What is the meaning / definition of Margin in the hospitality industry?
Here an example on how we can calculate the margin or commission fee a 3rd party travel agency website makes on the price of your hotel room: A room sells for 100€ per night, and a guest books a one night stay on a OTA website the hotel works with. The total amount collected from the guest is 100€. The OTA charges a 15% commission, which means you will have to pay him €15 and you will be left with €85.
In case an OTA work on a commissionoable model, the guest will pay the hotel directly, and a commission is charged by the OTA to the hotel upon completion of the stay.
The Formula for the calculation OTA Margin is:
- Margin in €/$ = Room Rate x % Commission
- 100€ x 15% = 15€
Note: Hotels should be aware that on cancelation or no-show fees they have to be careful to pay commission only over the fee charged to the guest and not the complete stay.