Travel Agency Franchise or Host Agency? A Crash Course
Travel Agency Franchise or Host Agency, That is the Question
If you have stumbled onto this post, you have likely decided to enter the travel business but are debating whether or not a travel agency franchise is the best route for you. Well, beloved reader, you have found the right place! As is the nature of starting your own business, one question answered usually opens the door to another: What is the difference between a travel agency franchise and a host agency?
I have to admit, this article is long-winded and takes a long distance and microscopic look at franchises. If you're short on time, I made a few shortcuts:
- Basic franchise definitions (a tiny index and a good primer)
- Travel agency franchise profiles
- Host agency or travel agency franchise, what might be right for you?
- Quiz: What business model is best for me?
So if you are among those who are weighing options between purchasing a franchise or aligning with a host, well refill your mug with coffee or tea and settle in, because we’re going to explore some options and hopefully bring you closer to discovering a solution that works for you!
Whoa. Hold the Phone.
Before we really dig in, I want to quickly clarify what I mean when I say, “going with a franchise or host agency.” There’s a bunch of (independently owned) travel agency franchises listed on our site that are also host agencies. Yup, they’re a travel franchise AND a host! So when I talk about trying to decide between a franchise and a host, what I mean is deciding whether or not to purchase your own independently owned franchise—not aligning with a host agency that is also a franchisee (for example, the hosts on the Travel Leaders Franchise Group profile are all hosts AND independently owned franchises).
I only mention this because when I first started working with Steph here at Host Agency Reviews, I was totally baffled by all the different options available to agents considering what host agency to join.
And speaking of bafflement, this article is freaking long for a reason! There’s no hard and fast rule. *Sigh* If only! Therefore, I must provide a MAJOR DISCLAIMER: There isn’t really such thing as a “typical travel agency franchise.” There is always an outlier. So it’s really important to check with the franchise for specifics on your situation.
Okay, we’ve cleared that up. Let’s move on, shall we?
Building Your Business
Every travel franchise and host is TOTALLY unique, but below is my attempt to classify some fundamental differences between a host agency and a travel agency franchise. I like to think of it like the difference between buying a house opposed to building one: With a franchise you’re walking into a turnkey business that is already structured and ready to go, and with a host you’re building your own business from the ground up. Here are a few key differences to keep in mind:
The Travel Agency Franchise
- Commissions/Royalties: Franchisees get 100% of the commissions. In turn, the franchisee (agency) pays a royalty or a monthly/annual fee to their franchisor (HQ)—many times a percentage of total sales, sometimes a flat fee.
- Brand: There is an established brand/name. A franchise owner pays a licensing fee for the right to use this branding and operate under their name. Some franchisors mandate you use their brand, and others offer more flexibility (you can have your own identity and co-brand with their name—ex: Mary's Travel, a CruiseOne affiliate).
- Accreditation: This varies depending on the franchise. Some travel franchises require owners get their own accreditation, others use the franchisor's accreditation.
The Host Agency
- Commissions/Royalties: There is a commission split (typically between 50%-100%) between the host and independent agent. There are no royalty/licensing fees.
- Brand: The travel agent creates their own brand, comes up with their own business name and customizes how they run and market their travel agency.
- Accreditation: The agent uses the host’s accreditation numbers.
We have tons of resources defining and exploring host agencies, but for this article we’re going to explore the travel agency franchise model more in-depth:
What is a Travel Agency Franchise?
A travel agency franchise is essentially a business in a box. It’s like buying a house—the foundation and scaffolding are already in place. All you need is your moving truck. If an agent invests in purchasing a franchise, they are walking into an established brand . . . everything from marketing materials & plans, procedures & operations. A travel agent who purchases a franchise can bypass some business development when opening an agency.
Among other things, brand recognition is a major part of a franchisee’s investment. You can probably imagine what pops up first when you google the word “fast food hamburger” (ahem, I can’t bring myself to say it, but think “cheery clown who struggles with applying red lipstick”). For folks who don’t want to invest the time and energy to build their own brand, this can be appealing.
Franchises, unlike hosts, are regulated by the Federal Trade Commission (FTC), so there are certain things they’re required to do by law:
- A franchisor must show the interested parties (you) their Franchise Disclosure Document (FDD). Here’s a great overview of what’s in the FDD from Entrepreneur.
