Demand Transparency in Pricing Models

Why do some suppliers hide mark up or management fees?  My role has taken a forensic twist this week as I am on a quest to uncover actual prices, and mark up fees, at every level for our clients. 

 

When organizations hire suppliers to manage meetings, travel programs or entertainment assets (e.g. tickets/suites), management or mark-up fees are often charged throughout the process.  This is a normal practice in most supply chains.  However, let me be clear:  Many suppliers offer pricing transparency and some suppliers "pass through" the actual costs without adding additional fees.

 

Even when suppliers charge fees, organizations can demand transparency to show the "real" costs.  Let's discuss two scenarios:

 

1. Your organization hires a meeting management company, who hires a destination management company, who hires an entertainment company, who hires the entertainment.  At every step, there may be management, or mark up, fees charged.  Do you know how much the actual entertainment actually costs without going through all the other companies? Is it even feasible to contract directly with the entertainment?  What if you hire a travel management company who hires a meeting management company? Are there additional fees?

 

2. Your organization hires a ticket broker, who hires a logistics organizer, who contracts with hotels, transportation, and food and beverage suppliers, as well as another secondary ticket supplier to put together the "entertainment" package. Along each step, there may be additional fees charged.  Do you know how much the actual "package" costs versus what the broker is charging? 

 

Two diagrams that help describe this typical scenario are below:

 

 

 

 

 

How do these suppliers charge the organization?  There are numerous methods and probably more that aren't captured in this column. 

 

Per Person Cost

Supplier may charge the a) actual costs of all services, b) a management fee or profit percentage.  The supplier may charge the organization based on a tiered volume of participants.

 

Buffet choices or Menu Based Cost

Supplier may charge a) per type of service the organization requests, b) management fee or profit percentage.  The supplier may not take into consideration the volume of participants

 

Fixed Fee

Supplier may analyze the work required and estimate a fixed fee prior to the work being delivered. 

 

Time and Materials

Supplier may charge for all time and materials required throughout the project.  A not-to-exceed, or maximum hours allowed, provides benefits to the organization.

 

Cost Plus

Supplier will show the actual cost for the service plus a management or mark-up fee. 

 

We offer our clients numerous templates and contract language to reduce spend on management and mark up fees.  If you want help uncovering your actual costs, contact me.

 

Debi Scholar, CMM, CMP, CTE, CTT

 

Thank you for visiting the T&E Plus Blog on expense management, travel management, business meetings, events, incentives, strategic meetings management, entertainment, virtual meetings, tickets, hotels, airlines, ground transportation, T&E policy, plus more...

 

Follow me on Twitter ...http://www.twitter.com/debischolar  and on LinkedIN at http://www.linkedin.com/in/dscholar

Comments

[Pat Ahaesy]

Debi,

There is more to this based on your examples. Too many layers. I agree, though in transparency. Either a flat management fee or cost plus. One could also do a combination.
An aside, though. When I go to Macy's to buy a dress, I don't ask how much they paid for the dress and they sure don't tell me. I also don't ask if they bought it directly from the manufacturer or a jobber and how much the jobber paid for the dress, his markup, what Macy's paid the jobber, and so on.
An interesting dilemma for sure

Pat Ahaesy, CMP, CSEP
P&V Enterprises

[Debi]

Pat, thank you for your comments. You're absolutely correct. Yes, this markup practice is normal in most supply chains. Some buyers do not care and will pay all the mark up fees; other buyers are becoming more cost conscious and want to know their purchasing options. Thank you so much for your perspective.

[Interested party]

I agree that transparency should be standard and that is the way we've always done business. I buy and produce national entertainment, one of the more non-transparent industries.

Pat brings up some very good points. Basically, "dont count my money." If you are happy with the service (or product) and the price you were quoted, than cost transparency should not be an issue.

One other point that I would like to make, though, is we have preferred deals with some of our suppliers which are advantageous to our clients in the process.

With those agreements also come confidentiality clauses because that supplier does not want everyone else to know the deal they have made with our company.

In the end, you need to trust who you are doing business with.