As the travel distribution landscape continues to evolve at breakneck speed, hotels find themselves navigating an increasingly intricate web of channels, each with its own unique cost structure and strategic implications – and the latest dare I say it, has to do with AI agent search optimisation and changes in how travellers find your hotel. (If you want the latest on AI search optimisation, Kevin Indig has a superb research backed blog which tells you all you need to know and more.)
As it stands however, Online Travel Agencies (OTAs) especially the giants like Booking.com, Expedia, Trip.com and major regional players like eDreams, Make My Trip, Traveloka and others represent both tremendous opportunity and significant costs. Let’s look at why understanding your true cost of sale by each OTA channel is a commercial imperative and key to profitability.
If you are in a hurry though, make sure you don’t miss out on the comprehensive dynamic OTA cost of sale calculator. I can guarantee you that there are not many out there that has this level of detail.
The Ongoing Industrywide Debate
It’s remarkable how few industry conferences pass without heated debates about OTAs versus direct bookings? And it’s not one that is about to die out anytime soon.
Skift forecasts that the tables are going to turn by 2030 with direct bookings gaining the upper hand. I am not so convinced. And it is not just about OTAs – there are always going to be 3rd party intermediaries who will muscle in, whether that is on the back of a new AI powered search or something else that has yet to appear.
Direct bookings though is without doubt the most aspirational channel of choice, and also in many cases cost effective (when scale is involved as in with a group of hotels or niche hotels) and must be pursued. Whether it is to be pursued at any cost, is a question that should be informed by logic and data!
A balanced, data-driven analysis that moves beyond the emotional reactions that often characterise this debate is critical – and only by understanding the comprehensive cost structure can we make rational decisions about channel mix and optimisation.
The Three Dimensions of OTA Costs
Let us take a look at what OTAs are really costing your property. I’d call out three cost categories:
1. Direct Costs: The Visible Cost Layer
These are the costs you’re likely already tracking (or should be!)– commission payments, participation in promotional campaigns, visibility boosters, loyalty programme discounts like Booking.com Genius, payment processing fees, and connectivity costs. While these costs are the most visible, they’re just the beginning of the story.
2. Indirect Costs: The Operational Burden
This is where many hotels begin to lose visibility. How much time does your team spend managing OTA extranet updates? What about reconciliation efforts and administrative tasks? The hours dedicated to rate control monitoring across channels or troubleshooting rate issues adds up quickly. These costs may not appear on your OTA invoice, but they absolutely impact your bottom line.
3. Hidden Costs: The Strategic Impact
Perhaps the most sneaky costs are the ones that never appear on any financial statement. Rate dilution through increasingly aggressive discounting or rate leaks that erode your pricing power over time. And not to mention the loss of trust. While this is extremely hard to quantify, ignore this element at your own peril. It’s worth having a stab at estimating it rather than ignoring it.
The Technology-Driven Solution
The technology to properly analyse these costs exists today. By plugging into a powerful tool like Juyo Analytics which can pull together commercial data, revenue and cost metrics, finance statistics, food and beverage performance and more, hotels can achieve a unified view of costs and profitability.
I had the opportunity to catch up with Vassilis Syropoulos, founder & CEO of Juyo Analytics who spoke passionately about why this level of granular information is critical for a hotel’s success. You can find the full video here.
Or if you want to dip in an out, have a quick peek at these clips:
- The future of hotel analytics is actionability
- Small independent hotels sophisticated in net revenue analysis
- Principles of Kaizen and incremental progress core to Juyo philosophy
- Hotelier mindset in waiting for perfect solutions needs to evolve
We spoke about the challenges and opportunities in hotel profitability and analytics, the importance of data integration, and the role of technology in enhancing hotel performance. In this wide ranging conversation, Vassilis also shared insights from his entrepreneurial journey and the future of analytics with AI. And we also touched upon key performance indicators for hoteliers and advice for those new to the industry.
Even without a technology tool like Juyo, by implementing a structured cost of sale analysis, hotels can gain unprecedented visibility into the true economics of their distribution landscape.
Here is a link to a dynamic cost of sale calculator where you can plug in your values and download the findings to find out cost of sale for each of your OTA channels (no data is saved).
Having worked across global portfolios, I’ve seen first hand how this level of analysis can impact strategic decision-making. What might appear to be a channel with a 17% cost of acquisition could be costing closer to 27% when all factors are properly accounted for. This discovery does not mean that the hotel has to abandon the channel – it just leads to smarter negotiations, better internal controls and processes, and ultimately, improved profitability.
The Balanced Channel Perspective
The narrative that “direct is always best” oversimplifies a complex commercial reality. OTAs do bring value to the table:
- Market reach: At the risk of sounding repetitive, they do connect your property with travellers you simply couldn’t access through direct channels alone, particularly in international markets where your brand recognition may be limited.
- Marketing power: The billions spent annually by major OTAs on marketing dwarfs what most hotel companies can invest, creating demand that benefits the entire industry. (the latest numbers here)
- Technology innovation: Although we don’t know exactly how much money goes into technology, user experience improvements and conversion optimisation, we know they are bloody good at this.
- Demand generation: During soft periods, OTAs can deliver crucial occupancy that helps cover fixed operating costs.
So for me the question isn’t again whether to use OTAs or direct channels – it’s how to optimise and squeeze the best out of each channel (including other 3rd party channels) for maximum combined profitability. Again, understanding your true cost structure is the foundation of this strategic balance.
The Strategic Benefits
Let’s look at some clear tangible benefits to doing this exercise:
Enhanced negotiating position: Armed with comprehensive cost data, your ability to negotiate favourable terms with OTA partners improves dramatically. This can be especially powerful with large regional OTAs. (For more information on how this helps, read my post on “From Good to Great: 7 Steps to Nail Your OTA Negotiations”
Optimised channel mix: Understanding the true cost of each channel allows for more intelligent allocation of inventory and promotional investment.
Process improvement identification: The analysis often reveals operational inefficiencies in how your team manages distribution channels – especially around rate controls.
True profitability measurement: Moving beyond revenue metrics to understand contribution margins by channel.
Strategic alignment: Ensuring your distribution strategy serves your broader commercial objectives rather than working against them.
From Analysis to Action
The most powerful outcome clearly is not just having the data itself – it’s the action it prompts. Hotels that are clear on their true cost of distribution can make intentional, strategic choices rather than reactive ones. And can have a clearer approach to driving direct bookings – at all costs or not!
Equally one of the biggest wins is also the other related actions that it drives in terms of processes, negotiation and account management, and strategic realignment that drives meaningful profitability improvements.
And equally this is not to be seen as a one-time exercise. Distribution costs evolve constantly as new technologies, promotional structures, and competitive pressures emerge.
The gap between perception and reality in distribution costs represents one of the largest untapped profit opportunities in many hotel operations today. The technology and methodology exist – the question is whether you’re ready to embrace this strategic imperative.
Knowing that number is the first step in moving from revenue management to commercial leadership.
Are you ready to get going?
- Get started with our OTA cost of sale calculator. Or hop over to Juyo Analytics and see how they can help.
- Do a broader distribution audit (lots of guidance, tools and training materials)
- And then walk through seven proven steps to negotiate win-win agreements with OTAs