Kickbacks to tour guides

I own a retail store selling leather goods. It's still go the starting stages and every cent counts and gets ploughed back into stock. Today I had a visit from a tour guide demanding I say him 10% commission and he'll bring me customers. Now that would mean I make 20% less profit on an item, leaving me with around 15% profit. What are your thoughts on this? To me it's just a fancy form of extortion.

 

It's far from extortion, he's not threatening to burn down your store or chase your existing customers away.

He's basically offering to bring his tours into your store, why would you turn him down? It's cheaper than advertising for you as you only pay out if he generates income for you. Think of it as an offline affiliate program.

Honestly, you'd be dumb to turn this kind of offer down.

 

Yeah, this is actually pretty legal. He is just like a salesman. He'll bring you customers if you give him a commision. Now, if he threatened to say bad things about your store if you don't give him a kickback, then that would be extortion.

 

I didn't say he was busy with extortion it just kinda felt that way. I guess he just caught me at a bad time, and he was pretty arrogant trying to tell me how things are meant to be done. He also said that it's suppossedly not about money to him, when it clearly was.

I did however tell the guy I might consider it if he could provide me with R1000 ($140) worth of sales on a trip. He looked a bit fishy to me. He didn't have a registered badge with him and it seems he takes a maximum group of around 5 tourists. So it's not a big loss. Now if he could provide me with 20-30 tourists on a monthly basis I might consider it worth my while.

All the other guides bring their tourists to the shop because it offers great value to tourists and I don't try to exploit them like most other similar shops do. Guides like those I can respect. Not because they support me, but because they are actually looking out for the interest of the tourists and not their own pockets. In any case I would much rather pass the savings onto the customers and let them do my promoting for me, than support a greedy guide. So far it's been very successful since I get people from Germany, Netherlands and UK dropping by after being referred by a friend. They even visit the town just to come to my shop!

 

This seems like a very common practise in the industry. Most tourists that follows tour groups would usually not venture where the tour guides do not bring them to so by providing some commissions to the tour guides, they will have the incentive to bring in potential sales to you where there was none. Without them, these tourists with deep pockets would most likely not come to you and may just go to your competitors. However if you do not need the extra business, you can always turn him down.

Basically, you only provide a commission to these tour guides only when a sale is made so you don't really have much to lose. If 10% is eating too much into your profits, you may want to propose another terms to work with.

Some businesses caters solely to this kind of business and are doing well.

 

I live in a tourist city (Las Vegas) and I can tell you that this practice is common. It's frowned upon by the government and usually kept secret. In fact, I was recently reading about officials in China working to crack down on it.

Anyway, in Vegas, the cabbies are paid $X by certain strip clubs (for example) if they bring customers. So, tourists get in and ask for a great strip club and the cabbie brings them to the one with the best kickback.

It's looked down on, because it can hurt the tourism industry. Tourists who become wise to what is going on will trust advice from these sources less and less. If it becomes public and widely known, it could do some damage. Tourist confidence will be shaken and that will usually mean less money coming in.

 

Yes, you do make less profit but the extra customers he brings you could compensate for this by through greater volume of sales.

 

While that may be true, the products I sell take quite a long time to manufacture so high throughput isn't necessarilly a good thing. I'm also the only shop of it's kind in the area so competition isn't much of a problem at this stage.

However I can see the value in doing this. I might consider giving some kickbacks to the guides that have been supporting me the last year or two. That way I know they'll keep coming back, and I'll be sure that it's not just due to the money!