Direct booking vs. OTA: how to compare what each booking really costs

Direct bookings are often described as commission-free. They aren’t free: they’re paid for with media, technology and, for franchised hotels, sometimes brand fees. The useful question is what each channel costs for an equivalent booking, and the answer changes by date, market and guest.

Compare equivalent bookings

A comparison is only fair when both sides describe the same booking:

• Amount: the same room rate and fees before any channel-specific discount.
• Stay: the same dates and number of nights.
• Cancellation: the same terms, since a non-refundable booking and a flexible one carry different risks.
• Costs: only the costs that apply to each channel, each counted once.

What an OTA booking costs

OTA cost = discount you funded + commission rate × commissionable amount after the discount. The commission rate includes any visibility program you pay for, such as the Preferred Partner Program, the Visibility Booster or Expedia’s Accelerator. On Booking.com, the commissionable amount is the total booking amount, including extra fees you charge.

For a $600 stay with a 10% discount you fund and 18% commission, the OTA booking costs $60 in discount plus $97.20 in commission (18% × $540): $157.20. Charging the 18% on the original $600 would overstate commission by $10.80. And if you compare net revenue instead of costs, the discount is already out of the $540: don’t also add it as a cost. More in OTA commissions.

What a direct booking costs

• Media: spend on paid search, Google Hotel Ads and metasearch, retargeting and social, divided by the bookings it produced.
• Technology: booking engine fees, per booking or by subscription.
• Direct discounts: member or promotional rates offered only on your own channels.
• Brand fees that apply only to direct bookings: for franchised hotels, some reservation or loyalty charges. In the US, the franchisor’s Franchise Disclosure Document lists fees under Item 6, Other Fees.

Payment processing applies whenever your hotel charges the guest’s card, including OTA bookings you collect yourself, such as Expedia’s Hotel Collect. Brand fees charged on every reservation through the brand’s system, whatever the channel, work the same way. Include those costs on both sides or leave them out of both; they only change the comparison where they differ by channel.

Side by side: a worked example

Illustrative example. The same three-night stay worth $600, with the same cancellation terms and no discount on either channel. Payment processing is assumed equal on both sides and left out.

Here the direct booking costs $18 less. If the brand charged a $30 loyalty fee on the direct booking only, it would cost $120 and the OTA booking would be cheaper. Your figures will differ; the method is the point.

Average, marginal and incremental cost

The $80 of media per booking in the example is an average. Two other numbers matter more when you decide whether to spend more:

• Average cost: all spend divided by all attributed bookings. $4,000 ÷ 50 = $80.
• Marginal cost: what the next bookings cost. If raising spend from $4,000 to $5,000 brings 8 more bookings, those cost $125 each ($1,000 ÷ 8).
• Incremental cost: spend divided by the bookings that wouldn’t have happened without it. If 20 of the 50 guests would have booked direct anyway, the $4,000 bought 30 bookings: about $133 each.

In this example, the next direct bookings cost $125 plus $10 of technology: more than the $108 OTA booking, unless they’re guests the OTA wouldn’t have brought either. OTA visibility programs raise the same question, because their extra commission also applies to bookings you would have received anyway.

Testing what each channel adds

Ads on your own hotel name can capture guests who would have booked direct anyway, and an OTA can bring guests who would never have found you. To estimate what each channel adds, reduce or pause campaigns in comparable markets or periods and compare direct and OTA bookings. Treat the result as evidence, not proof: demand, events, prices and competitors change too. Tests that run at the same time in comparable markets, repeated more than once, are more reliable than a before-and-after comparison.

Where the answer changes

• Need dates: when demand is short, paying an OTA for visibility can be the cheapest way to fill a room.
• Peak dates: when demand is already there, direct often costs less, although ads on your own name may still pay for guests who would have booked anyway.
• Length of stay: commission grows with the booking value, so longer stays can favor direct, as long as winning a long-stay booking doesn’t cost proportionally more in media.
• Source markets: in markets where your brand is less known, OTAs may be the more efficient channel.

To size the commission side for your hotel, start with the OTA commission calculator.