The £10 Million Saving That Taught Me Being Smart Isn’t Always Clever

People often assume that the best commercial people are those who negotiate the hardest and extract the greatest possible advantage from every deal. I certainly believed that when I became Sales Director of Airtours, but looking back at some of the decisions I made during my first year gives me both pride in my commercial thinking and the certainty that I was far too clever for my own good.

Historically, our commercial agreements with travel agents included a base commission of around 10% or 11%, plus an additional “override” commission of 1% or 2%. This override was normally paid at the end of the season and was conditional on the retailer meeting a series of volume targets. In most years, only about half of retailers reached their highest target, resulting in an average overall cost of sale for Airtours of between 11% and 13%.

It did not take a genius to realise that if Airtours was secretly increasing capacity by 20%, we had effectively committed ourselves to paying virtually every retailer their maximum override. The starting point for each negotiation was usually the level of growth achieved the previous year, so the extra capacity we were putting into the market would make their targets much easier to achieve.

I needed to come up with a different structure that retailers would willingly accept, and the answer came from reversing the logic behind my recently created Teletext Club.

Travel agents had spotted Teletext’s rapid growth, yet very few had opened their own call-centre divisions. The cost and risk of building a large call centre, combined with the upfront commitment required to operate a dedicated Teletext section, scared them stiff. This left much of the call-centre market to maverick entrepreneurs willing to take the risk.

Traditional high-street retailers therefore knew that their share of late sales was declining, making their overall volume targets harder to meet. Worse still, they wouldn't know whether they had earned their override until after the notoriously unpredictable late-sales market closed.

I offered what appeared to be an attractive solution. Airtours would calculate and pay the override solely on brochure sales, excluding Sundeal late-sale volumes. This gave retailers greater certainty and enabled them to focus on the more predictable part of their business.

However, I quietly changed the measurement from total Airtours volume to the retailer’s share of Airtours brochure sales. My argument was that market share was easier to measure and more fairly rewarded the retailers who actively promoted Airtours ahead of our competitors.

The retailers loved the idea, but if they had stopped and considered the mathematics, they would have realised it was a zero-sum game. For one retailer to increase its share of our sales, another retailer had to lose share. It was therefore mathematically impossible for everybody to achieve their highest target, no matter how much Airtours grew.

I have no idea what that £10 million saving ultimately cost Airtours in future negotiations, but I discovered the following year that embarrassing retail commercial directors was not a particularly effective long-term strategy. They remembered what had happened, trusted us less, and made every subsequent negotiation considerably harder.

Over the years, I have learned that the best commercial agreements are genuine win-win deals in which both parties benefit and remain happy to do business together. A long-term relationship built on mutual trust is often far more valuable than the short-term profit gained by outsmarting the person on the other side of the table.

I excuse some of my behaviour as the actions of a young commercial director with plenty of clever ideas but very little experience of business life. It is also why, as an entrepreneur, I have always sought out experienced non-executive chairmen and advisers, including Peter Brown, the former Chief Executive of Monarch, and Brenda Breslin, whose diplomatic skills helped balance my more aggressive commercial instincts.

I now find it slightly ironic that the role I increasingly play is that of chairman. However, the most valuable thing an experienced chairman can offer is not proof that they were always right. It is the ability to remember when they were wrong, understand what it cost, and stop the next generation from making the same mistake.

Being smart may win you the deal, but being trusted wins you the relationship.