Online travel agencies (OTA’s) like Viator, Tripadvisor, or GetYourGuide are becoming increasingly popular in recent years–and for good reasons, too.
They offer many benefits to suppliers, especially those in the early stages that need a quick way to go-to-market and build their customer base.
However, while using OTA’s have their upside, it is the downside that users should keep an eye on, because it is not as rosy as it seems. OTA’s are problematic for more reasons than one, but most of these issues are usually pushed under the rug.
Let’s face it, you are in business to make profit, right? In the most basic form, running a profitable business means making informed decisions about lowering the cost of operating the business, and increasing your return on marketing investment spend.
Today, we want you to have the full picture before you sign up for anything–especially if you are new to the space, and OTA’s are all the buzz. Here’s everything you need to know before hopping onto OTA platforms.
Working with OTA’s can give early-stage suppliers and vendors a head start in the marketplace. Since online travel agencies usually have large customer bases, they’re able to offer suppliers instant access to audiences they perhaps couldn’t reach on their own.
But it’s not just about getting visibility. By partnering with OTA’s, suppliers are able to prove credibility for their business and quickly earn the trust with customer reviews, to accelerate their ability to gain more customers and compete in their market. And that alone is worth its weight in gold.
Caption: For example, at the moment of writing, Viator gets an average of 1.7 million organic visitors every month.
Some OTA’s also help suppliers streamline essential processes for getting their businesses off the ground—including payment and booking management.
Often, they’ll give their partners access to advanced payment processing and booking management systems, such as availability calendars and reservation tracking tools. This allows suppliers to focus on providing great customer experiences instead of the logistics and backend operations.
Sounds good, right? Welllll… that’s only half of the story. The rest is usually found in fine print. Let us break it down for you.
Unfortunately, there’s not just one.
There are several problems – most of which you’re probably not aware of. This is because OTA’s often bury the less attractive details about their business models within the fine print and seldom mention them on their websites.
Because of that, suppliers often realize what they’re really agreeing to only after they’ve committed their resources, tailored their business around this solution, and get their first paycheck.
By then, suppliers will have already invested too much time and effort into getting listed, so they end up accepting almost anything they’re offered.
It goes without saying that this may not be true for all OTA’s, but it does apply to many of the most popular ones.
Also, that’s not to say that all OTA’s are bad or that you shouldn’t consider them. It simply means you should be aware of the drawbacks before you spend hours reviewing and filling out the paperwork.
We want to help you, as an experience-provider avoid the surprise and shock.
So here’s everything that OTA’s may not want you to know – at least until they’ve got you hooked.
Listings are usually free–but did you know that OTA’s often charge 20%, 25%, or even 30% commission on each booking made through their websites? Many times, suppliers may not even realize it until their first check or deposit comes from the OTA and seems to be 30% short!
That may not sound like a lot until you put things into perspective. So, let us do the math for you.
Let’s say you earn 80k per year in bookings made through OTA websites:
$80,000 x 25% commission = $20,000
Essentially, you’d be pocketing $64,000 – before taxes, of course – meanwhile you’d give OTA’s as much as 20,000$ on a yearly basis.
Now, when was the last time you spent that much money on something? Perhaps when purchasing something that you own, such as a car, orhouse mortgage? 20% is a LOT. But guess what, out of all that money you PAID, you own nothing!
It doesnt help, that OTA’s aren’t transparent about these high commission rates. They rarely openly advertise them on their websites and often make different deals with different suppliers.
GetYourGuide, as an example, is at least open about it—although saying that the rates solely depend on the suppliers’ country of operation may still be somewhat misleading:
Caption: GetYourGuide
Other OTA’s, like Viator, simply don’t mention their fees anywhere on their websites, from what we can find. Let us demonstrate this by taking you through Viator’s suppliers’ page:
If you paid attention, you saw there’s a section dedicated to Viator’s fees for suppliers—only there’s no real answer. Viator seems to answer a completely different question rather than giving straightforward info on its rates.
However, some independent sources say that “Viator charges a variable commission depending on the deal you make with them,” and that the average commission is 25% of the sale price.