- Once they’ve given you the FDD, you’re going to be excited… but hold your horses. Federal law requires you have the FDD in hand for 14 days before you give the final nod/signature of approval. (The government wants you to avoid buyer’s remorse.)
Breaking it Down Further
The travel agency franchise model can be further broken down in two different types (some franchises have agencies in both categories):
- Home Based: These franchises typically register lower startup costs compared to retail franchises. This model can better accommodate newbies.
- Retail: Storefront travel agency franchises require a considerable financial investment and typically focus as much on management –– if not more –– than selling of travel. In this case, the franchisee is essentially responsible for managing a traditional brick and mortar travel agency, where they hire frontline agents to do the work of selling travel. This model is typically better for pre-existing travel agencies. A good rule of thumb is retail travel agency franchises are a good fit for agencies with sales of 4 million and upward. Sometimes agencies go this route when they have outgrown their business and have the capital and resources to expand. It's rare a newbie would ever go this route.
Alright. No more dilly dallying. Let's see what this looks like in reality.
Travel Agency Franchise Profiles
Here’s the deets on travel agency franchises as we know it thus far! We’ve profiled some franchises to get a sense of their range. You can count on the fact that we’ll be updating this info as we receive it! Below are the major players when it comes to travel agency franchises:
That will give you a good sense about what’s out there in terms of travel agency franchises. But what about how that compares to a host agency? Read on, fearless reader.
The Host Agency
Okay, so most folks don’t know how to build a house, and even if you’re a decent carpenter, you’ll probably need some outside assistance. This is where the host agency comes in. A host agency gives their ICs the creative freedom to develop and build their own brand/business, but with some basic supports––they won’t tell you what kind of house to build or what colors to paint it (you won't hear, "You must paint it Ruby Red to stay on brand!"), but they can help you achieve your own vision along the way.
At the very minimum, a host will provide agents access to their accreditations/affiliations and support services as well as basic bookkeeping. In joining a host agency you have an opportunity to determine areas where you specifically need the most support, and build a plan “à la carte” style.
Maybe you’re a great plumber but a lousy electrician: Are you a grassroots marketing guru who can build your own website from the ground up, or do you live in the dark ages of technology like me and would benefit from a website template? Want to use a ticketing desk, or do you need the GDS? Want to invest in a lead program? You decide. You get to play to your own strengths and growth areas as a business owner.
With a host you’ll have access to their buying power, benefit from their vendor relationships and get some support with some of the “behind the scenes” operational/administrative stuff. You are pretty much entirely in charge of your own personal business model. (hint hint . . . The article “What is a Host Agency?” explains the role of a host agency in more depth).
There you have it. The barebones differences between a franchise and host. Again, my description is an overview of both business models. There are tons of subtleties, varieties and potential overlap when it comes to both hosts and franchises, but we gotta start somewhere, right?!
So, What Might Be Right for You?
Okay, okay you get it. Enough of the carpentry metaphors! How do I go about navigating this decision, you ask. Well, funny you should ask...
I’ve broken it down into three things you can consider when navigating whether to purchase a travel franchise or go with a host: budget, time and temperament. Onward!
1. Minding Your Budget: The Buck Stops Here
You don’t want to run out of money when your house is only half built. Regardless what way you’re leaning, it’s important to make a budget that’s realistic and will anticipate expenses (everything from registering your business to operations and marketing).
Though money doesn’t make everyone’s world go around, sometimes the answer is as simple as cost. And this swiftly brings me to the the biggest difference between starting up as a franchisee and aligning with a host: The almighty dollar.
Travel Agency Franchise:
Initial Startup costs: $10,000-$39,000K
With a franchise, you are walking into a pre-existing brand and business model. But when you’re slinging someone else’s wares, you’ll have to cough up some dough to license the right to sell under that brand.
The initial startup cost of buying a travel franchise is much higher than aligning with a host agency (I’m talking thousands and sometimes tens of thousands here). In general, travel agency franchise startup costs can be divided into those that have startup fees under $11,000 (typically aimed at home based travel agents) and startup fees upward of $30,000 - $39,000 for those who want to open a retail location.
