In a non narcissistic way it does pay to be selfish, by taking care of yourself first in order to serve others. If we aren’t being true and authentic to ourselves, how can we be this with people and guests? How do you better manage your business, if you are not putting the needs of your business first? From a business standpoint, having awareness and being mindful of your actual business profit and who you shared any of this with (OTAs).
For the first time, 2016 will be the year OTAs will surpass hotel revenues online for the big chains and sadly smaller properties already witness 60% of their bookings going to OTAs.
This trend isn’t promising. With the recent addition of new OTA-type services such as “Book on TripAdvisor” and “Book on Google,” brand.com vs. OTA ratios will likely shift even further into negative territory.
How well are you accounting for the distribution costs from OTAs vs direct online channels?
The typical industrywide operating benchmarks used to measure a property success are ADR (average daily rate), Occupancy Rate and RevPAR (revenue per available room). These benchmarks are used for the weekly property “flash” reports, and have become the basis for many operational decisions, including staffing levels, budgets, staff compensations and management bonuses.
So how does the industry measure the cost of distribution from the OTA channel?
Merchant Commissions: When the OTAs use the merchant model (Ex. Expedia), they collect the room revenue booked from the consumers and pay the hotel their negotiated net rate. In this case, these merchant commissions are not even accounted in the hotel P&L.
Agency Commissions: Agency commissions paid to OTAs (Ex. Booking.com; Expedia’s agency model, etc.) are accounted for in the property’s financial statement as COGS (Cost of Goods Sold) in a single line item titled “travel agent commissions,” with no differentiation from brick-and-mortar travel agents’ commissions. Unless there are significant YoY deviations, most owners and managers do not even review the composition of this line item, and whether these commissions are paid for GDS, CRS or OTA bookings. It is, what it is; and it’s accepted as a cost of doing business.
In other words, currently the OTA distribution costs are being completely ignored, while top line benchmarks such as ADR, RevPAR and Occupancy are subject to rigorous reviews and become the basis to measure success.
According to Mike Harris, an industry veteran and VP of Ledgestone Hospitality.
I believe the following action steps will not only remedy the current situation, but will provide a huge impetus to boosting direct online channel and shifting share from the OTAs:
The industry should adopt an overarching bottom line benchmark: Profit per Available Room (ProPAR) that trumps all of the accepted and widely-used top-line benchmarks such as ADR, Occupancy Rate and RevPAR.
ProPAR will introduce an unparalleled distribution channel transparency about the cost to acquire each booking, and will allow owners and managers to focus on and prioritize the most efficient and cost-effective distribution channel – the direct online channel, and introduce sufficient funding for the brand.com marketing efforts as well as incentivize employees responsible for the brand.com production.
ProPAR is not a new concept, but it is time to move this benchmark from its status as an exotic and somewhat theoretical point of reference into the primary industry benchmark to measure the property’s success.
Cost of distribution via brand.com should be treated in exactly the same manner as OTA commissions i.e. as COGS and deducted from the gross room revenue before NOI is calculated, including ongoing website technology upgrades and content optimization, dynamic content personalization, reservation abandonment programs, hosting, SEO, paid search, online media and retargeting, first-party and real-time data marketing, email marketing, social media engagements, consulting, etc.
Recognizing brand.com distribution costs as COGS will unleash the property’s ability to adequately fund the direct online channel efforts, boost bookings via the property website and drastically decrease OTA dependency. Lowering overall distribution costs will allow the property to fund renovations and product/services improvements, invest in human resources, and add a hefty chunk to the bottom line.
Adopt a “Direct is Better” top-down corporate strategy, with the primary goal of generating more direct online bookings. Without such a strategy, the property ends up with under-staffed and under-budgeted direct online marketing efforts, bandwidth and focus.
Determine who at the property “owns” the website and its results and performance; whose employee salaries and bonuses will be determined by the website’s revenue and brand.com distribution costs, who is to be incentivized when the market share needle is moved from OTAs to direct online bookings.
When the property embraces a “direct is better” top-down strategy and the on-property team sets a primary goal of generating as many bookings as possible via the direct online channel – by far the most profitable channel today – the team can work together to seize market share from the OTAs as a united front.
Original Article - eHotelier