Switching From a Per-Booking Commission to a Monthly Subscription Model
When Triptipedia started, back in 2018, it was just a basic platform where people could post travel tips. Quickly, some tour operators joined and tried to publish their tours as "travel tips". Our rules forbidding self-promotion, those articles were rejected each time with an email explaining why.
But we got a few responses: How can we post our tours on Triptipedia? We can give you a commission!
As it happens, OTAs (online travel agencies) often work with a per-booking commission. This is the case with platforms such as booking.com, Viator, Expedia, Airbnb, etc, which keep a part of each booking.
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Starting to offer bookings on Triptipedia
It seemed like a good idea to monetize what was at the time a very small side-project. Since we wanted to keep the encyclopedia of travel tips just for travel tips, we started to work on a separate Tours & Activities section that would allow suppliers to join in.
But how to make it work?
Securing the commission was not easy. Cashing-in entire bookings, keeping our commission and giving the rest to the tour operator would not have been legal without a license. Triptipedia is based in the EU and has to comply with the PSD2 (Payment Services Directive, an EU directive).
We came up with a workaround: the customer would only pay our 15% commission by credit card to secure the booking. The remaining 85% was to be paid face-to-face to the tour operator on the day of the tour. This is what we called "in-person" payments.
Schema of an in-person payment (Triptipedia's commission: 15%)
It wasn't perfect, but it worked for most cases.
Even though no-shows were not likely to happen (since the customers had already paid a booking fee), they would hurt our suppliers. In-advance expenses (such as hiring drivers or guides, food services, etc) would end up wasted if the customer never showed up.
Later, we were able to protect some of our suppliers from no-shows thanks to Stripe Connect. All the funds could be secured in advance, in accordance with the PSD2. It allowed our suppliers to configure a cancellation deadline (3, 7 or 30 days before the tour) at which the remaining 85% was charged and secured, and after which they'd be paid by wire transfer. We called this option "bank transfer" payments.
Schema of a bank-transfer payment (Triptipedia's commission: 19%, due to higher costs)
Unfortunately, Stripe Connect isn't available for every country. It also has legal requirements that suppliers need to comply with on a regular basis (such as uploading IDs, business papers, etc). Failure to comply could result in payments being blocked.
But whether it was for "in-person" payments or for "bank transfer" payments, this whole setup was burdensome for everybody and had significant drawbacks.
The pains of the per-booking commission model
First, keep in mind that there is a credit card fee (roughly 1.5 to 3%) that cannot be refunded. Therefore, when a cancellation was made, someone had to pay for it, either Triptipedia, the supplier or the customer. We decided that the party cancelling the booking would pay. Customers cancelling a booking would get 97% of their 15% deposit back (i.e. cancelling a $1000 booking would end up costing them $4.50). Suppliers could also cancel for a similar fee.
Most times, things went smoothly. But the policies we chose regarding deposits, cancellations and no-shows could not possibly accommodate every single supplier.
Therefore, to attract a variety of suppliers, we had to adapt our booking engine to suppliers' way of doing business. To give you an idea of what it entails, here are some questions we received from suppliers:
- My tour departs 3 times a day (except Sundays, only 2 times) but the exact time depends on the day of the week and the weather forecast the day before. How do I configure that?
- How can I configure my pricing to offer a complimentary lunch only for groups of 6+ people that paid for the "private transportation" extra?
- Is there a way to allow same-day bookings only for groups of 4 people or fewer?
Sometimes, we had to say "no" to feature requests. Some suppliers found their way around it, others could not use Triptipedia because of that.
Suppliers from countries with strict regulations were de facto excluded from Triptipedia. A tour operator from Bhutan once told us: We would not be able to proceed without receiving funds in advance. It is a Bhutanese government regulation. Please let me know if you can think of any other solution.
Even for eligible suppliers, it was a relatively long and complicated process to join us. Many of them declined to list their tours with us for this reason. Another new platform to handle, with its own rules and specificities to learn was too much of a hassle. And they were right!
