Are you a multi-day tour operator that has ever considered the possibility of wholesaling your tours for another tour company?
Perhaps you have just been approached by an outbound tour operator, and don’t know what to do.
Well, this is the post for you. Keep reading.
What is a DMC? What is White Labelling? What is an OTO? What is an ITO?
Destination Management Companies run tours on behalf of other brands. This is sometimes known as White Labelling.
The concept is simple but easier to describe with an example:
Let’s just say Jenny’s Cycling Tours wants to offer a tour to Italy. You have an Italian tour company called Totticesco Tours, and Jenny reaches out to you. She says ‘hello, would you like to run a tour under our brand?’
This means that from the guest’s perspective, they would be travelling with Jenny’s Cycling Tours.
So, when the guests arrive, you would hide all references to Totticesco Tours. Your team would be wearing Jenny’s uniforms (if she has uniforms), Jenny’s logo may well be on the bus, and whenever your drivers and guides refer to Jenny’s Cycling tours, they will talk as if they are employees of the company.
And then, when your guests arrive at the hotel, any welcome signage would be in the name of Jenny’s company. And so on.
Jenny’s company in this case is the Outbound Tour Operator. Your company is the DMC (or Inbound Tour Operator.) Sometimes this is also known as an ‘Incoming Tour Operator’, but for the purposes of this discussion, DMC is the term we’ll use.
Intrepid Travel, G Adventures and Chimu Adventures are three examples of large outbound operators who use local DMCs to run at least some of their tours. In some cases, it’s the exact same local DMC that runs the trips for all the major brands coming to their region.
You can read more about what a DMC does here and here.
We’re Talking About Package Tours
But, before we continue, one quick note – DMCs can do many things. They might solely book hotels, airline tickets, private tour guides, or ferry tickets.
For the purpose of this discussion, we’re talking about Fixed Departure Package Tours.
The tour would run on a specific date, have a fixed itinerary, and would include all hotels, transportation, guiding, and typically – most meals.
There Are Some Significant Drawbacks
Before we get onto the positives, let’s start with a cold shower. Here are some of the drawbacks of acting as a wholesale provider:
- The margins are way lower. If you’re new to this, you won’t have much in the way of buying power with local hotels, and this is where the majority of your margin comes from on this kind of tour. Your first few tours might run at tiny margins that are not even worth it. But, if you think about those early days when you first went into business as a tour company – you didn’t make much money back then, did you? Well, this is like starting a new business, all over. To get that initial momentum, you need to accept that your margins on top of your costs might be tiny – think 5, 10%. In the short term, it will hurt, but this is the best idea for the long term. (We’ll explain why below.) As you grow and improve your operations, negotiating better deals with suppliers, your margins should begin to grow to something more healthy.
- It’s a lot of work to get the tours together. Each brand has its own standards and guidelines. They have their own customer bases, with their own specific desires and needs. You’ll need to build a relationship with the OTO and learn their brand back to front. You’ll have to train your guides on how to act around OTO guests. The initial work of preparing a single tour is a lot more effort than what you’d put in for a single, one-off group.
Sometimes the OTO will pick a different supplier. This bit hurts – imagine spending weeks designing a trip, only for a different local operator to be selected. It is a huge letdown and will make you wonder whether it’s all worth it.
- You don’t get to keep the customer. At all times, you are representing the Outbound Tour Operator’s brand. This means you don’t get to use the customer’s email to stay in touch, and it most certainly means you can’t ask the guests for a review or try to sell a different tour to them. You’ll have to completely shut down your ‘salesperson’ instincts when you, or your guides, are with a group.
- You’ll have to design a completely new tour for every brand. Brands really don’t like it when they discover that a tour they thought was designed just for them, then appears across the internet. Exceptions do exist for this, but they need to be very well communicated.
- They’ll ask for your best guides. Yep, this will also happen. You can’t put a junior guide on a new tour for a new partner. This means that some of your best talent can be tied up in lower-margin trips.
- You might be asked for a lot of content. Brands will need loads of photos and won’t pay any money for them. They also won’t give you any credit, either. This is something that inexperienced operators really struggle with, but you should embrace this – as it’s your job to make your brand relationship succeed. How? Well, keep reading.
Why Would You Do This?
If you’ve never run a tour for another brand before, it might feel a bit strange to hide your branding, and make less margin per tour…
After all, it’s your company that the guests are travelling with, isn’t it?
