What is the Difference Between Marketing Cost and the Cost of Using OTAs?
What is the main difference in marketing cost and the cost of using OTAs from a hotelier’s perspective? IMEG client data shows there is a 10% – 15% difference in the cost to generate an online booking with marketing strategies versus using a OTA. The average OTA fee to generate a online reservation is between 18% – 25% depending on your relationship with the OTA.
Year-end revenue analyses are becoming harder and harder to review when hotels have upwards of 50% of their gross revenue booked by sites like Expedia, Hotels.com, Orbitz, Priceline, etc. Plus, before it hits the bank, it is commissioned with a 18% – 25% fee.
IMEG has proved, with the right marketing strategy in place, a hotel can keep its marketing cost at 6% – 12% (versus an OTA at 18%-25%), while lowering that marketing cost each year by having control of their guest relations and guest data. Long term, the bigger issue with OTA dependency is that the industry continues to move more digital and the majority of guest data is being lost and kept by the OTA . This pushes the hotel further away from their guests and makes hotels even more dependent on commission fees of 18% – 25%.
Are OTAs Needed?
YES, OTAs are a tool. A tool that is well used by few and abused by many. OTAs, early in their infancy, were used as a supplement and not a lifeline. As the industry has evolved, OTAs have used their leverage as a tool and are now business models for many hotels throughout the world.
Example 1: Hotel XYZ does $6,000,000 gross annually and 50% of that is produced by OTAs with a 20% fee per booking and the other 50% by marketing with a 10% fee. Which side is most profitable with sustainability?
OTA Revenue Produced = $3,000,000
OTA % Fee = 20%
OTA Cost = $600,000
Marketing Revenue Produced = $3,000,000
Marketing % Fee = 10%
Marketing Cost = $300,000
An additional $300,000 profit for your hotel.
Sustainable Growth With Both
Driving qualified guests to a hotel website is not difficult. Understanding the intent and awareness level of your previous and future guests is key. When there is demand in a market, the next step is to find the attention at the lowest cost. OTAs understand this very well and charge a premium of 18% – 25%. This is where lower cost marketing comes in with technology and proven methods to achieve the same goals with higher profit.
If you feel your business is in a position to lower OTA dependency and increase profit, visit IMEG’s otahero.com site for more information and to secure a meeting with our team to learn more about growing your revenue.