Our policy regarding tours' public prices was another inconvenience. If a tour was publicly priced at $100/person, it also had to be $100/person on Triptipedia, including our 15-19% commission. Otherwise, customers would simply go book elsewhere, which is understandable.
Therefore, suppliers needed a margin large enough to absorb our fee. This is actually a pretty standard practice that most of them are fine with. But it meant we had to continually compare prices on Triptipedia to public prices. And it wasn't fun, especially when we had to send them a "your price is too high" warning email.
But the real kick with our system at the time was bookings outside Triptipedia.
Our suppliers, like all Triptipedia users, have a public profile where they can put a picture, bio and link their website & social media. All tours are explicitly marked "offered by" with a link to the supplier's profile.
A supplier's "Offered by" section, displayed below a tour
It meant that a customer viewing a tour could easily bypass Triptipedia and book directly with our suppliers. Some of them were kind enough to let us know the extent of this.
And could we blame the customers for doing that? No, not really. Most people don't know Triptipedia, and it can be more reassuring for them to pay the supplier directly. A proof of that is the first completion suggestion for "Triptipedia" on Google: "Triptipedia reviews".
Many other OTAs fixed this problem by hiding the suppliers' company name. Customers wouldn't know which company they're booking before paying, going as far as censoring messages exchanged between suppliers and customers to ensure no information is leaked.
This whole idea goes entirely against our philosophy. We want our suppliers to have the option to share both their tours and travel tips (and now accommodations) publicly under the same account. We want people to be able to discover suppliers via their travel tips. Triptipedia is all about sharing information and allowing people to connect.
Our per-booking commission model was a great first step for Triptipedia. It allowed us to talk to hundreds of tour operators from all around the world, and we learned a lot.
But ultimately, we felt that the complexity was holding us back. Things had to change.
Switching to a monthly subscription
We pivoted to a much simpler alternative: a subscription-based model. It was a real paradigm shift for suppliers, customers and for us too!
Now, suppliers pay a monthly fee to have their listings featured on Triptipedia, no more per-booking commission. We also took this opportunity to welcome accommodation owners on Triptipedia, yay!
This shift means, first of all, that Triptipedia doesn't handle bookings anymore. We put customers and suppliers directly in contact (via the supplier's website or via email). Customers can make what's called "direct bookings" (without third-party commissions) which is healthier for everybody.
Suppliers get more freedom: no more middle-man deciding how pricing, deposits, cancellations and no-shows should work. They no longer have to comply with all the requirements we had and can make business the way they want (even offering a complimentary lunch for groups of 6+ people that paid for the "private transportation" extra!).
This new model also fixes the problem of suppliers forgetting to take down listings no longer available.
The monthly subscription applies to new suppliers only, we didn't force our older suppliers to migrate. Since some of them migrated on their own and others stopped doing business (due to COVID or other reasons), our number of "legacy" tours slowly decreases. We'll likely discontinue commission-based tours in the future.
But wait a minute. A monthly fee? Do suppliers have to pay even if they have no bookings?
It's an important question. The answer is yes, but all our plans include a free, no-commitment, 90-day trial. This allows suppliers to validate the performance of their listings before starting to pay anything. Subscriptions can be cancelled for free at any time, whether the trial is ongoing or not.
Being flexible this way works especially well for suppliers since we cannot predict how well a listing will do. Some will get traction, others won't. So it's best not to make any promises we can't keep. Our premise is simple : come and try for free, and if you're happy, stay as long as you want.
In practice, suppliers whose subscription wouldn't be profitable cancel during trial, that's about 33% of them.
A monthly fee is very different from what our suppliers are used to, since other OTAs have per-booking commissions. It still raises many questions, so we hope this blog post will help shed some light on the reasoning behind this choice, as well as its pros and cons.
Are you a tour operator or an accommodation owner interested in joining Triptipedia? Here's what you need to know:
Published by Triptipedia on 05/04/2021
Ruben
Apr 6, 2021 at 06:52
Interesting read, your decision makes sense