In four short years, Oyo has quickly expanded to become one of India’s largest hotel chains. It’s spread across the country, acquired its chief rival, and now even serves faraway Malaysia. But this growth hasn’t come cheap. Oyo’s parent company, Oravel Stays is currently losing more than Rs. 1.5 crore a day.
This translates to overall losses of Rs. 46.9 crores a month. In turn, Oyo makes revenues of just Rs. 19.2 crore a month.
According to Oyo’s COO Abhinav Sinha, Oyo clocks 7-8 lakh bookings monthly on its platform. These bookings have an average ticket size of Rs. 1400-Rs. 1,500. Oyo earns a commission of 20% on these bookings. But not all these bookings go through – around 20% of customers who’ve booked cancel. Using these numbers, Oyo’s monthly revenues come up to Rs. 19.2 crore.
Oyo’s biggest cost, on the other hand, is its customer acquisition cost. It spends around Rs. 500 to acquire a new customer, in the form of discounts and ads. Oyo says that only 40% of its customers are returning customers – so to acquire the 60% new customers each month (or 0.6*8,00,000 total monthly bookings) = 4.8 lakh customers, it spends Rs. 4.8 lakh*500, or Rs. 24 crore.
These numbers are clearly worrying – unless Oyo is able to raise its customer acquisition rate, it’ll continue to bleed money on customers who use its discounted services just once and never return. Oyo says it plans to build a strong brand to ensure consumer stickiness . “After building a strong brand, we can expect to achieve profitability in the next 18-24 months,” COO Sinha said.
This seems like a dangerous, high stakes game. Oyo’s well funded at the moment, having raised more than Rs. 1,000 crore from investors, including biggies like Softbank. But it’ll continue to make losses until customers come to its platform on their own without the carrot of the discounts and heavy promotions. And investors, no matter how deep their pockets, will can only fund a loss making venture for so long.