Danny Eldridge is CEO of ServeVita, a software integration firm that works closely with the likes of Unit4 and Sabre. In this guest post, he advocates for rethinking which TMC services are essential and which are value-adds.
One of my favorite movies and books is “Moneyball” about Billy Beane and the Oakland A’s. Being a numbers guy myself, the way they applied math captured my imagination and vision on how to look at things from different angles.
Our industry has taken a huge hit this year, but just as baseball needs at least nine players on a team to play a game, an organization needs a full team to play a year. Once things open up, we will see the initial players start to travel. Sooner or later, more will follow.
The question on everyone’s minds is, in what timeframe will all this happen? This brings me to the reason for this article: time.
Like Billy Beane applying math to sports, let’s look at a different industry and apply it to corporate travel. It seems like every 10 years there is some event out of our control that affects travel: 9/11, the 2008 financial crisis and now Covid-19. Each of those events forced the corporate travel industry to reinvent itself when it came to revenue management. Reduced commissions put the emphasis on TMC service fees. Likewise, evolving distribution likely will impact the revenue TMCs get from GDSs.
Given the Covid-19 crisis, it is time to ask a fundamental question: What does a TMC really do?
One perspective is to look at a comparable industry. TMCs are service providers and therefore similar in nature to professional services organizations (PSOs). If you just rolled your eyes, then consider this: A TMC’s biggest expense (besides the passed-through “cost” of tickets) is people. PSOs’ biggest expense is their people. While TMCs do sell travel products, those have become a commodity in our world. To survive Covid-19 and progress into the future, it is time for TMCs to consider their travel services as their value to corporate customers.
Those customers are asking TMCs how they’ll keep their employees safe while they travel. TMCs no doubt have teams of people scrambling to answer those questions with suggestions on new travel policy guidelines. These people are specialized. They have unique industry knowledge and an in-depth understanding of traveler security. How are they charging customers for this knowledge? In most cases, it is embedded in management or transaction fees. Other people-based providers charge for these types of services using the metric of time.
Another area in which TMCs are leaving revenue on the table is IT services. Information technology is an integral part of TMC services. Some TMCs have huge IT budgets to develop solutions to serve customers. Those same IT services are used to develop and configure websites, mid-office scripting and customer-specific reporting. In most cases this is considered a value-add embedded in the fees TMCs charge customers.
One more example is account management. Most PSO companies include account management as a value-added service. In travel, account management is unique. The account manager title does not do the position justice. This role includes project management, customer solution design, problem resolution and data analysis. The account manager is responsible for ensuring the client has the required reporting and a savings plan, and verifying the TMC is applying the travel policies. Oftentimes, it is the account manager who is working on behalf of clients with TMC partners in other countries. There may be additional roles specific to the TMC or to the account. These people are truly more than traditional “account managers.”
Do TMCs track the time that these account managers spend on each account? This is important if the TMC wants to understand how profitable each of its customers are. By charging a management fee or a transaction fee, TMCs don’t account for the time.
Does a TMC want one account consuming 80 percent of an account manager’s time and five more using up the rest? That skews the profitability.
To be clear, TMCs don’t need to abandon current revenue models, but their goal should be to recognize the services that are knowledge-based and charge customers in time increments for them.
If for no other purpose than understanding customers and how they are serviced, TMCs should measure time as a KPI.
In summary, Covid-19 caught us all with our masks down. TMC revenue streams dried up because the predominant model they used to charge customers was transactional. When there are no transactions, there is no revenue. Yet, customers still ask for essential services and knowledge, considered value-add in the past. Those need to be reconsidered.
• The Future Of Travel Management Companies: Part Two, The Value Of Compliance
• The Future Of Travel Management Companies: Part Three, Emerging Leaner
• Op Ed: Sam Hilgendorf On Travel Management Company Business Model Resiliency
• Op Ed: John Harvey On A Next-Generation TMC Model
• Op Ed: Louise Miller On TMC Innovation Coming Back Into View