Solving the Incentive House Pricing Puzzle

At some point, most meeting executives will hire an incentive house to assist with their program. But how do you find the right kind of company? What's the process you must go through, and how do these companies charge?

The answers to those questions are pretty much a puzzle, depending on the type of incentive firm, the program itself, and many other variables.

Laying the Groundwork

Let's say you are ready to work with a particular company. The first meeting is typically exploratory and done by phone, according to Ira Almeas, president, Impact Meetings-Incentives, East Hanover, N.J. “It involves a lot of listening. It's very similar to a doctor taking notes while listening to a patient.”

Kathi Winter, president, Global Incentives, Huntington Beach, Calif., likes to have a preliminary 15-minute interview “to get a better grasp of what the client is looking for and to lay out the groundwork very quickly.” Face-to-face meetings usually follow.

The question of fees often comes up early. Pricing can vary as widely as the numbers of services that companies provide and the kinds of services prospects desire.

At MotivAction, a full-service incentive company in Minneapolis, the client pricing structure is aligned to meet the clients' needs, says Mary MacGregor, vice president, travel division. “It runs the gamut. Cost-plus structures, net cost, management fees, by the hour, a combination. I think, in general, in our industry, there are no standards [on how incentive firms charge] — we all have margin goals we strive to achieve in a variety of ways.”

MacGregor notes that as procurement departments become more involved in the process, they have specific guidelines they want vendors to follow. This is changing the way companies such as hers do business and requiring them to provide line-item pricing.

At Impact Meetings-Incentives, Almeas sets a package price per person for the trip, typically 12 percent to 22 percent of the net land package cost. According to Almeas, the fee will vary depending on the complexity and the audience size of the program.

In a contest with fewer than 1,000 potential participants, the design and communication fees would probably run less than $5,000, says Almeas. The online recognition component could be set up with various costs, depending on the sophistication of the site. An established “canned” site that adds a company logo and makes some minor changes on the site's home page could cost less than $1,000. And, says Almeas, it could cost as little as $100 to more than $1,000 monthly to maintain a custom online recognition site.

Chris Levy, marketing manager for NCI Building Systems, L.P., in Houston, went through choosing an incentive house two years ago and found the process “fairly smooth. There are so many variables in the fee structures, it takes time to fully understand where the monies are coming from and going to,” Levy says. “But in the end we were satisfied with how it was handled.”

Choosing a Site

After a destination has been determined (a decision that should be made after a comprehensive, well-researched process, says Almeas), incentive houses typically assist with the property selection, which is usually part of the overall fee.

“We have relationships with individual resorts and national sales organizations for all the major hotels and cruise lines,” says MacGregor. “We make it our business to be in constant communication with those people, to be aware of what's new and what's hot. Those individuals will be our advocates at the property level, so that's where we'll start.”

Winter will come up with 10 or 12 property ideas, do an analysis, then give a client full proposals on three. She does not charge for this initial legwork.

MacGregor says any fees associated with site inspections are usually charged to the client, although “our position as an incentive partner means we do everything we can to mitigate the costs of site inspections — although even that's not guaranteed in this seller's market.”

In a seller's market, it can even be difficult to schedule a time when hotels can host inspections, says Mark Bondy, partner/president, Viktor Incentives and Meetings, Traverse City, Mich. Concerning the costs of these trips, he says, “Standards in the industry still prevail as to what is a reasonable offer from hotels. Some clients believe everything [associated with an inspection] should be free, while others have no problem paying what's reasonable.”

Direct Agents

Just as with hotels, incentive firms build relationships with vendor partners both nationally and worldwide.

In Impact Incentives' case, Almeas says, when it comes to contracting suppliers for an incentive program, “we follow the direction of procurement” and put programs out to bid. “In the case of DMCs, for example, we'll have at least two or three bid for the program,” he says, adding that there are situations when Impact will hire a DMC to handle an off-property event, for example, and another DMC to handle ground management and logistics. In most cases, incentive companies serve as the “direct agent” for the client, MacGregor says, signing all the contracts and managing all the billings, a service included in the overall fee.

The incentive company executives interviewed for this article said they do not expect referral fees for any business directed to suppliers. However, other suppliers — particularly destination management companies — say profit margins have shrunk because of an increasing incidence of hotels and third parties asking for referral fees and commissions.

What about extra costs once a program is under way? “Most savvy clients implement their trips knowing they have to budget in a certain percentage so they have enough wiggle room for additional expenses,” says Almeas. “Whether it's keeping the bar open an extra hour one night, or having to overnight attendees in a hotel because they've missed a connecting flight, they'll have it covered.”

MacGregor adds that MotivAction ensures that the client signs off on anything that results in added cost. “We go to market with a no-surprises philosophy,” he says. “We make sure our clients are always aware of what the additional billing will be.”

Price or Relationships?

As corporate procurement departments become increasingly involved in incentive purchasing decisions, incentive companies are finding that price is a key factor in whether they get the account — even though they might have been doing business with that client for years.

“They're narrowing everything down [based on price],” says Bondy. “There's not a lot of loyalty there, and I think it's shortsighted because there is a lot to be gained by developing relationships and investing time and effort in getting to know each other.”

However, some people, such as MacGregor, still believe relationships will prevail. “This is still a relationship business,” she says. “We are really dealing with important ‘people commodities’, and the relationship and trust factor is what I feel will continue to drive buying decisions — rather than who has the lowest price.”

Not All Incentive Firms Are the Same

One source for anyone interested in hiring an incentive company is the Society of Incentive & Travel Executives' ( [2]) annual resource directory, which is available in print and online. SITE members self-select the category head under which they will be listed in the directory, including full-service incentive house, full-service incentive marketing company, incentive travel fulfillment company, travel agency/incentive division, and others.

But the category differences may not be so black and white. For example, in the directory, a full-service incentive house is described as one that performs “all the services of a full-service incentive marketing company but utilizes only incentive-class travel as an incentive.” But Impact Meetings-Incentives Inc., East Hanover, N.J., chose not to identify itself as a full-service incentive house, despite the fact it offers a full range of incentive services. Instead, Impact described itself as a “full-service performance improvement company,” which Ira Almeas, CITE, president, says signifies that it is much more than a travel or incentive award company, and it can become intimately involved in creating the structure of an incentive program.

So, although the directory is a good place to start your search for an incentive house, the next step needs to be a thorough search on the Web and a telephone conversation to see what they really can do.