Dynamic Budgeting: Rethinking the True Cost of Hotel Visibility

For too long, hotels have evaluated their distribution strategy with a simplistic formula: compare the commission paid to an OTA vs. the cost of getting a direct booking—and whichever is cheaper “wins.” But that view is a trap. The direct channel is not just another hotel revenue source option—it is the foundational space where a hotel retains control over guest communication, data, and relationships.

Where the Traditional Comparison Fails

• Hotels often cap marketing spend at ~2.5% of room revenue, while OTAs invest massively (e.g. Expedia spent ~$7 billion in 2024).

• OTAs function more like tech platforms than mere intermediaries, making “commission vs acquisition cost” comparisons misleading.

• The direct channel must be judged not by whether it’s cheaper— but by how it builds brand narrative, loyalty, and long-term value.

What Is Dynamic Budgeting?

“Dynamic Budgeting™” is a shift away from fixed budgets and binary commission thresholds. Instead, it encourages:

• A proportional model: invest a percentage of each booking toward visibility, scaling budgets up or down depending on season, market maturity, or lifecycle stage.

• Lifecycle sensitivity: new hotels might accept acquisition costs of 40–50%; mature hotels gradually aim for more efficient direct acquisition.

• Viewing visibility as an asset, rather than a cost—especially when it helps convert transactions into relationships.

Why OTA Commission Isn’t the Right Benchmark

• A direct booking delivers more than a transaction: it carries ownership of guest data, relationship potential, and repeat value.

• Fixating on a 20% commission threshold ignores the long-term strategic upside of direct bookings.

• Even if a direct acquisition cost is higher initially, it may be entirely justified if it fosters loyalty, repeat stays, referrals, or brand advocates.

The Guest Ownership Question

• OTAs often behave like they “own” the guest, by controlling communications, disputes, and platform loyalty.

• But the hotel is responsible for delivering the service, bearing liability, and forging guest memories. The guest belongs to the hotel, not the OTA.

• When a hotel lacks distinct identity, the OTA can capture loyalty. Strong branding and narrative shift “ownership” back to the hotel.

Avoiding Misaligned KPIs & Metrics

• Many hotels use KPIs that unintentionally favor OTA bookings (e.g. auto upgrades for OTA guests for reputation metrics).

• True success metrics should include: strength of the direct channel, sustainability of visibility mix, and long-term value of guest relationships.

• Hospitality is not retail—it’s a multi-touch, fragmented journey. Hotels should invest strategically across the entire guest journey (OTAs, reviews, owned channels) rather than demonize any touchpoint.

The New Paradigm in Distribution

Dynamic Budgeting isn’t a tweak—it’s a structural shift:

• It rejects static budgets and overly simplistic commission benchmarks.

• It embraces a dynamic, calibrated investment in visibility tied to lifecycle, context, and brand strategy.

• It recognizes that sometimes the right cost per acquisition (CPA) will exceed OTA commission—and that may reflect smart strategy, not inefficiency.

• Ultimately, the future of distribution rests on who controls memory (the guest experience), not just clicks or bookings.

Key Take-Aways

1. The direct channel is an asset, not just a cost Direct bookings give you control over data, communication, guest loyalty, and brand narrative—benefits that exceed the initial acquisition cost.

2. Commission-based benchmarking is misleading Comparing direct acquisition cost to OTA commission ignores long-term value and structural differences between hotels and OTA platforms.

3. Budget dynamically, by stage and context Use a proportional, elastic budgeting model—newer properties may invest heavily; mature ones should gradually refine efficiency.

4. Guest “ownership” belongs to the hotel OTAs may manage interfaces, but the hotel delivers the experience—branding and relationship-building is where ownership truly lies.

5. Align KPIs to long-term strategy Don’t let metrics (like upgrades or reputation points) distort your focus toward OTA bookings. Favor metrics that reflect direct channel strength and lifetime value.

6. Embrace multi-touch visibility, not channel silos Track and invest across the full guest journey, not just in direct vs OTA dichotomies. Strategic visibility across touchpoints is key.

Get more insights from Blastness