For almost ten years, I have been helping folks navigate their way through the site selection process in Canada. A lot has changed in this short amount of time and even more so in the last five years. What amazes me still is how many folks, including hoteliers, still do not understand how the business structure of site selection works.
Just a few weeks ago I was speaking with a national sales person who admitted they didn’t know the difference between a commission and a rebate.
In true THG transparency, this is how it works:
- As an IATA registered site selection company, we work with clients to determine their rfp requirements and then send this information to the hotel.
- The hotels work with us and, through a lengthy detailed process, the best fit hotel signs the business. Note: THG does not have preferred hotel agreements.
- A commission is paid to us by the hotels for bringing the business to their hotel. Why? The hotels pay a commission to site selection companies because they win a piece of business and whereby they didn’t have to use their internal resources (marketing or sales team) to gain it. This fee (typically 10%) is paid as the hotel recognizes the value of the qualified business that we bring – directly to them. This fee to the hotel is a cost of doing business (just like marketing and staffing costs) and is (important part here) – a tax benefit in that they reduce their gross revenue by applying this expense to their revenues. The cost of a commission reduces a hotel’s gross revenue which means they pay fewer taxes or less tax to their international government.
- A rebate is an offering by the hotel to the end user to reduce overall meeting costs: bedroom, meeting space, food and beverage. The amount difference that is reduced is not a taxable benefit and does NOT reduce their overall revenues. The government does not see this as a reduction of gross revenues. Therefore these fees are normally absorbed by delegates because the hotel cannot apply this loss of revenue against their gross production.
Site selection companies provide an economic means for hotels to increase the number of qualified leads and they only have to pay for the business that they win.
If you have any questions or comments on this part of the business, please reach out.