The Margin Case for Hotel Loyalty Rewards

In destinations where guests return regularly, repeat demand can be one of the hotel’s strongest revenue sources. Business hotels, city properties, resorts, and wellness hotels often already have guests with a reason to come back.

A loyalty program can help bring these guests back more often. The concern comes after: will rewards cut margin? 

Loyalty Programs as a Channel Mix Strategy 

This concern is valid, especially when loyalty is viewed as another discount layer. But the value of a hotel loyalty program is not only in the reward itself. The value is in where the reward works.

When loyalty benefits are tied to direct bookings, they give guests a reason to choose the direct channel next time. Compared with paying OTA commission or ad costs to bring back a guest who already knows the hotel, the property can use a controlled reward to bring that guest back directly.

Exely’s internal research shows that hotels using the built-in Loyalty Program in Exely Booking Engine together with automated segmented communications improved both sides of the revenue equation. Loyalty benefits helped shift more bookings to the website and reduce acquisition costs from ads, OTA commissions and promotions. At the same time, returning guests generated a higher average check because they were more likely to stay longer, upgrade, or buy extras. 

Loyalty Rewards Should Be Compared with Re-Acquisition Costs 

Another common concern is easy to understand: if repeat guests receive rewards, the hotel earns less from its most valuable segment. But loyalty rewards are easier to evaluate when compared with re-acquisition costs. They should be compared with what the hotel would pay to re-acquire the same guests through paid channels. 

In a tiered loyalty program, not all guests receive the same reward. In practice, guests are distributed across levels unevenly. A loyalty structure can look like this: 

The next step is to compare loyalty reward costs with channel costs for the same 100 repeat bookings. In this example, the hotel either keeps all 100 bookings on the website with loyalty, or sees 55 bookings return through an OTA while 45 still come through the website. The calculation uses a $300 average booking value, a 25% OTA cost, a 4% website booking cost, and the $2,145 tiered reward cost from the previous example. 

In this example, loyalty does not reduce profitability. It helps protect it by giving all 100 guests a reason to book on the website, while keeping reward costs below the cost of re-acquiring repeat demand through OTAs. 

A Profitable Loyalty Program Starts with Two Limits

After comparing the cost of re-acquiring repeat guests, the next step is to define loyalty rewards. A practical starting point is two limits: what the hotel can afford and what guests will value.

Based on Exely UX research, loyalty rewards should be both financially controlled and visible to guests. 

To help hoteliers make reward planning easier, Exely prepared a free Loyalty Discount Profit Check calculator. It helps define a reward structure that can stay profitable.

Check your loyalty reward limits with the free calculator.