Well, not quite. Take Apple. They don’t manufacture any of their own products. In fact, all of them are made by third parties! Yet when you buy a new phone, it has the Apple logo on the packaging. Because Apple does the marketing and brings in the customers, it’s their brand that goes on the box. After all, it’s their reputation that is at risk.
So, if you can’t build your own brand, why would you want to act as a DMC?
Well – once a relationship is established, some larger outbound operators can send 10, 20, 30, 50 or even 100 groups a year. What could start as a single $25,000 once-off relationship, can – and does – turn into $250,000, $2.5 million.. Or even more. Every single year.
But putting aside the big-sounding numbers, what are some other reasons to do it?
- You got into this business for the love of travel. And working with OTO is the best way to spend more time on what you do best – meaning you can grow your business without the burden of marketing. OTOs have the marketing resources and advertising cash to reach large and targeted audiences’ small tour operators only dream of. They take on that financial risk while your business grows, and you get back to doing what you do best – designing more incredible travel experiences!
- Diversity makes your business more resilient. Selling tours to consumers directly is great, but it carries its risks. Perhaps one of your guides makes a joke about US politics to the wrong group of people, and you suddenly have 10 negative reviews. Maybe your SEO Rankings go down, the Google Ad algorithms change, or your Facebook campaigns suddenly stop working.
- You’ll gain an additional source of income. The margins for white-labelled tours are lower (we’ll talk about this in a lot more detail, below), but it is a lot less effort compared to dealing directly with guests, and much lower risk. A solid OTO won’t cancel a tour 5 days in advance!
- Relationships. Entrepreneurship is a lonely experience, but when a relationship blossoms between an OTO and DMC, you may well find yourself developing very strong, trusting friendships.
- Operational excellence. Working with external partners is a huge spur to get better. If you’ve been dragging the chain on doing proper financial modelling, setting up solid documentation, and getting your legal and insurance all worked out, working with an Outbound Tour Operator is a great way to get that additional spark to make it happen.
- Your bank will love it. If you’re ever applying for credit, the additional revenue and cashflow on your books is something that loan officers always like to see.
- It’s great for cashflow. While you won’t be able to ask for payments 60 days in advance – like you would for FIT tourists – OTOs pay their bills. And they generally will pay for the tour 15-30 days in advance, meaning you’re never out of pocket. Compared to OTAs, OTOs offer a much better deal.
- Your business will be easier to sell once you head into retirement. Having multiple robust lines of business makes the prospect of buying your business much less risky.
- Once a trip is designed, it stays designed. It’s a lot of work to get a trip ready, but after a couple of groups come through, you’ll find that the trip needs a little ongoing modification. From there, you’ll be able to run it for years and years.
How Can You Succeed as an Inbound Tour Operator?
If you’re an inbound tour operator, you have one job: to make your partner happy. That’s it. You want them to be so happy that they send you more and more groups.
This is a simple list of things you need to do. Simple, but not easy:
- Design a great trip that matches the vision of your new OTO partner.
- Respond to emails quickly.
- Be thorough and precise in your documentation.
- Provide attractive pricing and payment terms.
- Have loads of photo and video content ready to go.
- Have your ducks in a row from a legal perspective. But, most importantly –
- Run a tour that delivers raving customers.
What First-Time DMCs Need to Know
We spoke with an outbound operator who told us this:
“The biggest reason we get nearly all the way with a DMC, and then don’t reach a deal…is because of money. It really hurts to walk away from what could be a good relationship, but lack of business savvy means that less experienced operators put in terms that are deal breakers for us.”
Ouch.
Well, let’s talk about how to avoid that!
You should know that while it’s a lot of work, it’s not as difficult as it appears to figure out the basics. Outbound operators we spoke with agree that good, experienced DMCs all do business in more or less the same way. Here’s what you should know:
- Remember that your partner’s entire revenue is the difference between what you charge them, and what they charge the customer. Many novice operators choke at the idea of their partner adding 30 or 40% as margin, but think about it – that’s literally all that they can make off the tour. Outbound operators deal with significant expenses – marketing, sales, travel agent commissions, customer service for months before the trip, refunds, insurance, fancy websites, booking software, Facebook Ads, Google Ads, Credit Card processing fees, office rent… Not to mention lawyers, occasional chargebacks, and 20-25% OTA Commissions. And then somehow in that 30 or 40% they need to find a profit.
