The higher the total revenue generated by a distribution channel (evaluated by assessing
Rooms Sold x ADR); the better the channel.

As the highly publicized conflict between airlines and on-line travel sites (such as American Airlines and Expedia) continues to suggest, in the rapidly changing selling environment encountered today, we would suggest the hotel revenue manager’s new problems are not standard nails and the solution is not the standard hammer.
 
To begin at the beginning, it is important to recognize that room buyers utilize a variety of different distribution channels because that allows guests the ability to buy the products they want when, and how, they want to buy them. Thus, the various external channels used by hoteliers to help them sell rooms add value to the products and services buyers purchase. Of course, all of those distribution channel operators (including the oft-maligned web-based intermediaries) must charge for their services if they are to stay in business.
 
To make their profits, intermediaries have two choices. They can charge buyers for their services or they can charge sellers. In the hotel industry, they charge the sellers. That’s your hotel.
 
As a seller, the costs you incur when selling in different channels can vary dramatically. Savvy revenue managers recognize that these costs can and must be managed. The careful selection of the distribution channels to be utilized is one way of managing these costs. Another way to manage them is the implementation of policies and procedures designed to move repeat buyers from higher-cost channels of distribution to lower cost channels. The problem, of course, is how to know which channels have the lowest cost so buyers can be moved to more cost effective channels.
 
That’s a problem that cannot be solved using the revenue generation hammer because revenue maximization does not address distribution channel cost differences. Neither can these costs be addressed solely by an assessment of ADR. Yet today’s revenue managers know something truly critical and deceptively simple. They know:


While that statement is true, the problem of determining where the best revenue dollars come from requires a new tool.

To see why, consider the following table that shows the percentage of charged ADR (let’s call that the channel’s Net ADR Yield) that remains after all of the distribution (selling) costs associated with the use of a channel have been subtracted. That’s also the amount of the room’s price the hotel actually gets to keep. These costs typically include those assessed by the channel itself, the GDS, all selling commissions, franchise fees and any other selling-related charges incurred by the hotel’s use of the channel.
 
In this example the $299.99 room rate charged to guests is the same across all channels. The channel-specific costs incurred by the hotel in the sale of the rooms, the Net ADR Yield and thus the money actually received by the hotel, however, vary a good bit.
 
Note that these channels’ actual revenue contributions range from a high of 98% of rate to a low of 80% of charged rate. The un-weighted Net ADR Yield averages 89.3% across all channels.