This is part one of a two part series about the costs and earning potential of travel agencies. To learn about the latter, see part two of this series, How Much Do Travel Agents Earn?
Whether you are starting your own travel agency from scratch or becoming an independent agent of an existing host agency, the journey you are about to embark upon is very much akin to starting your own business.
In both cases, you have full control of when and where you work.
Each scenario also provides you with the highest earning potential available to travel agents (click here to learn about travel agents' earning potential)...
And as with any entrepreneurial venture, there are certain upfront investments that are necessary to get started.
Below we review the typical expenses you may incur when starting a travel agency or becoming an independent agent.
1. Business Formation
All businesses need to form a legal entity and register it with the state, federal, and sometimes, local governments.
You can create a Limited Liability Corporation (LLC) pretty easily these days with services like LegalZoom or BizFilings. Many businesses form in Delaware due to the tax benefits, but if you are not located in Delaware, you are also required to register your business as a foreign entity operating in your home state.
Costs will vary from state to state and depend on the particularly product and service provider, but for the purposes of this exercise, we assume it will cost you $250 to form your LLC and register with your local and federal authorities.
It’s a good idea for any business to have, at a minimum, errors and omissions (E&O) insurance.
In many industries, particularly the travel industry, it is also necessary to carry general liability insurance. In fact, there is a specific line of insurance made just for travel agencies and tour operators.
If you plan to start your own travel agency, you are looking at an investment of approximately $2,500 annually to carry both of these lines of insurance.
If, on the other hand, you affiliate as an independent agent with an existing host agency, instead of starting your own travel agency from scratch, your host agency may pay for (or at least subsidize) the cost of insurance.
Some host agencies will also offer health insurance plans that their independent contractors can buy into at a discounted rate.
Depending on where you and your customers are located, you may also be required to acquire a travel agency license by your state.
The cost of a travel agency license in Delaware is approximately $250 per year, but licensing requirements vary dramatically from state to state and regulations change often, so you should do thorough research if you plan on starting your own travel agency.
This cost may be avoided by affiliating with a host agency, which will typically cover the cost of licensing.
4. Accreditation & Affiliation
Once you have your business formed, insured, and licensed, you still need to be accredited by one of the major accreditation authorities, such as ARC or IATAN, before suppliers will recognize you as a travel professional and pay you a commission for booking their products. IATAN’s accreditation fee is approximately $195 per year.
However, before becoming accredited, applicants are not only required to have proper insurance and licensing, but also a minimum volume of sales under the agent’s or agency’s legal name, making accreditation a bit of a catch-twenty-two for travel agents just getting started…
After all, how can a travel agent have an existing sales volume if he or she is just getting started?
For this reason, many opt to join an existing host agency as an independent agent.
In exchange for providing accreditation and other travel agency essentials such as insurance, marketing and administrative support, training, and preferred supplier relationships (which mean higher commissions for you and exclusive amenities for your customers), many host agencies will charge an annual or monthly affiliate fee. This fee can range for a couple hundred dollars to upwards of $500 annually.
If we add all of these costs together, you can realistically expect to invest at least $3,200 annually to legally operate your travel agency in the United States.
This investment may be significantly reduced (to as little as $500) if you opt to affiliate as an independent travel agent with a host agency. That said, the exact investment varies and is largely based on the affiliate fee structure and terms of your host agency.
While not all host agencies charge an affiliate fee, most legitimate host agencies do and often times, you can earn a higher commission percentage by paying an affiliation fee.
Exactly how much can you earn?
That is the subject of our next blog post, How Much Can Travel Agents Earn?
Note: The details shared herein are strictly opinion and do not constitute as legal advice. Rollinglobe recommends you consult your lawyer regarding all legal matters when starting a travel agency or becoming an independent travel agent.