The hotel industry has quite a history with using distribution for growing their revenue streams. We can take many of their experiences and learn from their hard earned lessons on best practices. One hotel industry standard when it comes to smart distribution, is the leveraging of “net rates” to maximize profitability on bookings that are produced from third party channels, often referred to as “OTAs” or Online Travel Agents.
There are really three types of rates that can be distributed to the OTAs from Property Management Systems: Retail Rates, Net Rates and Hybrid Rates.
The first and most common type of distributed rates in the vacation rental industry are “retail rates”. These retail rates are the exact rates that you load into your PMS that your call center agents use for quotes and you display on your website. This is generally considered the most expensive rate structure to use for distribution because the OTA charges their commission fee off of your highest possible rate and you are left to split the rest with the homeowner or worst case scenario, you have to find a way to pay it out of your portion of the rental commission. In this scenario if the retail rate is $100 a night and the OTA commission is 10%, then you will only have $90 to split with your homeowner after the OTA takes their fee. Most of the time, vacation rental managers are sending retail rates due to a limitation of their property management software or the distribution partner they are working with to send their rates to the OTA websites.
The second scenario is Net Rates. Net Rates imply that the rates being sent to the distribution channels are the rates that the accommodations provider needs to be paid after the OTA charges their commissions. So for instance if you have a net rate of $100 and the OTA charges a 10% commission – the rate sent to the OTA will need to be marked up to a sell rate of $110 so that when they produce a booking for you, the reservation revenue will come back to you at the $100 a night. This means the rates shown on the OTA sites (net rates + commission) are the highest rates shown to consumers and will work best if you are not looking for the OTA website to drive an incredibly high volume of bookings.
The third scenario is Hybrid Rates. Hybrid rates allow you to choose the rates that you want to send to the OTAs that are a middle ground between Net Rates and Retail Rates so that you can still drive a moderate volume of reservations from the different marketing channels. In this scenario, you may feel that you could handle paying a partial commission but not a 10% commission. So you send a Hybrid Rate of $105 dollars a night to the OTAs which allows them to charge their 10% and you still get back $95. Hybrid rates are a good balance between increased conversion opportunities/volume of bookings and maximizing profitability. Knowing what your call center and marketing costs are as a percentage of overall revenue helps you decide what percentage of revenue you can pay as commission without it hurting your bottom line.
Building on Retail/Net/Hybrid rate strategies, hotels are pros are knowing that to truly maximize profitability, you have to be able to send different rates and pay different commissions at different times of the year to ensure that you are not cannibalizing direct revenue opportunities by taking higher cost OTA reservations.
For instance, you may want to use Retail Rates to distribute your inventory during peak season when you feel like you could book those properties without the additional help. But in shoulder season, a Hybrid Rate approach may be best and in off season, a Retail Rate approach may just be the ticket to build that low season without spending a ton of marketing dollars.
The BookingPal distribution platform builds on the learning from the hotel industry over the years and allows vacation rental managers to set the rate strategy based on seasonality, the individual unit and more to ensure maximum flexibility and ultimately higher profit potential.
