How to Start a Travel Agency
If you’ve ever tried to plan a vacation, particularly one to a foreign country, then you know that the process can be overwhelming and challenging. You want to make the most of your vacation time and ensure that you enjoy the best activities the area has to offer, but planning can be difficult when you’re unfamiliar with the area. When you add in the challenge of finding the best deals and discounts, planning a vacation can feel unpleasant. And that’s why travel agencies are so popular. If you’re knowledgeable about travel, enjoy planning trips, and are highly organized, then starting a travel agency might be a financially and emotionally rewarding opportunity.
Travel Agency Business Overview
Travel agencies help people to plan their trips, saving customers time and stress in planning a vacation. These agencies often specialize in certain types of travel, and they’re usually highly knowledgeable about certain destinations to help customers get the best experience possible. Travel agencies assist with everything from booking hotels and airfare to planning itineraries and booking tours. A great travel agent will make suggestions to a customer based on its interests and budget, and agencies may also offer package deals to simplify the process and save the customer money.
There’s a stressful side of running a travel agency, too. If a natural disaster or other catastrophe strikes, your customers will be calling you for help getting refunds and getting home. Strong organization and planning skills can help you navigate these more challenging times and be ready for some stressful events.
Agencies charge customers a service fee for this convenience, and they also earn commissions off of many of the services that customers book, like airline tickets, hotel stays, and tours. While some agents pay fees to a host agency and act as an independent agent, this guide will focus on starting your own independent travel agency, which gives you complete control of your agency.
Industry Overview
According to IBIS World, the travel agency industry experienced a 1.3% growth from 2015 to 2020. Many factors have affected the industry’s growth. Increased demand for travel services boosted travel agencies’ profits. However, a transition from brick-and-mortar agencies to a greater focus on online travel sites allowed consumers to do a lot of their own research, requiring traditional travel agencies to alter their business models to stay competitive.
As of 2020, the travel agency industry was a $39 billion industry. A total of 68,497 businesses employ 199,907 staff.
While the industry has experienced growth and benefited from the increase in per capita disposable income between 2015 and 2020, the COVID-19 pandemic will also have a significant impact on the industry. IBIS World estimates that the travel agencies industry could decline by as much as 13.8% in 2020 alone due to the decrease in travel caused by the pandemic. The economy as a whole will take time to recover from the reduced spending caused by the spike in unemployment, so a decline in the travel industry could be felt across the next five years.
Industry Trends
Many trends are shaping the travel industry, and travel agencies need to keep up with these trends to stay competitive. According to Amadeus, technology and its advancements are continuously influencing the travel industry. Travel agencies are increasingly using artificial intelligence to promptly engage with customers at any time. Chatbots and autoresponders on Facebook, WeChat, and other platforms ensure that customers can receive information after hours and on holidays, and they’ve become an important part of customer service.
The popularity of Instagram has also created a unique advertising opportunity for travel agencies. With many people tagging their vacation photos with the #travel hashtag, some travel agencies have begun connecting their booking platforms to images on social media. With social media ad targeting, agencies can ensure they get their ads in front of people interested in travel and who may be an agency’s target market.
The growing awareness of sustainability has also affected the travel industry. With increased public awareness of the negative environmental impacts that flying can have, some travelers are flying less. Travel agencies can respond by helping travelers to identify eco-friendly transportation, lodging, and activity options.
There’s also been an increase in the number of people who choose to travel alone. Travelers are also combining business trips with leisure. Travel agencies can embrace this trend by developing services and resources, specifically for solo travelers.
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Target Market
Competition in the travel agency industry can be steep, so consider developing a market niche to help your agency stand out to your target audience. Focusing on specific niche travel activities, like horseback riding vacations, golf trips, business travel, or snorkeling adventures, allows your agency to become an expert in that certain type of trip. While your target market will be smaller than a more general travel agency, the fact that you specialize in one type of trip can appeal to your target audience and win you customers.
Don’t underestimate the importance of becoming a travel expert, no matter what your niche is. Customers look to travel agents for their advice and knowledge, simplifying the planning process and ensuring that the customer enjoys a wonderful, worry-free vacation. Plan to study and learn the ins and outs of travel law, the destinations that you specialize in, and expect the same of any agents that you hire.
Skills, experience, and education useful in running a travel agency
Starting a travel agency doesn’t require a business degree, but certain skills and experiences are valuable in starting and running this type of business.
Travel experience. An agency owner who has plenty of experience traveling will understand some of the challenges that can arise and will be able to design the agency to support and assist travelers. Additionally, customers work with travel agents to get information about places they have never been to.
Great customer service skills. An agency owner will work with customers daily, so great customer service skills can create a positive experience and encourage customer loyalty.
Problem-solving skills. Challenges and unexpected changes will always arise in the travel industry. An agency owner needs to be creative, think on their feet, and be resourceful in finding a solution.
Attention to detail. From managing pricing to creating a flawless itinerary, an agency owner needs to always be detail-oriented.
