Hotels and Commissions

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Hotels Should Evaluate Third-Party Planners Commissions

By: Howard
Since the Ritz-Carlton Hotel Co. recently decided to reduce its commission payment to some independent meeting planners, there's been much discussion about it on Internet listservs, discussion boards and in meetings trade publications.
There has been a significant increase in the use of independent planners by companies and associations during the past several years to quicken the meeting-planning process. Some of these independent companies provide full-service meeting-planning activities, while some do only site selection on behalf of their client, the meeting-sponsoring organization. Many of these third-party meeting planners require a commission payment of 10 percent of room revenue generated to the hotel that is selected.
Ritz-Carlton management has reported that those independent companies providing only site-selection services now will be paid 3-percent commission instead of 10 percent.
A question arises: Should any third-party planner be entitled to any commission? These independent planners are engaged by sponsoring companies and associations to represent them in selecting properties that best meet the needs of the organizations' meetings or conventions. Some independents only source of income is the commission paid by hotels; others receive a fee plus the commission; and, of course, some ask for no commission.
Are there some situations in which a property that might be the best choice for a sponsor's meeting is not selected because the hotel refuses to pay a commission? Probably. In fact, some independents already have gone on record indicating that they will not use Ritz-Carlton hotels.
Does it seem logical that if organizations hire independent planners to represent them in the process of selecting hotels and negotiating on their behalf, then it should be the organization who pays them? After all, they are being engaged to do the best job possible in representing the folks who hired them. At the same time, the independents are saving the sponsoring organization a good deal of time, effort and expense. Of course it's time consuming and hard work for the independents, but why should a seller have to pay a buyer to do business?
There's another consideration. If an independent planner brings business to a property and if it's a meeting the property might not have been able to get on its own, isn't it worth the 10-percent commission? Many times a hotel can recover the commission payment in added fees somewhere along the line in charges for rooms, space rental, foodservice, etc. The whole thing boils down to how much a property needs the business.
Hotel sales staffs need to be cautioned about doing business with independent meeting planners who refuse to indicate the organizations they represent. It's always a good idea to ask independents for letters from the sponsoring organizations explaining that they are being represented by the independent.
Furthermore, if any commissions or fees are paid to independents in which those conditions are disclosed to all parties involved, be sure those are reflected in the contract.
We'll be analyzing this issue when we discuss contracts at our next HOTEL & MOTEL MANAGEMENT-sponsored Hospitality Sales Workshop, Feb. 5-7. For more information about this or upcoming netconferences and Web casts, contact me at howardf@vt.edu or (540) 231-3746 (fax).

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