Understanding whether your direct channel is performing poorly, averagely or stellarly is not as easy as you may think.
There is actually a gap between perception and reality, with many hotels thinking they are doing great, when they are not, and vice versa. This misjudgement is potentially a major problem as it leads hotels to make wrong decisions, making the problem even bigger.
Subscribe to our weekly newsletter and stay up to date
Direct revenue as a percentage of the total, a good KPI but not enough
Measuring your direct web revenue as a percentage of the total revenue has become a standard in the hotel industry. It is mathematically correct and a piece of information accessible from any decent PMS. It is also easy to understand and compare year over year. Many advantages that made this KPI very popular among sales and marketing managers. However, is it enough to answer the following questions?
- Is your 20% direct share a good or bad number?
- Should you be happy because your direct share reached 25% when it was 20% last year?
- Does your 25% share mean you’re doing better than another hotel making 20%?
If you are answering all these questions right away, chances are that you’ll be wrong. The only correct response is “it depends”. And what does it depend on? To give a precise answer we need information from all other channels, not just the direct. That extra information will add the necessary context you missed before.
Additionally, we need a framework that will allow us to see the picture we are looking for and get to the right conclusions. Let’s see how to get it.
Offline segments and tour operation
Offline segments such as groups, MICE and corporate, play a very important role in the distribution of many hotels. These segments fill many of the rooms, highly reducing the inventory for the rest of the segments to sell. Effectively, it’s like if you have a much smaller hotel to sell online.
The same happens with tour operators, traditionally offline channels that actually sell most of their rooms online. Many tour operators still enjoy exclusive conditions such as room allotments and fixed prices set months ahead. Very few accept dynamic prices from your channel manager or CRS. Can you imagine a yieldable channel (such as OTAs and your direct) competing with tour operators that enjoy these many advantages? It is not a fair competition.
In hotels with such strong segments/channels, we need an additional KPI to measure the direct channel’s performance. We need a way to measure it relative only to inventory it has a real chance to sell.
Direct revenue as a percentage of the online revenue (yieldable channels)
By excluding the rooms that your direct channel has no or very little chance of selling, we get a much more precise number that will tell us whether we are doing good or bad with our direct channel.
With that objective in mind, let’s roll up our shirts and dive into the numbers.