We usually communicate the following to our most proactive users.
As more agents are added then commission rates increase and average length of stay decreases and income drops 50%
The blue rows represent the situation for most hostels.
The above image charts how a hostel can make wrong decisions and move upward in the spreadsheet, thus losing more income. Conversely, a hostel can make smarter decisions and move down the rows and gain more profit.
The more agents that are integrated then the average commission rate moves higher than 12% and have a higher total percentage of bookings originated from an agent. Then in direct correlation there is a decline in the average length of stay.
Hostels on upper rows have more inelastic prices because their customers are highly price sensitive. This is a characteristic or aggregation sites as they attract the most price sensitive people in the market. Hostels that think listing with aggregation sites (agents) is the only way to gain bookings then become trapped in a process where they think that to gain more profit they have to fill every single bed every night to pursue economies of scale as their method for achieving profit.
Hostels that enable more direct bookings then experience more elastic prices which enables them to down the rows to experience longer duration bookings at lower commission rates. The PMS supplier should be providing tools to enable this to happen.
The black rows represents hostels that are usually in end-of-the-line or seasonal locations and as a result are less courageous and cling on to higher commission retaining agents. These hostels need to use their PMS more to leverage existing relationships rather than to link with more than 5 agents to gain more relationships. Through improved relationships then even agent delivered bookings can become more elastic (profitable) and is more probable in seasonal and end-of-the-line locations with fewer competitors.
Chain Hostels are represented by the red colour that have to adhere to their specific agreement with the agent and as a result have to work harder than individual hostels to gain increasing direct bookings. For them they never get a chance to gain super profits. Individual hostels that create or benefit from high demand for their beds can achieve super profits.
Hostels that have lower costs than competitors are more able to add value to guests and capture the least price sensitive guests. These guests are more likely to participate in tours, activities, drink at bars etc. For example there is not a top agent that sells tours with beds because it goes against the price sensitive people they attract to their aggregation site. The way an aggregation site makes money is by charging higher commissions to pay more to Google when they have run out of ways to value add to the traveller.
This is the point of differentiation of a hostel and an agent. The hostel can value add more easily than agents can and Google is the referee. Google makes agents pay for ranking but provides an abundance of free ranking improving opportunities for hostels. This is why the agent wants to be able to use your hostel name in their promotion efforts.
The message is clear. A hostel is the most responsible for their own success and a good PMS provider will automate a large part of their path to get there.
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