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Hospitality Insights

What Are the Real Costs of OTAs?

20 July 2015


Cost of OTAs

I am not one to OTA bash. I do believe they have been overly aggressive and anti-competitive at times, especially for the smaller and independent hotels but I do also believe that they have brought valuable visibility to many accommodation providers that was hitherto unobtainable by small businesses.

The OTAs have also pushed the Hotel industry forwards in regards digital technology. If one casts their mind back to the old days, agents got rates a year in advance that were fixed, now every hotel from 1 room to 1000, can tweak and flex rates, Yield Management if you will, to maximize their revenue. Having been an hotelier and met countless others over the last 10 years, it is really interesting how there are wide and varied views on allocating the costs of OTAs to the hotel.


“How do I account for the costs of OTAs?”

Is it a marketing fee? Is it a cost of sale? Ten years ago, the 12% commission charged by some of the OTAs was not an issue as this provided 10-20% of the Hotels total room revenue, but Hoteliers started noticing an increased Credit Card charge bill at the end of the month due to less voucher payments (and therefore Bank transfers, normally paid late… by the travel agents and ground handlers but without Credit Card fees!). Fast forward 10 years, those credit card charges have become more of a problem, but that 1-2% fee is dwarfed by the OTA bill with 40% of business coming through the likes of and Expedia at an average of 15% commission.

I have spoken with some hoteliers that say they get business from but don’t pay commission (which is obviously not true) and when looking at certain “P & L´s” for hotels, have also noticed that that commission line is different. I guess when you look at the traditional Expedia model, does a Hotel put through the “net rate” and insert the 25% or so mark up as a cost of sale or since that 25% commission is never seen or “handled” by the hotel, is it ignored and therefore skewing that actual amount Expedia are making out of the transaction?


“In the old days…”

I guess that it was the same back in the days of vouchers where a hotel would fix rates, process the voucher, and the Average Room Rate would really be a net rate without taking into account the mark-ups made by wholesalers and agents. Understanding that amount, I believe, is very important. Whether one classes the amount a direct commission, a mark up fee or other, it is crucial to understanding that cost and to use it as a KPI to improve the performance and efficiency of the hotel. I know the big players do it, but often feel that the smaller independent establishments account for ‘the cost’ in a way that doesn’t give a clear picture to improve performance. This figure will allow hotels to allocate thought-through budgets for online marketing efforts such as a new website, PPC or other such marketing activities.


“ROI becomes measurable”

Crucially, the ROI becomes measurable and SMART* goals can be set. I have often heard representatives saying, don’t look at the commission as a cost but as a marketing fee, which is some ways are true, but like all good marketing plans, having a strong marketing mix is important, and therefore not investing proportionally to business performance is ridiculous. Strategic planning and investment in marketing (that includes making sure the guest is happy!) is the only way for hotels will be able to have a balanced marketing mix and sustain a competitive advantage.

*SMART – Specific, Measurable, Achievable, Realistic and Timely


OTA Commission Calculator

We have created a simple OTA commission calculator to put perspective on your commissions. The tool also provides hotel payback and additional earnings data for your hotel so you can plan effectively going forward.

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