Vacation Rental Lingo: What Exactly is an OTA and what does it mean to Book Direct?
Welcome to the third installment of our series on vacation rental terminology . In our previous posts, we covered some of the essential and advanced terms that every vacation rental host and guest should know. Today, we will be exploring the topic of booking direct versus booking through Online Travel Agencies (OTAs).
Booking direct refers to the process of booking a vacation rental directly with the property owner or manager while booking through OTAs involves using third-party platforms such as Airbnb or Booking.com to make the reservation. This is an important topic to understand as a vacation rental manager or guest, as each option has benefits and drawbacks.
In addition, we'll also be looking at the different types of fees you may encounter when using either of these booking methods. We'll explore the fees charged by both vacation rental owners and managers and the fees charged by OTAs. Understanding the different types of fees and how they are calculated is an essential aspect of vacation rental booking, as it can significantly impact the total cost of your stay.
So if you're interested in learning more about booking direct versus booking through OTAs and the different types of fees you may encounter, keep reading, and we'll fill you in on everything you need to know.
Fees & Booking Direct
As a vacation rental property manager, you know that managing a rental property involves more than just collecting rent. One of the biggest challenges is understanding the different types of fees that come with vacation rentals. Guests often have questions about fees, and it's vital for you to be able to answer them accurately and with confidence. Understanding how fees work in various parts of the vacation rental industry will benefit your business.
The first of these is the channel fee, which is a fee charged to the guest by an online travel agency (OTA) or a booking platform for listing a property on their website and providing the property owner with exposure to potential renters. This fee is typically charged as a percentage of the rental amount or a flat fee per booking and is deducted from the total amount paid by the renter. Channel fees can vary depending on the platform and the level of service provided, and they are used to cover the costs associated with marketing, website maintenance, and customer support.
Guest fees are typically one-time fees and can be a flat rate or a percentage of the total booking amount. They cover additional costs associated with the rental, such as cleaning or maintenance fees. Guest fees can vary depending on the property and the platform, and they may also include taxes, insurance, or other expenses. Some platforms may also charge additional fees for certain services or amenities, such as late check-in or pet fees.
Guest fees are typically paid by the renter at the time of booking and are non-refundable. While they can increase the total cost of the rental, they can also provide renters with additional benefits, such as access to amenities or services that would otherwise be unavailable such as access to pools and hot tubs or a car-ride service.
A fee that can sometimes go widely unknown by guests until booking is the traveler fee, or service fee. Charged on websites like Vrbo, Airbnb, and TripAdvisor, these fees are charged to the guest directly by the OTA, raising the total cost above the total from the vacation rental owner or property manager. The OTA typically charges this fee for their services in facilitating the booking and managing the transaction between the traveler and the vacation rental property owner.
Direct bookings happen when customers book directly through the vacation rental property manager instead of a third-party channel or on listing sites like Monthly Rentals by Owner that connect guests directly to the property manager, allowing you to continue to book directly with them and avoid paying additional service fees.
OTAs & Online Booking Websites
As the vacation rental industry continues to grow and evolve, online travel agencies (OTAs) like Vrbo, Airbnb, and Expedia have become critical players in the space. An OTA is simply an online travel agency for online distribution, generating more exposure for your vacation rental properties.
OTAs and other online booking websites are a standard part of the vacation rental industry today, but there is so much more to it than just listing a property on a website. Who gets the credit for this booking? Who is paying the fees? How do distribution websites work?
These platforms allow guests to easily search for and book vacation rental properties online while also offering property managers a way to connect with potential guests and manage their listings. One of the key advantages of using an OTA is the additional exposure that it provides for a property. By listing a property on a popular platform like Vrbo or Airbnb, property managers can increase their visibility and attract a broader range of guests. Additionally, these platforms often provide helpful tools and resources for property managers, such as managing bookings, communicating with guests, and processing payments.
However, working with an OTA can also come with extra challenges and expenses. One of the most significant issues is the commission fee that platforms like Vrbo and Airbnb charge for each booking. This fee can range from 3-15% of the total booking cost.
To help with managing multiple OTA feeds and inventory, many property managers have turned to channel managers, tools that allow them to manage their listings simultaneously on a myriad of OTAs from a single dashboard. A channel manager is a middleman that provides a connection between a vacation rental manager (VRM) and their third-party distribution channels.
Managing OTAs
The merchant of record is the entity responsible for processing a customer's payment and taking on the financial risk associated with the transaction. In the context of OTAs, the merchant of record is typically the OTA itself, which assumes the responsibility for collecting payment from the customer and paying the vacation rental company for the reservation. This allows VRMs to outsource the payment processing aspect of their business to the OTA, reducing their administrative burden and allowing them to focus on providing great experiences for their guests.
However, if a guest booked directly with the property manager themselves, the merchant of record would be the property manager, as they would be the one processing the guest’s payment.
A merchant channel is a type of distribution channel that acts as the merchant of record for the transaction. This means that the OTA takes responsibility for the customer's payment and handles any refunds or cancellations. The VRM provides inventory to the OTA, which is then sold to customers through the OTA's website or app. The OTA assumes the financial risk associated with the transaction and takes a commission on each booking. Examples of websites like these are Expedia and Priceline.
A bit different from the merchant of record, the system of record is an information storage and retrieval system that is the source for a particular data element in a system containing multiple sources of the same element. This system is typically used by the property manager or OTA's staff to manage bookings and inventory and may also be connected to external systems used by other parties involved in the travel booking process.
Having a robust and reliable system of record is essential for the smooth functioning of operations and helps ensure that bookings are accurate and up-to-date. There can only be one system of record for one piece of information, typically a vacation rental property manager's PMS, or property management software.
Third-party distribution refers to distributing vacation rental inventory through third-party channels such as travel agencies, tour operators, and other OTAs. In this model, the vacation rental company provides inventory to a third party, who sells the inventory to customers on its own website or app. The third party typically takes a commission on each booking and may also act as the merchant of record for the transaction. Third-party distribution allows vacation rentals to reach new markets and gain exposure to customers who may not have otherwise been aware of their property. Third-Party Distribution Channels are external channels such as OTAs, including Vrbo and Airbnb.
Lastly, another important term for you to know from the world of OTAs and property management is managed distribution. This is a service that helps vacation rental property managers to optimize online distribution. This includes channel managers and service providers like accounting, revenue and management tools, and transaction processing.
The world of online travel can be complex, but understanding the various terms associated with OTA distribution models can help you make more informed decisions about booking travel. Whether you're a property manager looking to expand your reach or a traveler searching for the best deals on vacation rentals, knowing these terms can help you navigate the world of online travel more effectively.
In addition to the various terms associated with OTA distribution models, there are also technical terms and key performance indicators (KPIs) that are specific to the vacation rental industry. In our next installment, we'll dive deeper into this topic, exploring terms such as channel management and KPIs like occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR). By gaining a deeper understanding of these terms and metrics, you'll be better equipped to navigate the complex world of vacation rental management and make data-driven decisions to improve the performance of your vacation rental business. So stay tuned for our next post !
For a full and complete list of vacation rental terms and their definitions, see our Monthly Vacationer Vacation Rental Glossary.