Written By: Tom Ogg
Client Gifting is always a hot topic among travel professionals. Should I gift? What should I gift? How much should I spend? How do I measure results? These are all common questions agents have and everyone is always searching for the right answer for their business.
Gifting is seen as a way to keep a “front of mind” presence with your clients. The best gifts result in just that. However, the wrong gift may result in just the opposite. Sending wine to someone who doesn’t drink, or worse may be a recovering alcoholic could have a devastating effect on your relationship. One thing is for certain, knowing your client’s likes and dislikes is paramount to establishing an effective gifting program.
There are all types of gifts available to explore and there is probably one single gift that would meet your needs perfectly. A lot depends on the make up of your clientele and the way that they travel. Luxury clients will certainly respond differently than if your travel niche is family travel. Cruisers will react differently than FIT clients. And so it goes. Knowing your client’s needs and desires will go a long way to resolving this question.
To Gift or Not to Gift?
The very first question a travel professional has to ask themselves is whether they should enter a gifting program or spend the allocated resource in another way that might yield a better ROI (Return On Investment) Since the funds to gift are generated from sales it could be invested in a number of ways. Is advertising going to be more effective than a gifting program? One has to look at their overall business and marketing plan to make a determination of where the investment needs to be made. Just gifting because other agents do is not the reason to enter a gifting program. But, make no mistake, a solid gifting program should result in unique benefits that may not be attained in any other way.
Entering a gifting program in lieu of other types of business generating programs should be well thought out and precise. An ongoing gifting program should result in loyalty from your clients and client referrals. You should spell out exactly what the results you are seeking in your gifting program. Client referrals is an excellent focus as is client loyalty.
How Much Should I invest in Gifting?
The consensus among travel professionals is that roughly 10% of the commission generated from a sale should be earmarked for a client gift. Of course, this is just what many agents feel is a good benchmark.
The best way to look at an investment in gifting is to understand the real nature of a client’s contribution to your profitability. A client that buys 2 luxury cruises a year from your agency and demands little time and effort on your part is certainly a client worth having. He or she may generate $10,000 in commissions during the year with very little in the way of operational support. Another client may generate $1,000 in commission buying mass market cruises during the year but requires a good deal of operational support in handling their business. Constant telephone calls, personal visits, changes, questions and so forth.
Clearly one can see the vast difference in the impact on profitability between the two clients. This should be your major consideration when planning your gifting program. You want the first client to be loyal to you and refer their family and friends. The second client may actually be costing the agency money, rather than contributing to profit. Your gifting program should spell all of this out and should focus on generating more profitable sales and clients. For the first client you may choose to invest as much as 50 to 60% of the commission in personalize gifts. The second client probably give them a branded advertising specialty item that may generate business by others seeing your branding.
What Does the IRS Allow?
Following is an excerpt from IRS Publication 463 (2016) that deals with business gifting. $25 limit. You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.
If you give a gift to a member of a customer’s family, the gift is generally considered to be an indirect gift to the customer. This rule doesn’t apply if you have a bona fide, independent business connection with that family member and the gift isn’t intended for the customer’s eventual use.
If you and your spouse both give gifts, both of you are treated as one taxpayer. It doesn’t matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.
Example.
Bob Jones sells products to Local Company. He and his wife, Jan, gave Local Company three gourmet gift baskets to thank them for their business. They paid $80 for each gift basket, or $240 total. Three of Local Company’s executives took the gift baskets home for their families’ use. Bob and Jan have no independent business relationship with any of the executives’ other family members. They can deduct a total of $75 ($25 limit × 3) for the gift baskets.
Exceptions. The following items aren’t considered gifts for purposes of the $25 limit.
- An item that costs $4 or less and:
- Has your name clearly and permanently imprinted on the gift and
- Is one of a number of identical items you widely distribute. Examples include pens, desk sets, and plastic bags and cases.
- Signs, Display Racks, or other promotional material to be used on the business premises of the recipient.
As you can see, the IRS has very clear cut instructions on what can be legally deducted as a legitimate gifting business expense. However, this is a discussion that you need to have with your accountant and / or tax attorney.
Gifting Categories
There are several gifting categories to consider when establishing your client gifting program.
- Pre Departure Gifts: Sending gifts in advance of clients departing for their vacations is used buy many agents. Gift baskets, guide books, disposable cameras, sun products, bon voyage gifts and so on are representative of this group.
- Gifts While Traveling: Providing gifts during the travel event is a favorite with many travel professionals onboard credit, bottles of wine, prepaid specialty restaurant and so on are popular with cruisers and prepaid tours are great for land vacationers
- Post Travel Gifts: Many travel professionals prefer to send gifts after their clients return from their vacation. It gives them the ability to touch base to make sure everything was wonderful and to talk about the client’s next adventure. Picture frames, restaurant coupons, travel plaques and so on fit into this genre.
- Advertising Specialties: Most travel professionals use some kind of advertising specialty item or items on a daily basis. The IRS exclusion of these items makes them especially useful for agents to hand out. Pens, luggage tags, travel journals and so on are representative of this type of gift.
- Referral Gifts: Travel professionals that have robust referral programs may gift discount travel vouchers, meals, bottles of wine and so on in exchange for client referrals.
- Special Occasion Gifts: Many agent gift around the various holidays. Christmas gifting is quite common, as is Easter and other holidays. Gifting on client’s anniversary, birthday or other meaningful event is also quite common.
As you can see, gifting is a major consideration for travel professionals and having a well thought out gifting program can pay large dividends. Here are some general thoughts to consider about client gifting.
- Know your client’s needs and wants before gifting and then try to fill them.
- Never send any gift that may be viewed as negative. Books on self improvement may be seen as you feel they are in need of help. Weight loss books may send the message that you think they are fat…and so on.
- Never gift anything that can be seen as a sexual advance or overtone.
- Be very careful when gifting alcohol. Make sure to check what kind the client wants and don’t try to surprise them with something unusual.
- When presenting advertising specialties, treat them as something valuable and desirable. Just handing someone a branded flashlight does not add value to it. Before you gift it, explain how a client used it in a valuable way.