Distribution costs and net ADR — channel profitability

Early July, monthly financial close. Adam arrives at Daniel’s desk with the commission statement in hand.

“The Booking commission was 18 thousand euros in June. Eighteen thousand! That’s more than half our entire annual marketing budget — in a single month. Let’s cut back the OTA allocation and steer everything to our own website. There’s no commission there.”

Daniel doesn’t argue with the number — the number is true. He does argue with the conclusion: “There are two mistakes in that sentence, Adam. One is that direct is free. The other is that Booking is expensive. Let me show you something — let’s calculate, channel by channel, how much stays in our pocket after a sold night.”

This lesson is the methodology of channel profitability. You mapped the channels in lesson 6 and the channel-mix analysis in lesson 22 — the concept of net ADR already surfaced there. Now it takes centre stage: with the full cost structure, guest value and a monthly routine. Because a 100 EUR Booking.com reservation is 85 EUR after 15% commission. And a 100 EUR “free” direct booking isn’t 100 either.

Gross ADR vs. net ADR

The gross ADR is what we’ve called ADR so far: room revenue divided by room nights sold — the rate the guest pays.

The net ADR is the same, after deducting the direct costs of sale:

Net ADR = (room revenue − channel costs) / room nights sold

Channel costs include everything that is incurred specifically so that the booking happens:

• OTA commission — the biggest item: typically 15-25%, and more with visibility programs (preferred partner, boost).
• Booking engine fee — your own website’s booking engine costs money too: a fixed monthly fee or a transaction % (typically 1-4%).
• Card and payment fees — depending on who collects the money (hotel collect: the guest pays the hotel; channel collect: the OTA collects and remits net), typically 1-2% where the hotel processes the card.
• Direct marketing cost — Google Ads, metasearch (Google Hotel Ads, Trivago) click costs, campaigns: this is the direct channel’s “commission”, except you pay it up front, not after the fact.
• Channel-tied discounts — e.g. the price of the “book direct for 10% off” offer is also a cost of the direct channel.
• Channel manager (CHM) fee — the channel manager’s monthly fee, spread over OTA volume.

What we do not count here: general operating costs (front desk, housekeeping) — they are the same on every channel and don’t influence the channel decision.

The “direct is free” myth

The most common channel mistake is ignoring the costs of direct. A direct booking has three real costs:

1. The booking engine and the website — development, operation, transaction fee.
2. Marketing — the guest doesn’t find your website on their own. The Google Ads click, the metasearch bid, the remarketing are all customer acquisition cost (CAC). If 2,520 EUR went to direct campaigns in June and 360 direct nights came in, that’s 7 EUR per night of acquisition cost — even if the invoice sits in the marketing budget, not on the commission line.
3. The direct discount — if you set the direct rate 10% below the Booking rate, that 10% is a cost too: revenue you gave up to steer the channel.

Direct is still typically the channel with the best net ADR — not because it’s free, but because its cost is lower and largely fixed: as volume scales, the per-unit cost falls, while commission grows in proportion with every booking.

Hotel Peaqplus City — the June channel calculation

Let’s look at Daniel’s table. June: 1,800 room nights sold across the four main channels — we leave the smaller channels (walk-in, GDS, wholesale) out for simplicity; the method works the same way for them.

The cost data

• Booking.com: effective commission 18% (base 15% + preferred program). Hotel collect — the card fee (1.2%) is borne by the hotel.
• Expedia: effective commission 20% (base 18% + summer campaign participation), channel collect — no card fee on the hotel’s side.
• Direct web: booking engine 2% transaction fee, card fee 1.2%, plus the monthly 2,520 EUR campaign spend (Google Ads + metasearch) spread over direct nights.
• Corporate/contracted: no commission and no card fee (payment by bank transfer) — but the roughly 285 EUR monthly administrative burden (invoicing, contract handling) does belong here, and its real “cost” is the lower, contracted rate, which already shows in the gross ADR.

We leave the channel manager’s monthly fee out for simplicity: spread over the 1,170 OTA nights, it would come to a few tens of cents per night.

