Why commissions are so terrible
Dr. Elling Hamso,
17. September 2009 21:13
Without commissions in the financial services market, the credit crunch might never have happened. A commissions based business model means selling what suits the agent, not what is in the best interest of the customer.
Speaking at the Hotel Booking Agents Association annual forum in Hinckley, UK, recently, I was provoked to make known my stand on commissions.
Commissions are a disease. Business models based on commissions are a textbook case of a win-loose supplier-customer relationship.
Venue finders and others who use a commissions based business model say that I don't understand, which worries me, because I do. So at the risk of being patronizing, let me spell it out.
Let us say I am a corporate meeting planner asking an agent to find me a venue. I pretend this is a free lunch as the agent is paid a percentage fee from the venue and claims to leverage his purchasing power to get really low rates. How hard he will work to get me the lowest suitable deal is questionable as his percentage commission amounts to more money if the rate is higher. This is the win-loose mechanism between me and the agent.
But I will always get the best deal for my client even if it means a lower commission, says the agent, I have the long term relationship with my client at heart.
I, the corporate customer, don’t care what you, the agent, feel or think. I just know that the harder you work for me, the less you get paid. And I want you to work harder still, because I am on a continuous performance scorecard which means I have to get more value for less money, every time. I simply will not accept, and refuse to believe, that any company looking after the best interest of its shareholders will work relentlessly harder and harder in order to get paid less and less. It is a nonsense and such a business model is an embarrassment to our profession.
Speaking at the Hotel Booking Agents Association annual forum in Hinckley, UK, recently, I was provoked to make known my stand on commissions.
Commissions are a disease. Business models based on commissions are a textbook case of a win-loose supplier-customer relationship.
Venue finders and others who use a commissions based business model say that I don't understand, which worries me, because I do. So at the risk of being patronizing, let me spell it out.
Let us say I am a corporate meeting planner asking an agent to find me a venue. I pretend this is a free lunch as the agent is paid a percentage fee from the venue and claims to leverage his purchasing power to get really low rates. How hard he will work to get me the lowest suitable deal is questionable as his percentage commission amounts to more money if the rate is higher. This is the win-loose mechanism between me and the agent.
But I will always get the best deal for my client even if it means a lower commission, says the agent, I have the long term relationship with my client at heart.
I, the corporate customer, don’t care what you, the agent, feel or think. I just know that the harder you work for me, the less you get paid. And I want you to work harder still, because I am on a continuous performance scorecard which means I have to get more value for less money, every time. I simply will not accept, and refuse to believe, that any company looking after the best interest of its shareholders will work relentlessly harder and harder in order to get paid less and less. It is a nonsense and such a business model is an embarrassment to our profession.
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