Venue booking commissions, is it time for a change?
Very important discussion was held by Event Huddle about venue booking commission and welcomed panellist to represent the voice of the industry from both sides – agencies and venues. It was chaired by Samme Allen from Sequoia Partnership and hosted Juliet Price from HBAA, Des Mclaughlin, an industry veteran an investor, Rachelle Valladares from Venue Guru and Dezika and Carlo Zoccali who represented Arsenal FC at the discussion but is now with Farnborough IECC.
Venue booking commissions, is it time for a change?
The discussion kicked off with the main question – venue booking commissions, is it time for a change?
Three out of the panellist agreed that it doesn’t. The commission model exists for many years now, it’s tried and trusted for many venues, and corporate clients are aware of it. The smaller agencies highly rely on this model to generate revenue. Agencies should see this as a cost to reach the market and a valid way to get paid.
For venues, about 75% of their business comes from agencies, so if they take the commission out, they will lose major stake in the market. Venues budget for commissions they pay each year.
What has to be changed, is the understanding of how much commission is being charged. The industry must have a certain standard for commissions and Code of Practice should apply to all agents.
HBAA has created The Code of Practice – it was written by agents and venues to support and protect commission based business model. “It is about ethical and professional working practices, it doesn’t dictate commercial terms and makes recommendations on best practice. It is reviewed regularly internally and by legal advisors to ensure it reflects current legislation, including Bribery Act and Competition Law”.
Fair representation for small venues
How do agencies ensure that venues get fair representation when large hotel chains offer rewarding overrides and high commission structures?
For venues, each must compete for every piece of business. This can be through commissions and partner fees but then agencies must be clear what the venue is getting out of it. If a venue partners with an agency and paying additional partner fee or service fee, it will give the independent venue a leverage over ones who are not paying.
Perception, more transparency and clarity
The panellists and audience suggested that there is not transparent enough relationship between the client, venue and the agent. Not always the client knows that there is a commission involved. While some agents take commission, other agents use management fee. From a small venue perspective, they don’t always know what they are dealing with and have a challenge with putting up a product for the end user.
Agencies must be clear with their clients, too. Small clients are not willing to pay a management fee. Other clients, from government organisations for example, don’t want to know what the agent is getting on commissions.
Regardless of commissions, most important is for agents to push the right venue for the event. If they lose the client because of pushing the wrong venue but with higher commission there is more to lose!
Someone from the audience gave an example that their venue was more suitable but another one offered a higher commission rate. At such instant the agent said that the venue must match this otherwise will take the business elsewhere. Many venues in the audience agreed that they have experienced this. This short sighted vision will affected the end client. In such case it was suggested that when there are two very similar venues they can reduce the Day Delegate Rate (DDR) or offer complimentary drinks etc.
Management fee vs. Commissions
Someone from the audience suggested that agencies should work on a management fee and not commissions as they provide value to end client. Reality is that the end client doesn’t have budget to pay for sourcing, this is the management fee, so it must be funded through commission.
Usually agents also take commission for F & B, in addition to venue. To justify this, is was said that small agents are not making much money. If they don’t take extra 8% on F & B they’ll be out of business. There is a reason that the figure is fixed to 8-10% and any figure below will put them out of business. There is additional work going into F & B so this shouldn’t be underestimated.
Transparency will stay small because agents and venues don’t want to lose business to competitors. Venue sourcing is when it gets tricky. Some agents do the research and work, others just send a proposal and get the job without much effort. In such instances venues don’t see the need to pay high commission and the client should be paying for this. Corporate clients hire agencies to look for venues for them and pay them. Why the venue should pay the agency for the job they’ve been asked to do by the end client?
From accounting point of view for corporate clients having a management fee will complicate their accounting when they have to put management fee and venue separately.
Agent contracts must state what commission they are being paid.
To conclude, often, the commission is misrepresented. When agencies are pitching and go through tendering process they are not getting paid. Pitches are expensive and commission is a way to repay the time and effort put towards the venues finding. This is the cost involved in winning the business. Lastly, more then commissions, agencies should also focus on the added value of good partnerships with the venues.
