programs, books commissionable business and other fee-based services;
• Brett Sterenson, president of Hotel Lobbyists, does sourcing and contracts, receiving compensation based solely on commissions; and
• Linda Spelling, founder of Buzz Corporate Meetings, always charges a management fee and sometimes earns commissions.
The following are excerpts from the discussion as well as previous conversations.
A year ago, some independents said they would avoid booking Marriott hotels. Have you done that? And what about the other chains that have followed suit?
Sterenson: I never really thought that was realistic. I still have a very good relationship with Marriott. It was never my intention to steer my clients away from a brand because of how I'm compensated. The truth is, they have the product, and even if no one had joined them, I'd probably still be booking them.
There was a point where I could have gone in the other direction. I know that hotel companies had a lot of discussions around how to react, and I guess they all jumped in the boat pretty much. They didn't give it, I think, enough of a chance to see if there'd be a revenue impact, and that's fine. That's a business decision for them. Meanwhile, lonely independent properties and small chains are still sending solicitations to my inbox saying, "We're offering 12 percent or 13 percent."
Spelling: I always charged a flat fee and then took commissions if available. I always viewed the commission as gravy anyway, because the meetings I’ve been booking, for the most part, aren’t so large as to make a huge impact on my profit. Moving forward, I think if I had a larger project to book, I might increase my fee a little bit to make up for it. But I would never not consider a hotel because of the lower commission. It's really about my clients; the property that offers the best product is where I'm going to go.
Vaughn: When we started our business, it was essentially based on booking commissionable rates, but over the years we have become blended, where it's a combination of commissions plus management fees and service fees. Where there's not a specific request from a client or a preference the client has expressed, we'll put the business where it's going to be well compensated. We just did that last week.
There's fundamental unfairness about the idea that we should work for them and make their business a success at our expense. So, yeah, we're committed to the idea that we're going to support those who support us as vendors. But clearly the landscape has changed where we do have to have combinations of the commissions and management fees and service fees.
"[Planner points] won't put my kids through college, but if I lose my house, I could probably stay in Marriott hotels for a couple of months."
President, Hotel Lobbyists
So, how has your business fared over the past year?
Sterenson: The challenge that I will face — or could face — is that my clients, as much as they love me, would not under any circumstances use my services if they had to pay me. And I'm not insulted by that; it's just the niche that I've gone after. My clients use me because they can outsource site-selection for free. Otherwise they would do it themselves. So, right now I'm fine at 7 percent, but no, I don't have a real mechanism for moving to a fee-based model with what I do.
A large percent of my business goes to Marriott hotels, so you do the math. Fortunately, I've increased my volume to counter some of the reduction. If I had not done that, I should have seen at least a 20 percent hit on revenue.
Vaughn: Right now, I’m staying stable simply because our business has remained fairly stable. The challenge with increasing management fees to a level that makes us a sustainable, viable business is that I don't know that the clients would be willing to pay those higher fees, particularly given the kind of pressure they get to book directly. So, it’s gotten more complex.
What other pressures are you feeling?
Sterenson: At the same time that Marriott is reducing commissions, they've also instituted some companywide contractual policy changes that could impact my decision to buy from them. For example, historically, or at least in the last 10 years since I've been running my business, attrition has been treated cumulatively. So, if on one of your dates you’re over your minimum and you're shy on another date, the overage makes up for the shortfall. The trend now — and it's not just Marriott — is that attrition is calculated by night. So, if you miss by 20 percent on Monday, it doesn't matter if you're over by 20 percent on Tuesday anymore, they're going to charge you for the rooms on Monday. If I'm comparing hotel A to hotel B, and hotel A is offering me nightly attrition, that to me is a negative.
This is all because of the merger with Starwood. This isn't just the commission reduction and the attrition policy changes. This is all because they're big enough to do it. But I don't think it's going to last for long. They were smart but they could have been smarter. Marriott could have done this five years ago. But now, we are at the end of this amazing market for the hospitality industry, and if they had done it five years ago, they could have probably done a lot more damage to people like me. But we're at the tail end of the cycle, so yeah, it's working for them, but next year when the convention hotels are starting to feel empty because all these cities have built dozens of limited-service hotels and the demand isn't there anymore, are the hotels really going to say, “We’re empty and we're still not going to pay these people to bring us business”? I just don't think that is going to happen.
Are the attrition terms negotiable?
Sterenson: I think anything is certainly up for negotiation, but right now they don't have to because the demand is still there. They can just say, “Sorry, that’s how we do it now.” And if you don’t like it, they'll move on to the next customer. I think it's a limited time only that it's going to stick, but it's definitely something they're trying to shove down our throats right now. As the market changes, I think you'll start seeing hotels going back the other way. There are plenty of indications that they may not be experiencing the same boom in the near future that they have in the last few years. It may be in the form of a lot of different incentives that they’ll offer, not necessarily commissions, but I think you'll definitely see a change.
Our research shows that some hotels that have gone to 7 percent commission are making up the remaining 3 percent in other ways. Are you seeing that?
Vaughn: Yes, but a lot of the incentives might benefit your client but not do much for your bottom line as an agency.
Spelling: I also feel that they're more likely to give you the concessions for the much bigger bookings. If I have a 2,000-person meeting, I could maybe negotiate a 3 percent credit to the master. That doesn't do anything for me other than make me look good in front of my client.
I've had a franchised Marriott property offer me a 7 percent commission and a 3 percent signing bonus, which I thought was creative and fun, but I was told a year ago that Marriott hotels would be forbidden to do that. So, I couldn't accept. I couldn't believe that folks were already offering that kind of thing.
Sterenson: And planner points are a big incentive for those who can collect them; I think points have been more fluid and used to help soften the blow. They have been tripled or quadrupled, which is great. It won't put my kids through college, but if I lose my house, I could probably stay in Marriott hotels for a couple of months.
A few years out, what will be different about your business, if anything?
Vaughn: I think over the next few years this business is going to be much more challenging than it has been in the past. First of all, as the economy cools off, there'll be more pressure on companies to reduce cost. I don't know that the same perceptions that negatively affected meetings business in 2008 or 2009 will be as dramatic this time. But I think, overall, we're going to be challenged as independent planners to deal with charging clients who might be under more pressure economically. I think retaining clients is going to be a little more challenging given the pressures of direct booking. And then the pressure to attract new clients, and to increase fees at the exclusion of commissions, is going to make it very difficult for independents to stay competitive.
Spelling: I also think that in order to increase their fees, planners really need to broaden their scope to make up for lost revenue. I can see myself doing that as well. Normally I wouldn't do any sort of website development, but I might partner with somebody who can, so I can get a cut of that business as well. Or I could offer to work with your speakers or find a keynote for you. I might look to broaden my services to make up that revenue, which I think is super smart because you're just making it easier for the planner if you take the approach of being a one-stop shop for everything they need for their meeting.
Sterenson: I hope I don't have to do that! I don't want to broaden my services. I want to stay very finite in what I offer and just offer it well, because I'm a one-man show right now and I don't want to change that. I specialize in sourcing and contract negotiation. Once the contract is signed between the customer and the hotel, it's rare that I'm needed for any additional services unless I'm renegotiating a part of the contract. Because of that, I can do 250 meetings in a year because I'm not there for the meetings, and I'm not performing any other services that I would need to charge for. I can just keep moving on.