I ran digital for a luxury hotel group, and the question I heard most was whether pushing guests to book direct was worth the effort. Commission is easy to see on a statement. The cost of winning a direct booking is spread across search, metasearch, the booking engine and the rate you give away, so most comparisons flatter one side or the other.
This puts both channels on the same footing: what you keep from one room night once every cost is taken out. Then it asks what moving a few points of your mix is worth over a year.
This model has two channels only: OTAs (Booking.com, Expedia and similar) and direct (your website, phone and email). Wholesale, corporate and group business are not modelled.
Property
VAT
Channel mix and OTA cost
Direct cost
Scenario
What each channel is worth
Net revenue is what you keep from a room night after VAT and the channel's own costs. It is before housekeeping, utilities, staff and every other cost of running the room, which are the same whichever channel the guest came through.
| Channel | Now | After |
|---|---|---|
| OTA room nights | -- | -- |
| Direct room nights | -- | -- |
| OTA net revenue | -- | -- |
| Direct net revenue | -- | -- |
| Total net revenue | -- | -- |
How this works
Everything is worked out per room night first, then scaled up to a year. Net figures are ex VAT, because VAT is collected for the tax authority and the hotel never keeps it.
- ADR ex VAT =
ADR / (1 + VAT rate)when ADR includes VAT. With the switch off, ADR is used as it stands. - OTA net per night =
(ADR ex VAT - commission) x (1 - OTA-side fees). Commission is the commission rate applied to either the VAT-inclusive price or the ex VAT price, whichever you choose. - Direct net per night =
ADR ex VAT x (1 - discount) x (1 - marketing - fees). The discount comes off the rate first, and marketing and fees are then taken as a share of the discounted rate. - Room nights a year =
rooms x 365 x occupancy - Net revenue by channel = room nights in that channel x net per night. The OTA share is the percentage you enter and the rest is direct.
- Annual gain from the shift =
room nights x (shift / 100) x (direct net - OTA net). If direct nets less than OTA, this is a loss, and the page says so. - Value of one point shifted = the same calculation for a shift of one percentage point, meaning 1% of all room nights moved from OTA to direct.
- Break-even marketing is the direct marketing cost at which the two channels net the same. Break-even commission is the OTA commission at which they net the same. Each holds every other input where you set it.
The shift cannot be larger than the OTA share you start with, because you cannot move more room nights than you have there. Net revenue by channel is calculated from the numbers you enter and rounded to whole currency units once. The totals in the table add up those rounded figures and the annual gain is the difference between the two rounded totals, so what you see always adds up. The value of one point is worked out from unrounded figures.
VAT and commission. Whether an OTA charges commission on the price including VAT or excluding it varies by OTA, by contract and by country, and I have not assumed what any of them does. Check your contract and set the choice to match. The 20% VAT rate is the UK standard rate on hotel rooms; change it if your rate or country differs. If your ADR is quoted ex VAT, or VAT does not apply to you, switch the VAT setting off.
What the model leaves out. It is a model of mix, not of demand, so treat the answer as a guide to the order of magnitude rather than a forecast.
- The billboard effect. OTA listings send people to your own website to book. Cut OTA exposure hard and you may lose some direct bookings too. The model assumes the direct room nights you win are extra to the ones you already have, and that nothing else falls. That flatters the shift.
- Occupancy is fixed. Moving a booking from one channel to another does not change the number of rooms sold. If the shift costs you volume, the gain here is overstated.
- Parity clauses and rate rules. Your contracts and local rules may limit how far below the OTA rate you can price direct, and how you can show member rates. The discount field is only useful if you are allowed to offer it.
- Cancellations and no-shows. These often differ by channel, and a booking that cancels earns nothing. The model treats every booking as stayed, which can cut either way depending on which channel cancels more.
- Guest lifetime value and data. A direct guest can be emailed, rebooked and sold extras without paying commission again. That value is real but is not in these figures, and it pulls the other way from the billboard effect and cancellations above. I would not assume the omissions cancel out.
- Extras and the blended marketing cost. Spend on breakfast, spa and parking, and any commission on those, is ignored. Marketing cost is one blended percentage, whereas the cost of the next direct booking is usually higher than the average, so the first points you shift are cheaper than the last.
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