Channel economics: OTA commissions vs direct

A booking is only worth what’s left after you’ve paid to win it — so the game is net revenue per room, not the biggest pile of gross bookings.

The idea

Every booking arrives through a channel, and every channel takes a cut. An online travel agency (OTA) charges a commission — typically 15–25%. Direct bookings dodge that, but they aren’t free: you pay for marketing, loyalty points, and booking tech to win them. GDS reaches corporate and travel-agent demand for its own fees.

The trap is chasing the wrong number. “Cut commissions” sounds smart, but an empty room earns nothing — a commissioned booking beats it. And OTAs create a billboard effect: guests discover you there, then some book direct. So you optimise the whole picture on net RevPAR (net revenue per available room), not on gross bookings or the lowest commission bill.

How it works

Value the mix by what lands in the bank, per available room:

One night · 100 rooms · ADR $200 · rate parity keeps $200 on every channel

net revenue  = gross revenue  -  (commission and marketing cost of each channel)
net RevPAR   = net revenue / rooms available (100)

Start — playing defense on commissions
  OTA 25% · Direct 60% · GDS 15% · billboard off
  occupancy .......... 77.5 rooms      (22 rooms sit empty)
  gross revenue ...... $15,500
  acquisition cost ... $1,721          (OTA 18% · Direct 8% · GDS 12%)
  NET revenue ........ $13,780   ->    net RevPAR  $137.79

Fill the house — use OTA to sell the empty rooms
  OTA 70% · Direct 30% · billboard off
  occupancy .......... 100 rooms       (full)
  gross revenue ...... $20,000
  acquisition cost ... $3,000
  NET revenue ........ $17,000   ->    net RevPAR  $170.00

An 18% OTA booking still beats an empty room. You maximised NET revenue —
not gross bookings, and not "fewest commissions."

When to use each channel

Watch out for

• Judging channels on gross bookings. A channel that books a lot at 25% can net less than a smaller, cheaper direct base. Rank on net RevPAR, not volume.
• Treating ‘minimise OTA’ as the goal. Empty rooms cost more than commission. The target is maximum net revenue, not the smallest commission bill.
• Ignoring the billboard effect. Delisting from OTAs can quietly cut direct bookings too — that’s where many guests first discover you.
• Forgetting rate parity. Where parity clauses apply, you can’t simply post a lower price on your own site — you compete on perks, loyalty, and package value instead.
• Counting direct as free. Direct carries marketing, loyalty redemption, and booking-tech costs. Net those out before you crown it the winner.

Worked example

An interviewer sets the scene: “You’re the revenue manager. The GM wants to cut OTA commissions by pushing everything direct. Your take?” A strong answer reframes from commission-minimisation to net-RevPAR maximisation. An OTA booking at ~18% still beats an empty room, and OTAs feed direct discovery through the billboard effect — so delisting can cut direct too. You’d model the mix on net revenue per available room: fill the house with OTA where direct demand runs out, push the marginal booking to direct where you can (cheaper, and you own the guest), respect rate parity where it applies, and use GDS for corporate reach. The KPI you defend is net RevPAR — not gross bookings, and not the commission line.