The calculation

Channel	Nights	Gross ADR	Room revenue	Commission	Other costs	Net revenue	Net ADR
Booking.com	900	112 EUR	100,800	18,144 (18%)	1,210 (card 1.2%)	81,446	90.5
Expedia	270	108 EUR	29,160	5,832 (20%)	—	23,328	86.4
Direct web	360	105 EUR	37,800	—	756 (engine 2%) + 454 (card) + 2,520 (marketing)	34,070	94.6
Corporate	270	88 EUR	23,760	—	285 (administration)	23,475	86.9
Total	1,800	106.4 EUR	191,520	23,976	5,225	162,319	90.2

The house’s gross ADR of 106.4 EUR is really 90.2 EUR net — a gap of 29,201 EUR for the month, 15.2% of room revenue. And Adam’s 18-thousand Booking commission is only a good sixty percent of that: the rest sits in the Expedia commission, the card fees, the engine fee and the marketing invoices — in four different places.

What the table reveals

Let’s rank the channels two ways:

Rank	By gross ADR	By net ADR
1.	Booking.com (112)	Direct web (94.6)
2.	Expedia (108)	Booking.com (90.5)
3.	Direct web (105)	Corporate (86.9)
4.	Corporate (88)	Expedia (86.4)

The ranking flipped. In the gross view Booking is the star and direct comes third; in the net view direct leads, and Expedia — with the second-highest gross ADR — slides to last place, practically at the level of the 88 EUR corporate rate. The 108 EUR Expedia guest is really an 86.4 EUR guest.

And Adam’s opening question got its answer too: even with the 18% effective commission, Booking is the second-best net channel. Booking is not the problem — the problem is when Booking takes nights that a cheaper channel would have sold anyway. And that is not a channel question but an allocation question: the displacement logic of lessons 40-41 translates here to channels. On a peak day, when the house fills anyway, every Booking night may displace a direct night — and then the ~4 EUR net gap between the two channels is pure loss. In the valley, by contrast, the Booking guest is incremental: they displace no one, because without them the room would sit empty.

The second layer: repeat rate and guest value

Net ADR is the economics of a single stay. But there is a longer-term difference between channels too: who owns the guest?

The direct guest’s data (email, preferences, stay history) belongs to the hotel — their next booking can come from a newsletter or a direct enquiry, with no acquisition cost. The OTA guest belongs to the platform: on their next trip they search on Booking again, and even if they do come back to us, we pay commission for them again — unless we managed to convert them into a direct relationship during the first stay.

A simplified two-year example (average stay: 2 nights). The return stay comes in direct, without campaign cost — its net value is 2 × 102 ≈ 204 EUR (from the 105 EUR direct rate, only the engine and card fees come off):

	Direct guest	Booking guest
Net value of first stay	2 × 94.6 ≈ 189 EUR	2 × 90.5 = 181 EUR
Return within 2 years, on the direct channel	28% (newsletter, direct relationship)	10%
Net value of return stay	~204 EUR	~204 EUR (if they return direct)
Expected 2-year value	189 + 0.28 × 204 ≈ 246 EUR	181 + 0.10 × 204 ≈ 201 EUR

(The 28% and 10% are illustrative but realistic orders of magnitude — your own numbers come from the PMS and your newsletter statistics.)

The ~4 EUR net ADR gap opens into a ~45 EUR value gap at guest level. That’s why investing in the direct channel pays off even if CAC makes it more expensive in the short run — and that’s why the in-house conversion of the OTA guest is critical: the email asked for at check-in, the loyalty discount on the next direct booking, the offer handed over at check-out. In this frame the OTA is not the enemy but a paid guest-acquisition channel — the OTA brings the first stay; the second one is up to us.

