What does the commission really cost a small hotel?
Commission looks small as a percentage and large as a pound figure. Take our worked example, a 24-room hotel on the Welsh coast with about 40% of bookings coming through OTA commission channels such as Booking.com or Expedia. At £110 a night and 15%, as in the calculator above, every night costs £16.50. Across a year, at an average of about £125 a night, its agent bookings come to about £298,000 and the commission to roughly £44,700.
The formulas
- Booking value = room rate × nights
- Commission = booking value × commission %
- UK VAT you cannot reclaim = commission × 20%, only when a UK-registered supplier bills it and you cannot reclaim it; otherwise nil
- Cost to your hotel = commission + any UK VAT you cannot reclaim
- You keep = booking value − cost to your hotel
- Break-even marketing spend = the cost to your hotel, because a direct booking that costs you exactly that much to win leaves you in the same place
What about VAT on the commission?
Booking.com and Expedia bill UK hotels from abroad, without UK VAT on the invoice. A VAT-registered hotel accounts for the VAT itself on the same return, as both a sale and a purchase, so the cost is the commission alone. A hotel that is not VAT-registered pays no UK VAT on that commission, though the value may count towards the registration threshold. UK VAT at 20% appears on the invoice only when the commission is billed by a UK-VAT-registered supplier, such as some UK agencies, booking engines and marketplaces. If you cannot reclaim that VAT, tick the second option above and it is added to the cost. Check your own invoices; if in doubt ask your accountant.
What the break-even number is for
If a direct booking costs you less than the break-even figure to win, whether through a better website, an email to past guests or a small discount for booking direct, you keep more money than you would through the channel. For the same 24-room hotel, selling around 200 room nights a month through OTAs, about 40% of its sales, at £125 and 15%, the commission is about £3,750 a month. Moving a tenth of those nights direct returns about £375 a month before the cost of winning them, which is the number to weigh against any effort you put in.
Commission is only half of the picture. Price each night properly first, using our guide on how to price hotel rooms, and work out your RevPAR so you know what a night is worth to you. If you want help seeing your own channel costs next to your rates, you can start a free trial.