Gaining a better understanding of how RMC's produce revenue and generate savings to pass onto their clients can lead to successful partnerships.
Before going to your Relocation Management Company (RMC) for recommendations on how to reduce mobility costs, it is important to understand how they make their money. What savings are passed through to you, as the client, and what is counted as revenue for them, as a supplier? You wouldn’t want them to reduce costs so much that it is has a direct impact on the value of their service to you or your relocating employees. Transparency into all elements of your mobility program and an RMCs fee structure will lead to a long term successful partnership.
RMCs generally categorize revenue into two segments: US Domestic and International. This insight explores a behind the scenes peak into both categories and sources of revenue that are generally standard for all RMCs.
Sources of Revenue – US Domestic:
Real estate referral fees – By far the greatest source of revenue for RMCs is domestic real estate referral fees. A program with many homeowners, high real estate values and policies with home sale benefits enable an RMC to be the most flexible in pricing other services.
A well-established industry practice is for RMCs to collect a referral fee from the real estate agents who assist relocating employees on the sale and purchase of their departure and destination homes respectively. RMCs typically collect anywhere from 38 – 45 percent of the “action side” (sale or purchase side) of the transaction.
Non-compliance fees – Since real estate referral fees are critical to the RMC’s cost structure, it is important for an RMC to offset an uncaptured real estate referral fee. In the event a referral fee is not captured; an RMC may charge a non-compliance fee for not being paid on either the departure or destination home sale. These fees can be avoided most of the time by the client requiring usage of the RMCs brokers network.
Household goods transportation commissions – RMCs typically have contracts with major van lines that include a tariff discount (e.g. 400N). When the RMC is preparing pricing, they pass through a portion of the discount to the client while the rest is accountable under revenue.
Temporary Living fees – The standard amount received for temporary living is approximately $7.00-$10.00 per day for domestic and international.
Mortgage marketing fees – By law, mortgage companies are limited to what they can pay to RMCs for access to relocating employees. They may, however, pay an annual marketing fee to have the RMC promote their mortgage company to relocating employees.
Network fees – RMCs may charge a fee to suppliers to be included in their network. The fee is to allow suppliers to participate in training and access technology and to be considered for referred business. However, not all RMC’s engage in this practice to ensure the focus remains on performance when selecting service partners.
Service fees – Most RMCs will charge a service fee for a renter or lump sum file and possibly any other ancillary service such as property management. RMCs can keep service fees low or even at zero if the annual volume is high and the average property value is high enough to generate a reasonable amount of referral fees.
Other service provider commissions – There may also be a small commission for other services such as spousal assistance or title insurance. These amounts are nominal in comparison to the other sources of revenue mentioned above
Sources of Revenue – International:
International Service fees - Unlike US domestic moves, the primary source of revenue for international mobility comes from service fees not real estate referral fees (since it is not common for international assignees to own homes). Most RMCs will provide a “bundled fee” option as well as “a la carte fee” for certain services. Clients may be offered a bundled fee by a move type such as:
Long Term Assignment
Short Term Assignment
Rotational Assignment
Repatriation
In addition, clients might see a separate fee for on-going assignment management, global cost estimates and/or travel coordination. However, many RMCs bundle their services differently, making it difficult to compare apples to apples. When reviewing fees, make sure you determine exactly what is included. It’s also helpful to clearly define the scope of work.
Fees/Commissions – Just as with US domestic, RMCs manage and coordinate international mobility services for which they may charge a fee. The collection of referral fees and commissions allow RMCs to keep fees down for clients. The types of services where a fee may be charged include:
Destination Service Providers
International Freight Forwarders
Temporary Living
Cross Cultural Training
Language Training
Other charges - US domestic and International:
Interest – RMCs may charge interest on funds that they disburse on a client’s behalf.
Use of technology – Some RMCs charge for the use of their technology or for reporting.
I
mplementation – You may see a charge for implementation, although this is not a common practice today.
Authorization or Initiation – Some RMCs may charge a fee to initiate or “open” a file.
To determine the revenue opportunity of an account, the RMC needs to know the number of annual moves for each move type. They may also ask for the average home value for the departure moves and the average home value for home purchase moves. This will help them determine the projected revenue from referral fees of the opportunity. This clear line of sight will benefit the client as they are then able to offset service fees and/or sometimes offer a revenue share when the volume warrants.
We Know the Revenue Opportunity. Now What?
Once the RMC knows the potential revenue opportunity, they consider what it will cost to service the business. They will look at the annual move volume and the scope of work to decide how many employees and which positions will be needed to service the account. They will look at the compensation packages of the team members, as well as overhead costs such as rent, phones, technology, etc. A portion of those costs will be assigned to each move and deducted from the revenue to come up with a reasonable profit.
What is the True Value?
At the end of the day, there are many factors that come into play when determining a proposed fee structure, the least of which is not service levels. For service levels to remain high, an RMC must keep a consultant’s caseload low, for example. Or the number of expense reports being reviewed must be reasonable to minimize human error. When reviewing the pricing in an RFP response, keep in mind that the lowest fee does not necessarily translate into the lowest cost of a program. Quality service delivered by experienced people will result in satisfied relocating employees who will be productive in their new role quicker, which will add additional value to your company’s bottom line.