How to Maximise Hotel & Resort Profit Margins

Sep 27, 2016
Posted by Aaron Young

Increasing direct bookings is the answer to maximising profit and control of your property. It should be a high priority goal for every owner or manager of holiday accomodation, whether it be a hotel, resort or apartments. The reasons for this are clear; commission paid to online travel agents (OTAs) range between 15% – 20%, this reduces your overall profit dramatically, not to mention that you are losing brand awareness and control. Focused and specific digital marketing means you skip the middle man, and ultimately increase, not only your profit but also your client database and ability to generate return and referral business.

As an independent accommodation facility it can be daunting to try and compete with large international brands with huge marketing teams and budgets. However, the beauty of targeted digital marketing is that when done professionally, you can win the battle! This can be achieved through a targeted digital strategy, reaching your niche market and building your clientele fast, whilst only costing a fraction of the commissions you have been paying to OTA’s.

The advantages of generating direct bookings are clear:

  1. Save on commissions: It’s simple, paying less on commission means higher revenue and a higher profit margin for you and your business.
  2. Protect your average nightly/weekly rent: OTAs such as Booking.com operate on a commission model, so a reduction in your nightly price does not greatly affect their revenue. For example a price reduction of $50 per night only reduces their commission by $7.50 – $10, while you lose the remaining $40 – $42.50. Furthermore, OTA’s rank and prioritise hotels according to the bookings generated, or a hotel must increase the commission paid to guarantee a higher ranking. In short, OTA sites can be become an all out bidding war, forcing hotels to lower their nightly price and/or increase commission to retain ranking and visibility. By increasing direct bookings, you can reduce your reliance on OTA’s and safeguard your profits, all while still being competitive in the market.
  3. Build your own brand: The ultimate goal is that people visit your site directly before visiting OTA sites. Direct bookings mean your customers will spend less time looking at OTA sites and at your competitors. With many OTA’s not providing you with the customers direct email or contact details it is now much harder to retain customer loyalty. With all communication going through the OTA’s website/contact centre, unfortunately this means that the bookings are the OTA’s customer, not yours. Growing your own database via direct bookings enables you to actively market, ensuring repeat business as well as being able to offer special deals (without losing commission) to maintain occupancy over yearly low season periods.

Below is the outline for a successful digital marketing cycle:

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Aaron Young Consulting communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication.