Direct Bookings vs. OTAs: The Real Cost of Hotel Distribution

Understanding the Real Economics of Hotel Distribution and the Path to Sustainable Profitability

After more than 25 years working in digital marketing, hotel commercial strategy, and hospitality technology, one conclusion has become clearer with every passing year:

Direct bookings are not just “nice to have.” They are essential.

Not because offline agents and OTAs are bad. Not because agents are obsolete. But because direct marketing delivers the lowest long-term cost of acquisition (COA), the greatest control, and the strongest foundation for sustainable profitability.

In earlier years of online distribution, many hotels could survive by “letting the agents do the work.” Demand was strong, competition was less sophisticated, and average rate levels felt tolerable. Today, that model is risky at best and damaging at worst.

As a seasoned hotel digital marketeer, for 20+ years, I have sat on the same side of the table as hotel owners and asset managers. This is not theoretical, it is based on real P&Ls, real marketing budgets, and real-world performance across dozens of independent hotels, resorts, serviced apartments, and hotel groups across Thailand and beyond.

My central message is simple:

The lowest cost booking a hotel can generate is a well-executed direct booking. And hotels that do not invest properly in direct marketing will always be paying more than they need to for demand.

To understand why, we need to look honestly at distribution costs, Cost of Acquisition (COA), and the misconceptions that still exist in the industry.

The Wrong Debate: Direct vs. Agents & OTAs

The hotel industry has spent years framing distribution as a battle: Direct bookings vs. Agents & OTA’s. This framing is unhelpful and, frankly, outdated.

The real question is not whether OTAs or offline agents should exist in your distribution mix. They absolutely should. These agents are powerful, efficient demand generators and play a critical role in:

Filling base demand
Reaching international markets
Supporting low seasons
Providing visibility in competitive destinations

The real question is this:

Which channel delivers bookings at the lowest sustainable Cost of Acquisition, and how do we scale that channel over time?

When you answer that question honestly and with proper data, the conclusion becomes unavoidable that Direct marketing, done properly, is the lowest-cost channel a hotel can own. Hotels that want to grow profitability should act accordingly.

Cost of Acquisition (COA): The Metric That Actually Matters

Hotels often focus on:

Occupancy
ADR
RevPAR
Total revenue

These are important metrics, but they are incomplete. A hotel can increase revenue every year and still become less profitable if its acquisition costs rise faster than its rates.

Cost of Acquisition (COA) measures how much it actually costs to generate each booking, by channel, once all relevant costs are included. COA answers one brutally honest question:

“How much of my revenue am I giving away just to get the booking?”

Profitability lives in the gap between:

What the guest pays
What the hotel keeps

Direct marketing widens that gap. Over-reliance on third parties shrinks it.

OTAs: High Visibility, High Variable Cost

Let’s be clear and fair about OTAs and agents though. OTAs are not “evil.” They are extremely good at what they do. They invest billions in:

Brand awareness
Technology
User experience
Global marketing reach

When a hotel pays 15-25% commission to an OTA, it is effectively outsourcing demand generation and conversion. The problem is not that OTAs cost money. The problem is that OTA costs scale linearly with revenue.

Every additional booking costs the same percentage. Every increase in ADR increases commission paid. There is no efficiency curve. As your business grows, your dependency cost grows with it. From a COA perspective, OTAs represent:

A predictable but permanently high acquisition cost
Minimal long-term efficiency gains
Limited ownership of the guest relationship

They are excellent for reach and liquidity, but they are poor as a long-term profit engine.

Direct Marketing: The Lowest Cost Channel Over Time

Direct marketing works differently. While there is an upfront investment, in strategy, technology, and execution, direct marketing becomes more efficient over time, not less. This is the key point that is often misunderstood. A properly built direct channel benefits from:

Brand recognition compounding year after year
SEO traffic that continues to convert without incremental cost
CRM and repeat guests with near-zero acquisition cost
Retargeting audiences that get cheaper to convert over time

Unlike OTA commissions, direct marketing costs do not scale linearly with revenue. This is why, when we calculate true COA correctly, the results are consistent:

Direct bookings have the lowest acquisition cost of any channel over the medium to long term.

Not immediately. Not accidentally. But reliably, when managed professionally by a team like The Percentage Company.