Let us also mention Tripadvisor. According to their website, they have two payment plans available: one for free listings, and one for paid annual listings.
Caption: Tripadvisor
With fees so high, it’s worth reconsidering whether your profit margins will be sustainable. After all, you’re paying OTA’s to do something for you that you could do yourself. That can be a huge plus, but don’t forget that it comes at the cost of control.
You don’t own your listing. The OTA does.
They can take it down anytime—or your listing may go down together with the company in the event of dissolution, bankruptcy, or another unforeseeable circumstance.
Rather than pumping money into a middleman, you could be investing it in a website and building your own audience. When you do this, it becomes a business asset. An item that you invest into, and you get long-term Return on Investment (ROI).
In addition, then you could freely set and control your prices, your marketing spend, and other Cost of Goods Sold (COGS)—which may not be the case when working with an OTA.
OTA’s often have special rules for how suppliers need to set their prices.
Firstly, some OTA’s, like Viator, may require you to offer them your lowest price – meaning you can’t offer a lower deal anywhere else, including your own website.
Such rules enable OTA’s not just to control the prices you offer to them, but also, at least in part, the prices you offer in general.
Caption: (Source)
What’s more, the competition on huge OTA websites can be fierce. This may add additional pressure to keep your prices as low as possible in order to stay competitive. Plus, OTA’s may even require you to agree to fixed pricing terms, which can prevent you from raising your prices even if market conditions change.
For example, let’s say you rent ATVs. You agree to rent them through an OTA at a fixed price of $125 per hour. But then, suddenly, the demand for ATVs in your area skyrockets. You see an opportunity to raise your prices to $150 per hour—only you can’t do so because you’ve already agreed to keep your prices fixed, at least for a certain period of time. As a result, you miss out on potential revenue and profits.
Doesn’t sound like too good of a deal, right?
Lastly–but perhaps most importantly–OTA’s may put suppliers at risk of financial instability or even insolvency by running frequent promotions or offering discounts on their behalf. But if your small family owned business built out of passion and to put food on your families table goes out of business because of these constraints, do you think the OTA will come to save you? Are you just a drop in the bucket compared to their size?
While this may not be the casefor all OTA’s; it all comes down to the agreement you sign.
But if you realize that your contract gives an OTA the right to run discounts on your behalf, do rethink if you can afford to offer them or if you’ll be able to fulfill potentially vast demand.
Discounts can drive customers your way, but that might be the opposite of what you’d want if you can’t serve, or profit from them. You don’t run a charity, do you?
Too much demand may force you to cancel your bookings, which could expose you to potential financial losses due to refunds or, worse, bad reviews. And we know those can make or break your business.
Also, let’s not forget about the elephant in the room: fraudulent transactions.
Unfortunately, in recent years, OTA’s have proved to be susceptible to fraud—and may put their suppliers at risk of similar scenarios.
The reason why OTA’s are so vulnerable is their dependence on online transactions. They don’t have the privilege to take in-person transactions or the ability to authenticate a customer’s identity like traditional brick-and-mortar agencies. This makes it easy for fraudsters to impersonate legitimate customers, make fraudulent bookings or purchases, and avoid detection.
Of course, the risk of fraud isn’t that high if OTA’s have proper security procedures in place. But, as mentioned, the statistics show that this may not be the case with many OTA’s.
Although some online travel agencies may reimburse you for fraudulent transactions if needed, this still leaves you with the inconvenience and stress of dealing with the aftermath.
The best way to avoid this is to work exclusively with trusted OTA’s—but that almost always means paying higher commission rates as well.
So, is working with OTA’s even worth it? Let’s quickly recap what we’ve learned and make the final verdict.
Finally, the cost of lost opportunity. What does that mean? Let us explain.
Many OTA’s attempt to attract their customers by making some conveniences to the customers, that arent so convenient to you as a supplier.
For example, most allow customers to make a reservation and lock up your availability, but they dont require the customer to pay, and even when they do pay, the OTA’s dont release the funds to you until after you provide the experience AND not deposited to your account until your payment schedule date.
Wow!