BUT … when we’re talking about the 30-grander retail franchises, we’re just talking the initial fee paid to the franchisor: Someone who wants to get a retail travel agency franchise up and running can plan on spending tens of thousands more on things like hiring personnel, utilities, lease agreements, staplers & office chairs, your office dog etc.
Either way, a travel agency franchise is a big ticket item. Some of the franchises offer discounts to veterans and/or to women & minority business owners. Others compensate for the sticker shock by allowing you to pay in installments rather than a lump sum.
At the end of the day, you can count on shelling out more money up front for a franchise. It’s also important to mention that there may be, er, some room to negotiate. Are you a seasoned agent (or agency) that already has six zeros behind your sales figures? Well, then you can probably count on some leverage. Remember, it never hurts to ask. And if you need help with negotiating your contract or reading over the FDD, here's our list of travel industry attorneys.
Maybe the buck stops there and you simply can’t shell out that kind of cash, but you have fallen in love with the brand. There's another option to consider: Finding an independently owned franchise in that network that also hosts agents! That will afford you the opportunity to benefit from some of the franchise’s perks and––like robust marketing tools and the franchise’s buying power.
And that brings me back to the host agency.
Startup Costs: Plan for $500-$2000
It’s safe to say that you can get your biz off the ground with a host for $500-$2,000 (and that may include other business expenses other than the money that goes to a host).
I cannot even begin to tell you the range of host agency fee structures. There are over 120 host agencies listed on the site and as many different ways to pay. Some hosts have zero startup costs and instead get their payday through commissions. Some hosts have monthly fees, others do not. Some hosts waive or reimburse a startup fee if you either make a sale in the first month or purchase amenities like E & O insurance or a website. One isn’t better than another––it’s all about what works for you, the agent.
At the end of the day, you're paying less up front with a host than you would a travel franchise. The growth is typically slower but trade-off is you need less capital. If the host agency route intrigues you, learn more about finding a host travel agency.
2. Time. Is It On Your Side?
How much time do you have to commit to running an agency? It takes time to build a business regardless of whether or not you purchase a travel agency franchise or go with a host (or, completely independent). But your choice will impact how much time you spend getting your business up and running, and how you spend your time during the day to day.
Travel Agency Franchise:
Is patience someone else’s virtue? Do you need your business up and running yesterday? Well, as you can imagine, it takes a lot more time to build a house than to buy a house.
There is a reason why they call it a “turnkey business.” Franchisors use a pre-existing business model. They’ve done it a ton of times before, so the groundwork is laid out for you. Going with a franchise will save you a ton of research and development time in the sense that a lot of the business decisions are already made for you: The name, the niche (possibly, to a degree), the marketing plan and budget, etc.
Though owners get to determine their own business culture and make hiring decisions, they won’t need to spend time developing and testing marketing strategies or business protocols. To some, it can be a relief to spare themselves the burden of responsibility, and to others it can feel like creative restriction.
If you go with a franchise, typically you will be all in—especially with a retail franchise. It’s an investment for a reason! So while a franchise might be a good fit for folks who are really hungry and business savvy, but maybe don’t know much about selling travel on the front lines—it’s probably not best for those who don’t have a significant amount of time and energy to dedicate to their business.
Hosts will offer different levels of support to their agents, but in general, you’re going to put some serious time into business development before you even approach a host (more on starting your home based travel agency).
You are making your own blueprint for the business: Ideally, when you sign on with a host, you’re all ready to start selling travel, and that takes tons of creative energy and research time. You’ve already registered your business, set up banks accounts, purchased a web domain, business cards and marketing materials. You’ve developed your niche and have begun to develop a list of potential clients.
So you woke up wanting to put the first map of the moon in your article because you thought it’d be cool? Go for it.
You want to completely redesign your newsletter to reflect an astronautical theme? Why not? (We did!)
At the end of the day, you determine how you structure your time. When you work with a host (or independently), you can follow your own whims. The risk is that you might get lost in the rabbit hole of curiosity … and another downside? You have to design those newsletters and write those articles yourself.
And all of that takes time.
When you work as an independent contractor through a host, you can grow your business at your own pace. Whereas a travel agency franchise is most likely a full time commitment, going with a host can be a good option for agents who are transitioning between jobs/careers, or have a huge passion and ability to sell travel and want to earn supplemental income. Don’t get me wrong, hosts want agents who are committed to and serious about selling travel. There is just more flexibility to take the time to grow your business and explore the industry.
