What is the meaning / definition of Margin in the hospitality industry?
Within revenue management in the hotel industry, Margin is often used to refer to the commission or fee OTA are making on your room rate.
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.
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