What are your online distribution costs and is there a way to reduce them?

Nov 24, 2020Channel Manager, COVID-19, Revenue Management

Online distribution costs are one of the main elements impacting the bottom-line profitability of hotel operations. As such, this cost element deserves closer attention, especially now during the crisis, when our businesses are suffering due to the pandemic.  

The standard sales commissions applied by the vast majority of OTAs are most often fixed, almost nonflexible cost elements. Consequently, most hotels are undertaking considerable efforts to reduce the share of their online agency sales in favor of direct channels.

This should be a rather obvious tendency especially if we consider that the vast majority of demand during the crisis was channeled towards leisure and resort hotels which usually offer diversified packages best displayed through their websites and not standard OTAs which are less adapted to distribute package deals.  Strangely enough, our initial observations show that this is by no means not the case.

The processed data from all Yieldplanet users in Europe indicates that compared to the same summer period of last year, the share of direct booking increased only by a single percentage point from 8 to 9%.

Considering that due to the pandemic, many of the resort hotels recorded considerably better results in terms of occupancy and revenue compared to the previous summer season, the conclusion might be that not enough attention and effort was dedicated to introducing proper distribution policies.

Proper distribution policies should also address the costs of direct sales. Although sales through the Hotel’s Booking Engine are not subject to standard OTA commissions, they often also do not come cheap.  This is especially true if we look at the already mentioned leisure and resort Hotels.

Most Booking Engine providers apply commissions for their services. These commissions are obviously much lower than the OTA levels but if we consider that the majority of direct sales of the resort hotels consist of long stay packages, the resulting cost can be substantial.

This should be reason enough to look for alternatives and find providers where fixed fees can be negotiated. We at Yieldplanet are ready to assist.

Fixed fees for the services of the Channel Manager in the form of a subscription fee (monthly, quarterly or annual) has always been the business model applied by our company. It has also come to our attention, that due to the pandemic, some providers have persuaded their clients to switch to commission-based models. Considering the pandemic, when there is almost no traffic, this at first glance might seem reasonable.

Very often however, this strategy might prove disastrous. Especially the resort hotels which managed to prosper. They are now faced with enormous distribution costs. The issue of distribution cost based either on commissions or fixed fees, should clearly be carefully addressed by all Hotels. If you require our assistance in evaluating the optimal distribution policy do not hesitate to contact us here:

Apart from the channel management services which we have been providing for over 11 years, our company has developed and successfully implemented a unique revenue management system called Price Optimizer.

Why unique? Because we encompass an advanced price recommendation system which yields the hotel per room type 24 hours a day, with immediate real time distribution capabilities. The distribution capabilities include a wide range of restrictions and can be individually adapted depending on channel. There is no need to go through any “accept and upload” procedures.

We will be happy to provide you with more information.

The crisis has and still is strongly affecting our operations. Hopefully we will soon see a light at the end of the tunnel. Many foresee that in the near future we should prepare ourselves for a wave of “Revenge Travel” which will unleash the demand for our services. Hopefully this time will come soon.

In the meantime, we encourage you to consider the use of YieldPlanet’ services both during the time of crisis management as well as to best prepare for the better times ahead.