Organization talents. Travel agencies typically have many projects and deadlines running at the same time. Strong organization skills will be an asset in this industry.
Networking skills. Running a travel agency is all about making connections, so an owner who is a talented networker can build up a powerful network of connections that allow the agency to do an even better job for its customers.
Checklist for Starting a Travel Agency
Starting a travel agency can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your business should be to write a clothing line business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Pick a Business Name
Finding the perfect travel agency name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 3: Form a Business Entity
A business entity (also called a business structure) refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a travel agency, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Step 4: Select your Location
While most travel agencies start in the spare bedroom of a home, an agency that is located in a high-traffic area offers convenience for customers and may bring in walk-in traffic, but it can also carry higher rent costs.
Related: Choosing a business location
Step 5: Register for Business Licenses and Permits
In most states, a travel agency does not require a special business license, however agencies located in California, Florida, Hawaii, and Washington, there are registration and Seller of Travel (SOT) laws to be aware of.
There are general local, state, and federal business registrations to research such as a sales tax permit, Employer Identification Number (EIN), Occupancy Permit, and others will likely be needed.
In addition to licensing, obtaining certifications from travel agency associations like the American Society of Travel Agents and The Travel Institute add to your credibility as an agent.
Related: Common business licenses, permits, and registrations by state
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a travel agency is another. The cost to start a travel agency is low, and many start off without a loan. However, if a loan is needed it can be difficult to get the funds. In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
While some customers may become repeat customers, an agency will need to continuously bring in new customers. Common marketing techniques include social media marketing on platforms like Pinterest, Instagram, Facebook, and Twitter, online advertising, print advertising, and direct mail.
Establishing a referral program can also help to bring in new customers.
Remember that in addition to competition from other travel agents, your business will also compete with online travel agencies and websites such as Kayak, Expedia, and others.
Related: Low-cost ideas to market a new business
Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.
Step 9: Get Business Insurance
A travel agency will want to consider several types of insurance to fully protect the business. Some of the more common types of insurance include:
– Travel agency bond – required in some states, but is insurance worth considering as it guarantees the client’s money is safe should the travel agent go out of business.
– General liability insurance helps cover expenses that a business might face if a customer is ever hurt while on the agency’s property, like falling in the parking lot.
– Commercial property insurance helps cover expenses if the business’s equipment and building are ever damaged in an event like a fire.
– Errors and omissions insurance offers additional coverage to help protect an agency if a client ever claims the agency overlooked or admitted important information in booking a trip, leading to damages.
– Cyber liability insurance protects an agency if its customers’ personal information, including credit card and banking details, is ever exposed in a data breach.
– Worker’s compensation insurance can help to cover expenses like lost wages and medical bills that could arise if an employee is ever hurt while on the job.
Insurance policy costs will vary depending on many factors, like the value of the agency’s equipment and the number of employees on staff. To get the most accurate idea of what to budget for insurance, request quotes from multiple companies. When comparing the quotes, consider not only how the premiums compare but also the difference between other factors like coverage limits, exclusions, and deductibles.
Step 10: Hire Employees
When starting a travel agency, the business owner may handle all of the work involved. As the agency grows, though, it will reach a point where it’s necessary to bring on additional employees to handle the work.
Travel agencies with employees will see labor as the largest operating expense. According to PayScale, travel agents earn an average of $38,904 per year, though salaries can range from $27,000 to $56,000.
In addition to budgeting for employee salaries, an agency will also need to cover other expenses like paid time off, health insurance contributions, and worker’s compensation insurance.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
StartingYourBusiness.comHow much does it cost to start a travel agency?
It’s relatively inexpensive to start a travel agency, especially if the agency owner is the only initial employee. Plan to spend between $5,000 and $10,000 in initial startup costs.
Common startup costs for a travel agency:
– Website and branding materials
– Computer, printer, and other office equipment
– Travel agency software (such as TravelPerk, Traverfy Agent, ResVoyage, etc)
– Office furniture
– Signage
How profitable is a travel agency?
Because travel agencies earn commissions from hotels, airlines, tours, and travel insurance providers after a customer has booked a trip, an agency’s profits can vary significantly. A one-person travel agency may earn a healthy profit, while a multi-agent agency booking many trips each year will enjoy higher profits. Many factors affect an agency’s profits, including the wealth of the agency’s clientele, the value of the trips booked, the volume of the trips booked, and more. The agency’s service fees also contribute to its income.
Vacation travel makes up a significant portion of sales for most travel agencies. Agencies will typically see their sales peak during the spring and early summer as families are booking their travel, making the rest of the year much slower. Further compounding on the profitability of an agency, commissions for travel; packages aren’t typically received at the time they are booked, they are received after the customer takes the trip.
Are there grants to start a travel agency?
It’s extremely rare to find a grant to start a travel agency. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a travel agency?
The NAICS code for a travel agency is 561510.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Resources:
American Society of Travel Advisors
Travel Institute
U.S. Travel Association