The Mistake Hotels Make When Calculating Direct Costs

One of the reasons direct marketing is sometimes perceived as “expensive” is because hotels calculate it incorrectly. They often lump all marketing costs together and divide them by total direct revenue without context or optimisation. In reality, direct marketing includes several layers:

Paid acquisition (Google, Meta, Hotel Ads)
Organic acquisition (SEO, brand search)
Retention (email, loyalty, repeat guests)

Paid channels may start with a higher COA, but organic and repeat bookings steadily pull the blended COA down. This is why direct marketing must be measured as a system, not as individual tactics. When done correctly, the blended direct COA consistently undercuts OTA commission levels.

Why “Direct Is Expensive” Is Usually a Symptom of Poor Execution

In our experience, when hotels claim that direct bookings are more expensive than OTAs, the cause is almost always one of the following:

No clear revenue management strategy
Poor campaign structure
Weak website conversion
No CRM or retention strategy
No proper COA tracking

Direct marketing is not something you “turn on”, it’s something you build.

When built correctly, the direct channel becomes:

The cheapest channel
The most controllable channel
The most resilient channel

The Hidden Cost of Offline Agents and Wholesalers

Now we need to address one of the most damaging misconceptions in hotel distribution. Many hotel owners believe that:

“Offline agents and wholesalers don’t have a cost.”

They absolutely do. The cost is simply hidden. When you contract a net rate with a wholesaler or agent:

They mark up the rate
The guest pays more
The hotel receives less

The commission is baked into the rate, not deducted visibly. This creates several problems:

Hotels underestimate their true acquisition cost
Pricing becomes uncompetitive without understanding why
Direct rates struggle to compete with inflated retail pricing
The hotel is not able to yield rates, making the direct strategy ineffective due to parity problems.

From a COA perspective, offline channels are often among the most expensive, not the cheapest. This is why a rounded, like-for-like view of distribution is essential. If you don’t convert net rates back into effective commission percentages, you are making decisions with incomplete data.

Why Understanding COA Changes Everything

When hotels truly understand COA, behaviour changes. Revenue managers stop asking: “How do we increase occupancy?” And start asking: “Which bookings should we actually want?” This leads to smarter decisions such as:

Protecting inventory for high-margin direct demand
Using OTAs tactically rather than emotionally
Reducing reliance on low-margin wholesale business
Investing more confidently in direct growth

COA turns revenue management from reactive to strategic.

Direct Marketing Is Not Just Cheaper, It’s Strategic

The financial argument alone makes direct marketing essential, but the strategic benefits are just as important. With direct bookings, hotels:

Own the guest data
Control communication
Build loyalty and repeat business
Upsell before, during, and after the stay
Reduce cancellation risk through smarter policies

OTAs control demand. Direct marketing builds value. In a market as competitive as Phuket, and increasingly across all destinations, control is survival.

Enabling Small Hotels to Compete with Big Brands

One of the strongest myths in hospitality is that only large chains can win at direct bookings. This is not true. What chains have is not size, it’s structure, consistency, and professional execution. At The Percentage Company, we provide that structure to independent hotels through:

Crucially, we do this through commission-only, performance-based agreements, meaning:

No upfront costs
No risky retainers
Full alignment of incentives

This allows small hotels to:

Compete with chain-level sophistication
Build direct demand safely
Reduce OTA dependency without financial risk

Direct marketing should not be a luxury. It should be accessible to all and that’s one of the founding principles of The Percentage Company.

The Correct Conclusion: OTAs Support, Direct Sustains

To be very clear, OTAs and Agents are part of a healthy distribution mix. But direct marketing is the foundation of profitability. OTAs fill gaps, Direct bookings build businesses. The lowest cost booking a hotel can generate is a direct booking, particularly from:

Brand search
SEO
Repeat guests
CRM-driven campaigns

Every hotel, regardless of size, should be working toward:

Increasing direct share
Lowering blended COA
Reducing long-term dependency risk

This is not ideology. It is simply economics.

My Final Thoughts

After decades in this industry, I can say with absolute confidence:

Hotels that invest properly in direct marketing are more profitable
Hotels that understand COA make better decisions
Hotels that rely too heavily on third parties give away too much value

Direct marketing is not optional anymore. It is the lowest cost, highest control, and most strategic channel a hotel can own.

At The Percentage Company, this is exactly what we help hotels build, without upfront risk, without unnecessary complexity, and with total transparency around performance. Because in the end, success in hotel distribution is not about choosing sides. It’s about owning your demand, and keeping more of what you earn.

Want to know more about our full-service solutions? Want to get a free proposal? Contact us today and let’s talk!