Diego Acosta, Director, Partnerships, Flex Pay, HSMAI Revenue Optimization Advisory Board Member
Understanding the true cost of a hotel booking isn’t as straightforward as it might seem. Between marketing investments, agency fees, and labor costs, even a “direct” booking isn’t always the most profitable.
Here are a few key insights from a recent HSMAI Revenue Optimization Advisory Board discussion on distribution, profitability, and smarter benchmarking.
Tools Matter, But So Does Perspective
Several hotels and management companies are working to get as close as possible to a reservation-level view of costs. While complete granularity may not be realistic, BI platforms such as Juyo Analytics and Kalibri Labs’ Hummingbird can help stitch together key data sources. One Advisory Board member shared, “you can’t always get it down to the reservation level, but you can get pretty close.”
But not everyone agreed on the value of that level of specificity, as another member said, “You’re just going to create more problems…you’ll spend weeks trying to figure out that number, to have to figure it out again in a few weeks.” It sounds painful but let’s be honest with ourselves here. For the good of the organization, we can’t give up in pursuing this. To do nothing is to light whatever profit you’ve generated on fire.
Direct Bookings Aren’t Always Cheaper
Don’t assume direct bookings are more profitable. Take into account the cost of your total investment in capturing a direct booking:
- Ad campaigns
- Agency retainers
- Third party widgets
- Loyalty expenses
- Payroll costs, etc.
These are just some of the immediate things to think about that chip away at direct booking margins. If you’re not capturing the full picture, you may be overestimating your return. One board member that works across branded and independent hotels wanted to make it clear, “just because you’re throwing money at that to drive direct bookings doesn’t always mean you end up keeping as much of that as you think.”
NRevPAR Isn’t the End Game
Net RevPAR has been a helpful benchmark, but it doesn’t fully capture distribution efficiency. Jens Egemalm at Pandox Hotels tries to capture distribution level costs through a formula he uses widely at his hotels — RevPAR with markups / Net RevPAR — This helps his hotels to find out true channel yield. Like anything, it takes commitment both from an investment in technology and investment in organizational approach and buy in. These things don’t simply happen overnight. When it’s all said and done, even this is up for debate. As one Board Member pointed out, “if your property isn’t turning rooms daily (e.g., extended stay), understanding net RevPAR per turn can be a more useful lens.”
Loyalty, Labor, and Long-Term ROI
As we consider the full picture of distribution costs we arrive at the often overlooked costs of Loyalty programs. With discounted rates, free breakfasts, upgrades and so on, we quickly realize that distribution costs for Loyalty programs frequently go unaccounted for in distribution analysis. And let’s not forget sales payroll costs, especially on the group side. These gaps make accurate benchmarking harder—but also more essential. One Advisory Board member added, “to ignore [loyalty costs] in the conversation…I don’t think we’re getting to the real heart of the matter.”
Keep an Eye on PMAX
If you’re not already exploring Google’s Performance Max (PMAX) campaigns, now’s the time to get curious. PMAX for travel goals is widely used so take the time to educate yourself. You can reach high intent travelers at many different touchpoints with easy set up and optimization. To a small degree it will level the playing field against OTAs and to a larger degree may give you a head start on your competition next door.
Bottom Line
Start somewhere. In the complex world of hotel distribution, understanding the true cost of bookings is essential for sustainable success. Track as much as you can and find the right tools to help reduce the friction. As the industry continues to evolve, hotels that are agile, data-driven, and customer-centric will be best positioned to thrive. We all want to improve our Direct Bookings but aiming for a clearer understanding of your distribution costs is the real win.
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