OTA Shift, Metasearch Payback, and the Fall Minimum Stay
A 40-room independent inn has 14,600 available room-nights. Last year it sold 10,512 room-nights at an ADR of $180. Channel mix is 55% OTA at 18% commission, 35% direct with a $6 per booking reservation cost, and 10% group at a net rate of $150 with no commission. The inn is considering a $12,000 annual metasearch and retargeting campaign that the owner believes will shift 600 room-nights from OTA to direct at the same ADR. The OTA contract requires 18% commission on the room rate and prohibits displaying a lower direct rate. The variable cost per occupied room is $38. The owner also has a proposal for a 3-night minimum stay on fall weekends that is forecast to reduce occupancy by 4% but raise ADR by 7%. The owner asks whether the campaign pays back, what net RevPAR is by channel, and whether to accept the minimum-stay proposal.
1. Compute net ADR by channel and net RevPAR at the current mix. Show the gross-to-net bridge.
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Issue: Gross ADR hides channel costs, so the inn needs a net ADR and net RevPAR view before judging the campaign.
Reasoning: Gross ADR is $180. OTA net ADR = $180 x (1 - 0.18) = $147.60. Direct net ADR = $180 - $6 = $174.00. Group net ADR = $150.00.
Weighted net ADR = (0.55 x $147.60) + (0.35 x $174.00) + (0.10 x $150.00) = $81.18 + $60.90 + $15.00 = $157.08.
Occupancy = 10,512 / 14,600 = 72.0%. Net RevPAR = $157.08 x 0.72 = $113.10. Gross RevPAR = $180 x 0.72 = $129.60. The gross-to-net gap is $16.50 per available room-night, or $240,900 across 14,600 available room-nights. That gap is the commission and reservation-cost drag.
Conclusion: At the current mix, the inn keeps $157.08 per occupied room-night and $113.10 per available room-night. OTA business is not inherently bad, but it is $26.40 per room-night less valuable than direct business before variable costs.
2. Does the $12,000 metasearch campaign pay back? Calculate break-even room-nights and the first-year net benefit.
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Issue: The campaign shifts 600 room-nights from OTA to direct at the same ADR.
Reasoning: The incremental net revenue per shifted room-night is direct net ADR minus OTA net ADR: $174.00 - $147.60 = $26.40. Variable cost per occupied room is unchanged because the room is still occupied, so it does not affect the shift comparison. Total incremental net revenue = 600 x $26.40 = $15,840. Subtract the $12,000 campaign cost: first-year net benefit = $15,840 - $12,000 = $3,840.
Break-even room-nights = $12,000 / $26.40 = 454.55, so the campaign needs about 455 shifted room-nights to break even. The assumed 600-room-night shift gives a cushion of about 145 room-nights, or 24% above break-even. If the shift falls below 455, the campaign loses money.
Conclusion: The campaign pays back in year one under the owner's assumption, but the margin is modest. The inn should set a monthly tracking target of at least 38 shifted room-nights, measure direct bookings against a control period, and include the cost of staff time and any agency fee before declaring success.
3. Evaluate the 3-night minimum proposal using occupancy, ADR, net room revenue, and variable cost. Recommend accept or reject with conditions.
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Issue: The minimum stay trades occupancy for rate.
Reasoning: Current room-nights = 10,512. A 4% reduction = 420.48 fewer room-nights, leaving 10,091.52. Current weighted net ADR = $157.08. A 7% ADR increase gives $157.08 x 1.07 = $168.08 net ADR, assuming the mix and channel costs scale proportionally. Current net room revenue = 10,512 x $157.08 = $1,651,225. Proposed net room revenue = 10,091.52 x $168.08 = $1,696,138, a gain of about $44,913. Variable cost falls from 10,512 x $38 = $399,456 to 10,091.52 x $38 = $383,478, a savings of about $15,978. Total contribution gain is about $60,891 before any marketing or guest-satisfaction cost.
Recommendation: Accept as a test, not a permanent policy. Conditions: apply only to fall weekends, protect group and long-stay exemptions, monitor OTA parity and channel mix, track displacement and guest complaints, and set a review trigger if occupancy falls more than 4% or ADR fails to rise by at least 5%. The math is positive, but the forecast is the weak link.
Conclusion: The proposal is financially attractive on the stated assumptions. Test it with a defined review date and a control set of weekends.