The method: the monthly channel scorecard

The net ADR calculation is only worth something as a regular routine, not a one-off report. The monthly scorecard steps:

1. Channel-level base data from the PMS: nights, room revenue, gross ADR per channel.
2. Cost assignment: commissions from the OTA statements; booking engine and card fees at the contracted percentages; the month’s direct marketing spend spread over direct nights; the CHM fee spread over OTA nights.
3. Net ADR and net revenue per channel — in the format of the table above.
4. Trend tracking: how is the net ADR gap (direct vs. the most expensive OTA) moving? Is the effective commission rate creeping up (visibility programs, campaign participations)? Is direct CAC growing faster than the volume it brings?
5. Decisions: which channel to restrict in peak periods (allocation, rate differentiation), where next month’s marketing euro goes, which OTA programs to exit.

Adam and Daniel’s decisions based on the June table: restrict the Expedia allocation in peak season (the 86.4 EUR net ADR is practically corporate level — we don’t sell rooms at that price on a commissioned channel while the house is filling); Booking stays, but with a tightened allocation for the September trade-fair weeks — lesson 41’s allotment logic translated to a channel; and part of the money saved on commission moves into the metasearch budget, where direct CAC typically scales most efficiently.

The classic traps

Trap 1: Counting only the commission

The commission is the most visible cost, but not the only one. Without the card fee, the booking engine percentage, the CHM fee, the premium of visibility programs and the channel-tied discounts, net ADR is systematically overestimated — and it distorts most on precisely the channels believed to be “cheap”.

Trap 2: Smearing the direct marketing cost

If the Google Ads spend sits in the general marketing budget and isn’t spread over the direct bookings, the direct channel looks artificially free — and the hotel steers volume to the wrong place. CAC must be calculated, monthly, against the nights actually delivered.

Trap 3: Comparing channel ADRs without mix control

OTA volume has a different pattern: more last-minute, shorter stays, a different segment. If the OTA’s gross ADR is lower, that isn’t necessarily the channel being “expensive” — it may simply book different days in a different window. A clean comparison needs the same period, the same room type and ideally the same booking window — otherwise the channel decision punishes the mix effect.

Trap 4: OTA-zero as the goal

The sight of the commission invoice triggers a strong emotional reaction (“switch it off!”) — but OTA-zero is a poor optimum for most independent hotels. The OTA provides marketplace visibility (the billboard effect: the guest finds us on Booking, then books on our website), incremental valley-period demand, and new markets that direct marketing can’t reach. The goal is not zero but the optimal mix — the core idea of lesson 5: broad OTA presence in the valley, strict allocation at the peak, and steering by the net ranking.

Manually vs. Peaqplus

Manually, the channel scorecard is monthly Excel work: a PMS export by channel, OTA extranet statements, marketing spend reconciled on top — typically 2-3 hours a month, and in most hotels that is exactly why it gets skipped, or thins out into a once-a-year “big analysis”.

In Peaqplus, the revenue side is continuously visible: the Dashboard shows how revenue and mix evolve, so a shift in channel shares (e.g. the OTA share creeping up in peak weeks) surfaces as it happens, not at the monthly close. The cost side — commission rates, CAC, card fees — comes from the hotel’s own contracts and statements: it’s worth assembling the net ADR calculation from that data, in the scorecard structure above, built on Peaqplus’s revenue data.

Key takeaways

• Net ADR is the true measure of channel profitability: gross ADR minus commission, booking engine fee, card fee and the marketing cost (CAC) allocated to the channel.
• Direct is not free — booking engine, campaign spend and the direct discount are its “commission”. It is still typically the best net channel, because its cost is largely fixed and its per-unit cost falls as volume scales.
• The net ranking can flip relative to the gross ranking — in Hotel Peaqplus City’s example, the OTA with the second-highest gross ADR ended up at the bottom of the net list.
• The channel decision is a displacement question: on a peak day the commissioned night takes revenue away from a cheaper channel; in the valley it is incremental. The channel isn’t good or bad — the allocation is.
• Repeat rate is the second layer: the direct guest belongs to the hotel, the OTA guest to the platform. Guest-level two-year value multiplies the net ADR gap — the OTA is paid guest acquisition; conversion is the hotel’s job.