It's Time for a Little Breather
Before I go back to regular programming, I want to give you a chance to rest your weary brain. If you're realizing this choice is taking up more brain real estate than you thought, HAR's new course, The Complete Guide to Starting a Travel Agency might be a great support for you.
The course is written and taught by yours truly and Bridget Lee professional educator with deep roots in the travel industry. Maybe you notice a last name similarity? We're sisters and we both came up in a family that is deeply rooted in the industry. Check it out!
Okay. Just want you to know it's there as a lifeline if you need it :) Onward.
3. Work Style. What's Your Temperament?
What kind of work environment gives you energy? Some people prefer to follow the rules and some prefer to make them. Some thrive on structure and routine and some feel energized by complete creative control. Your workplace personality can play a big role in deciding whether or not to go with a franchise or a host agency. So what are some factors that might help you decide what’s right for you?
Travel Agency Franchise:
Because franchises are seeded from pre-existing business plans, in general it will have a more structured vibe. If you work through a franchisor, you won’t be able to wake up and act on the new logo inspiration that visited you in your dreams the night before. For some, this affords stability and security. For others, they find it creatively restrictive.
A host won’t tell you how to use your time or run your business. They won’t stop you from working in your pajamas (home based franchisees can work in pjs, too!). At the same time, they won’t be able to develop and test certain marketing strategies or products specific to your agency. They support you and your vision, but at the end of the day, you are responsible for your brand and making decisions about how to run your business. They might give you the tools to build your house, but they’re not going to build it for you. An agent under a host will be responsible for creating their own logo and marketing campaigns, but for a franchisee, it’s already done.
If creative control is important to you (developing your own branding, vision and mission), then a host would likely be a better fit. It’s a lot of work and responsibility—so if that makes your stomach churn, a franchise might be a better option.
In Summary: A little Soul Searching
At the end of the day, starting a travel agency will take a ton of work no matter what route you go—it’s just a matter of deciding what kind of work is more rewarding to you. Take our travel agency franchise or host quiz to help you navigate the process:
Well done, beleaguered reader! You have made it to the end. I applaud you!
I hope this provides fodder for a little soul searching. Here at HAR, we believe that you will be most successful if you are passionately connected to the work you do. If you go with a franchise, you’ll want to decide on a business model and brand that you can really get behind and support. If you go with a host, you’ll really want to have a strong handle on your vision for your business and what host agency is best for you.
Ready to get going? Check out our 7-Day Setup Travel Agency Challenge and get your agency up and running in no time!
We’d love to hear your questions and have you share your experiences in the comments below—the good, the bad, and the harried!
A Tiny Index of Franchise Terms
Here's a little franchise terms cheat sheet, straight from Entrepreneur magazine. Hey, why reinvent the wheel?!
- Franchisee: An individual who purchases the right to operate a business under the franchisor's name and system (that's you!).
- Franchisor: The parent company that allows individuals to start and run a business using its trademarks, products and processes, usually for a fee.
- Franchise fee: The initial fee paid to a franchisor to become a franchisee, outlined in Item 5 of the Franchise Disclosure Document (FDD). For some franchises, this is a flat, one-size-fits-all fee; for others, it varies based on territory size, experience or other factors. Many franchisors offer franchise fee discounts for veterans, minorities or existing franchisees. And this is not to be mistaken for . . .
- Startup cost/initial investment: The total amount required to open the franchise, outlined in Item 7 of the FDD. This includes the franchise fee, along with other startup expenses such as real estate, equipment, supplies, business licenses, and working capital.
Franchisors are busy. Did you see the number of franchises they help keep going? Thank you so much to the fabulous people who took precious time out of their day to keep us honest. A special thanks to Pamela Hirsch, Perry Lungmus of Travel Leaders Franchise Group, Dan Hicks of Cruise Planners, Alicia Linden and Tim Courtney of CruiseOne/Dream Vacations, and Heather Han-McManus of Expedia CruiseShipCenters—they really schooled me in the different travel agency franchise models.
Photo credits: Uitleg & tekst, Noelia, 401(K) 2012