Watch out on commissions

It’s essential for hotels to regularly review and compare the real net rates they get from Tour Operators (TOs) and Online Travel Agencies (OTAs). Often, hotels unknowingly have a disproportional margin between their TO rates and BAR (Best Available Rates), which can lead to pricing issues, ultimately driving hotel rates up to meet revenue goals and creating an imbalance between package deals and direct bookings.

When you build your rate based on the TO rate, you should be calculating it in a way that reflects the same terms. For instance, if your TO rate is €120 per person and you add a 30% margin on top, your rate for the same room online (in a flexible format) should be around €312. This should cover things like flexible payment and cancellation policies. If you offer non-refundable rates, then it makes sense to apply a discount for that.

Here’s an example:

TO rate: €120 per person, giving you €240 for two people.

Flexible rate: You add a 30% margin, making the online rate €312 for the same room.

At this point, you’re receiving €240 from a TO and €312 from a direct guest for the same room. The real issue comes with OTAs. A 15% OTA commission plus a 10% members discount means you’re now receiving €238.50 from an OTA booking, lower than the amount you’d get from a TO, even though OTAs seem to provide more flexibility.

So if your rates aren’t dynamic, and you’re not carefully managing the differences, using OTAs could end up costing you more than working with TOs. This is why it’s important to not only adjust your rates dynamically but to also evaluate whether the commission structure of each channel truly works for your hotel's profitability.

Keeping track of these discrepancies will allow you to manage your pricing strategy better and ensure that you're not losing money by neglecting these hidden costs in your channel mix.