- Your partner may well end up with a higher margin on a sold-out tour than you. You won’t like this initially, but you should learn to love it! Think about it – you make your own margin no matter how many guests come – be it 1 or 20. But, on the other hand, the outbound operator only breaks even once they sell a certain number of spots. This means that they’re taking a risk, and because they’re taking that risk, they should get the opportunity to be rewarded if they sell out a trip. Just remember that many trips don’t sell out, so even though you may think you know the margin that your partner is making, there could be a chance that there’s something you actually don’t know. (Case in point – Intrepid barely made a profit in 2019, the golden year of adventure travel.) So, for this reason…
- You need to make it as easy as possible for them to sell out their tour and make loads of profit so that they keep coming back to you. This usually means offering a discount based on head count – the fuller the trip is, the less you charge per head. This is a classic mistake that novice DMCs make. The world’s best and biggest DMCs always have a different rate for 6, 7, 8, 9, etc pax all the way up to the trip maximum. Yet novice DMCs do things such as pricing the same for 6-10 guests and then 11-14 guests, or putting a fixed price per guest for ‘8+ guests’. This is a surefire way to signal to an experienced OTO that you’re not focused on being the best partner you can possibly be.
- Don’t ask for deposits, unless there’s an excellent reason to – such as a premium local hotel that demands upfront payment. Remember, asking for a 20% deposit is the equivalent of asking for almost the entire margin of a tour from your partner. This is a huge mistake in a business where cash flow is extremely tight (see the first point above). Asking your partner to cough up a large deposit that they may not be able to cover for months will often be enough for them to walk away.
- However, do feel free to ask for references – or some kind of proof that the company you’re dealing with is a good operator. Following all the tips in this post requires a lot of work – and if it turns out your new OTO partner doesn’t actually have the ability to bring guests to your business, it’s all a waste of time. If they’re a new outbound operator, set no more than one date with them and let the trust build over time.
- Sticking with only a fixed supplier base is a common issue with older DMCs. If your operator brings you a vetted supplier that they want to work with, just do it. It will be better for the longer-term relationship.
- Net pricing is another bugbear issue with many newer DMCs. Unless you have an excellent reason, you should not attempt to offer a commission pricing model on your trips. You should stick with net pricing and let your partner decide the margins they want to put on top. After all, they are the ones taking the risk – and pricing risk is part of that.
- Lastly, if you’re not comfortable with taking a smaller margin on just one trip, feel free to negotiate loyalty rates with your partner. It is not common for local DMCs to proactively offer volume discounts in terms of trips scheduled, but it is certainly appreciated by outbound operators. And, if you do this, you’re giving them the incentive to really invest into the relationship with you.
Tips On Collaborating on Your First Trip
Here’s how to kick off a great relationship and close the deal:
- Make a good first impression. Come to the first call prepared. Bring evidence that you’ve researched the outbound operator and their customer. Ask great questions. Send an excellent summary of the call after you get off the phone.
- Hotels matter. Expert suggestions and recommendations are key, but you also need the flexibility to work with hotels you haven’t yet worked with. The same applies to restaurants and experience providers.
- Avoid generic or copy & paste itineraries. The first draft itinerary needs to have love put into it. If it doesn’t, this is a huge red flag.
- Your partner will need to verify that your suppliers are worthwhile. Be specific about which suppliers you’re using. Be prepared to provide a detailed line item quote.
- Make your guide available to have a chat before the trip, so that they can connect with your partner and learn the requirements of the brand.
- Make sure you come with an understanding of the basic requirements of acting as a local DMC (such as your team not wearing your uniforms, making sure your suppliers understand that this is a different brand that they’re working with, etc.)
- References from other companies are ideal. Even if you’re not asked for them, provide them proactively.
- Professionalism – don’t make people chase you for quotes. Respond quickly, and make the outbound operator feel like they’re the only client. Give the same level of service all the way through; make sure that after you’ve closed the deal that you’re still providing a 10/10 level of service.
- Online presence. A great website is critical, yet most full-time DMCs have horrible websites. (Note: we are a bit biased in saying this, but this feedback is very consistent across the board. Outbound operators see your website as a reflection of your brand.)
- Proactive hotel blocking and supplier management. You’ll get a huge amount of egg on your face if you’re constantly having to switch hotels due to unexpected changes in availability.
- Set up a good working rhythm with your new partner. Make sure to have a call before the trip to ensure that all details are squared away.
- Be responsive to last-minute needs, such as last-minute additions to the group.
- Be ready to take care of everything. Outbound operators want you to be their sole supplier.
- Don’t add silly margins. Airport transfers, and private supplements, come in for serious criticism here. Everyone hates getting ripped off, and your partner will know you’re doing it.
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