Suppliers are often shocked when they find out that dates and times of their equipment have been tied up for days or weeks until right before the booking they allow customer to cancel risk and cost free, and now you struggle to fill that opening and lose out on that opportunity to make money for that time slot.
Working With OTA’s Can Be A Slippery Slope
From high cost and pressure for low prices to susceptibility to loss opportunities and fraud–working with OTA’s may not be as risk-free as it might seem at first. There’s a lot you need to consider before you take the plunge.
The first question to ask yourself should probably be: “Do I really need an OTA?” After all, there’s so much you can do yourself nowadays!
Marketing techniques like SEO, content marketing, and pay-per-click advertising can bring in a ton of traffic to your website—and, consequently, give you total control over your bookings, prices, and transactions, and frankly could cost you a fraction of what you would be paying an OTA.
We think the answer is no, but knowing HOW to use them is key.
At its core, OTA’s are a promotional service. And just like any promotional service, you must use them carefully, sparingly, and mindfully. But watch out! There is allure from the OTA’s to try to get you to be a long term customer, by offering booking and getting you to embed that as part of your website asset.
That’s where things get tricky.
It’s kind of like having Groupon be the booking service for your website, and taking 50% off of each sale of customers that come to your website. Yikes!
The best approach when using any OTA, and any promotional service is to use it as part of your go-to-market plan. We’ve illustrated an example of how this could look.
In the rough diagram above, you can see how using OTA’s (high cost) to jump start your business could be a good idea, while also beginning to invest into CPC (mid-range cost) (a cost per click advertising through google ads for example), while waiting for SEO(low cost) (search engine optimization for ranking in organic search results) to kick in.
With this model, the majority of sales in the first two quarters could come from an OTA (high cost), which could help fuel and ramp up CPC (mid cost) and help you gain reviews. Using a portion of those proceeds, especially if implemented early and regularly, you could begin gaining the benefits of SEO (low cost) as soon as four to six months from the time you begin investing into SEO.
Lets look at the numbers for a moment.
Notice when using the high cost of OTA’s, your gross profit is significantly reduced because you pay so much in OTA’s high commision cost of fees. With CPC (which could vary quite widely) you have more control over your spend, so even if you dial your ads down, you can raise your profits, putting more money in your pocket. Then with SEO, while it may take little longer to work as mentioned above, the cost is significantly lower, putting a substantial amount of money back into your pocket.
That the great news about SEO, is that it has an amazing Return on Investment. By that, we mean that you could invest into SEO for months, or even a year if you’d like, and you are likely to see traffic and sales for years to come even if you stopped investing in it completely after the first year. While that’s not whats being recommended, you could always ramp down the SEO efforts significantly, while completely eliminating CPC and OTA after seeing the majority of the traffic coming from SEO. Which means very little to no cost, which translates to more profit.
How do you ramp down the OTA?
By lowering the availability of your equipment or tours. Lets say you have three boats to rent. Using the model above, you may want to list all three boats on the OTA. But as you begin ramping down the OTA, which may take weeks or months to do, you could slowly reduce the availability that people are able to book from the OTA, and leave the remainder availability for your CPC and SEO customers to book.
As mentioned above, eventually it should be your target to using marketing means with the lowest cost and highest return, so that you can put more profit in your pocket. This means to target eliminating OTA, and CPC usage as soon as is realistically possible.
Whats realistic?
Realistic is when you see results from the different channels. In order to see this, you must keep a close watch on the source of the traffic.
Are you able to track where traffic and sales come from?
The answer is absolutely!
While there are many tools available, Googles free Analytics will give you visibility to the source of the traffic, so you can monitor and make adjustments as you see fit.
We are one of the only platforms that are more focused on driving you profit, rather than taking it. We get it, marketing can be tricky, but frankly it all comes down to science. We recognize that suppliers like you, are focused on providing amazing, memorable experiences, and want to stay furthest from the digital marketing world as possible.
And now you can!
Rockon is a completely free service, that focuses on driving you more profit.
That’s why we help you build your business for the long haul, by doing several things differently from OTA’s:
Sounds good? Try partnering today
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