How Much Commission Does Expedia Charge Hotels?

Expedia is fully aware that hotels need and value the room distribution opportunities it presents and this will allow it to take a stance that should prevent commission rates from falling below 10%, even for major hotel chains.

Commission fees have become a major issue for hotels as they erode profit margins and deter franchisees. Consequently, in recent years, major chains have pushed back, introducing discounted rates and incentives for direct bookings. This has however failed to stem the importance of intermediaries, as consumers that prioritize affordability frequently use Expedia and other Online Travel Agencies (OTAs) as a one-stop-shop to compare everything from prices to location.

This is significant as Global Data’s Global Consumer Survey shows that 59% of people asked said affordability was a factor in helping them decide where to go on holiday, making it the number one driver of decision-making.  Expedia and other Online Travel Agencies (OTAs) will therefore remain very relevant.

Expedia is fully aware that hotels need and value the room distribution opportunities it presents and this will allow it to take a stance that should prevent commission rates from falling below 10%, even for major hotel chains.

How much commission does Expedia charge hotels?

Independent hotels pay Expedia commissions of 15 percent to 30 percent, as opposed to big brands, which pay 10 percent to 15 percent commissions.

The success of Expedia provides it with the power and influence to determine the commission rates it will charge hotels.  Because of the company’s massive market share, it is almost impossible for hotels to ignore Expedia as a room rental “partner”.

They trust that, due to Expedia’s wide reach, the Expedia will fill rooms that otherwise would remain empty, had there not been that somewhat discounted price offered. As compensation, Expedia takes a cut of the reservation, giving the hotel 75%-80% of what they initially sold it for.

An example of the way that this works is that if a hotel sells a room (in this example we will use just one room, but in reality, it would be far more) to Expedia for $100, and Expedia gets the room booked, then Expedia will collect that $100 and pay the hotel $75 (if the fee is 25%).They will say that that $25 goes towards customer service, marketing, and various other business functions.

Independent hotels pay Expedia commissions of 15 percent to 30 percent, as opposed to big brands, which pay 10 percent to 15 percent commissions.

How does Expedia make money?

The largest revenue source is hotel bookings.  A huge 70% of Expedia’s revenue is generated from hotels and other lodging accommodations through a simple supply and demand strategy.

Expedia buys up a large number of rooms at a discounted cost and then advertises the bookings through their website as the cheapest you will find in the market.

Expedia makes most of its money by booking accommodations in bulk at a reduced price and then selling these accommodations to travelers at a profit.

This model works well, as Expedia has the connections necessary to rent out entire blocks of hotel rooms and resort units due to its online marketing and returning customer base.

Expedia’s Commission Models

Historically, the company has followed the merchant model, but with the agency model being more popular in countries like Europe, the Middle East, and Africa, the company has adopted it as well.  Expedia also has an Expedia Traveler Preference program, which allows guests to decide how they would like to book each property:  whether to pre-pay (as in the merchant model) or to pay the hotel directly (as in the agency model).

The Merchant Model

In this model, hotels sell rooms to Expedia in bulk at discounted or wholesale prices. Expedia then sells them to customers at a markup price. The charge is made upfront: when a guest elects to pay upon booking, funds are collected via the Expedia Collect merchant model. Expedia charges the customer’s credit card and then pays the merchant the agreed-upon amount once the stay has been completed at the hotel. The commission is the difference in charges.

The Agency Model

This is a commission-based model wherein hotels pay Expedia commissions based on the volume of business bought. In this model, the hotels list their services, and Expedia does not have to buy rooms up front. This is beneficial for hotels, as it gives them the freedom to price their rooms as per the demand scenario.

Should a customer opt to pay at in-person at the hotel, Expedia’s Hotel Collect agency model is used, with or without a deposit requirement. Commissions – typically between 20-25% – are paid to Expedia by the hotel following payment receipt from the customer. In 2019, the agency model generated nearly 47% of all Expedia revenues.

Historically, the company has followed the merchant model, but with the agency model being more popular in countries like Europe, the Middle East, and Africa, the company has adopted it as well.

Expedia also has an Expedia Traveler Preference program, which allows guests to decide how they would like to book each property:  whether to pre-pay (as in the merchant model) or to pay the hotel directly (as in the agency model).

The Expedia Accelerator Program: Higher Commission for greater visibility online

While the program is similar in concept to the Preferred Program that Priceline Group’s Booking.com instituted a few years ago, Accelerator lets hotel companies bid to improve their listing placement. Participating hotels pay as much as double the 15% commission rate Expedia typically charges.

Expedia’s Accelerator Program offers a way for hotel properties to move their way up from page three to the first page of listings on Expedia.com — all they might have to do is pay Expedia an additional 10 percent commission on top of their typical payments.

While the program is similar in concept to the Preferred Program that Priceline Group’s Booking.com instituted a few years ago, Accelerator lets hotel companies bid to improve their listing placement. Participating hotels pay as much as double the 15% commission rate Expedia typically charges.

The Accelerator program is designed to enable hotels to pay extra for what they hope will be a bump in reservations during a particular period. Expedia said hotel companies typically employ Accelerator for periods of about two weeks to get better placement in response to consumer queries.

How Much Commission Does Expedia Charge Hotels?

Expedia follows the business model widely used by online travel agencies that incorporate purchases of blocs of hotel rooms at reduced cost and resell these to its clients at a profit, constituting the majority of its income.

This is the Merchant Model and generally includes commissions from 10% -30%, depending on the type and ownership of the accommodations.

Alternatively, the Expedia Group also uses the Agency Model whereas hotels charge their customers directly, but pay Expedia a per room commission. This allows hotels the flexibility to alter charges to match changes in circumstances and room demand.