It’s a pretty common occurrence; when revenue managers see that their property’s occupancy
has hit a specific, pre-determined percentage, they decide to shut off the channel with the
highest commission rates. This percentage could be 50% or it could be 90% depending on a
property’s specific revenue management goals, but in most cases, the end result is the same:
revenue managers shut off the OTAs with the highest commission rate, which are often also the
sites that generate the majority of a property’s bookings.
While I understand the desire to earn as much money as possible from each booking, it is very
counterproductive to shut off your highest performing sites at any time – even if they are
charging you a 30% commission for each booking. The majority of consumers use OTAs to find
and book a hotel reservation, and the sites with the highest number of visitors are often the
ones who charge higher commission rates.
While I know that many hoteliers feel resentful of the OTAs because of these high commission
rates, it’s important to look at the ROI of each channel as a whole - not simply the per-unit price
obtained for each room (after commissions have been paid).
While you do make 100% of the
dollars earned on all direct bookings, the average hotel may only secure a small percentage of
their bookings from the direct channel. In contrast, the average hotel secures a large majority
of their business from OTAs (and the majority of those bookings come from the sites with the
highest traffic AND the highest commission rates). So by shutting off the channels that earn you
the most of your business, you greatly decrease the chance of selling the remaining percentage
of your rooms for that particular day.
I always suggest that revenue managers think about revenue in a different way. Instead of
thinking about how much money that you’re “throwing away” on OTA commissions, think about
how much total revenue they are earning your property - even after paying out a commission.
When you think about the total revenue and the total number of bookings (instead of only
the sky-high commission rates), it makes much more sense to keep your highest performing
channels selling until you reach 100% occupancy.
In case you’re not quite convinced, let’s look at a similar example from a different industry.
Imagine that you are a retailer, selling jeans and t-shirts from your own retail storefront. To
increase your revenues, you decide to sell your wares at other stores as well. You sign contracts
with a few small mom-and-pop stores in your city, as well as one contract with Walmart. For
every item sold from your own store, you would earn 100% of the total value; the mom-and-pop
shops charge a 15% commission and Walmart charges a 30% commission on each item sold.
If you followed the logic used by most hoteliers, when you’ve sold a certain percentage of
your inventory, you would stop selling your items at Walmart because they charge a higher
commission rate.
But like with a hotel, it would be a mistake to stop selling your merchandise
through Walmart, because the number of shoppers that visit the store on any given day is much,
much higher than the number of shoppers who visit each mom-and-pop shop. So although
you are paying a higher commission to stock your wares at Walmart, the number of items sold
through the store will be higher and therefore, your overall revenues will be higher in the long
run.
Like Walmart, the big OTAs can charge a higher commission rate because they create better
visibility and more bookings for hotels.
By shutting off your highest performing sites before
you reach 100% occupancy, you are cutting your property’s visibility with an entire country –
or even in some cases, to an entire continent – which can result in a significant loss of revenue.
So ignore the commission rates that you are paying to the big OTAs and remember how
many bookings they actually generate for your property. Keep your most profitable channels
selling until you reach 100% occupancy each day and you will see a dramatic increase in your
occupancy levels and revenue earned.
About REVPAR GURU
REVPAR GURU helps hotels to analyze complex data - including historical rates, the rates of
competing properties in the same destination, pricing trends and environmental factors - to
determine the right rate, at the right time, to secure the highest number of bookings. REVPAR
GURU's system calculates room rates up to a year in advance, and continues to update the rates
automatically multiple times every day as factors change, across all online channels – including
OTAs and direct channels.
In short, REVPAR GURU helps hotels to increase their occupancy and their revenues.
Headquartered in Miami, Florida, additional information can be found at
www.revparguru.com or by calling +1.786.478.3500.