It’s a question we get asked all the time at The Percentage Company, and our response may suprise you!
Like other more traditional businesses, hotels often have predetermined annual marketing budgets. When deciding where to spend your limited budget, it’s essential that you have a good understanding of where you will get the most ROI (Return on Investment) or ROAS (Return on Ad Spend), so that you make the most of your marketing spend. At The Percentage Company, we have years of experience creating and executing distinctive, innovative & creative online marketing campaigns, using the latest digital marketing techniques, so we are ideally placed to help you understand how much money you should spend on your hotels digital marketing campaigns.
If you ask three different digital marketing agencies the same question, you’d undoubtedly receive a variety of replies. So which is correct? Why is it difficult to answer this question? The truth is that determining how much you should spend on digital marketing, depends on a myriad of factors including demand for your property, marketing mix, desired outcomes, your competition and many more.
What to consider before setting your digital marketing budget?
Times are hard for the hospitality business and coming up with money which will be spent upfront without any guarantees of getting guests in return can be difficult to justify. There are so many different ways to reach out to your future guests using digital marketing, such as Social Media Marketing, Paid Search Marketing via Google Ads, Facebook ads, Instagram Ads and much more.
Reduce your offline marketing budget: Why not cut your offline marketing budget and re-invest the saved money in digital marketing channels?.
Data Deep-dive: Conduct a cost-per-acquisition (CPA) study for existing channels to identify your real cost of booking so that you have a benchmark.
Research, Research & More Research: Engage with your guests, ask them how they found you, what social media channels they use and what they would appreciate from you during the booking process.
Create a digital marketing strategy: Identify ways to target your guests online with interesting, engaging and existing ads.
How to assess the performance of your digital marketing campaigns?
THE ROAS METHOD
ROAS or Return On Ad Spend is a digital marketing term which quantifies the ROI or Return On Investment of your Digital marketing campaigns. The ROAS calculation is a ratio of revenue produced to ad spend. For example:
ROAS = TOTAL REVENUE GENERATED / TOTAL AMOUNT SPENT ON ADS
This is one of the key metrics that you should be tracking in order to ensure that your ad campaigns are operating within acceptable margins, relative to your other marketing channels.
There is no correct ROAS amount as it varies from industry to industry and from hotel to hotel, but in the hospitality space it may be anywhere from 5:1 (5X ROI), 10:1 (10X ROI) or more!
A ROAS of 5:1 would mean that for every 1,000 THB you spend on Ads, you will get 5,000 THB in revenue.
ROAS is one of the most essential metrics for online advertisers because it determines how successful their advertising campaigns are, based on how much money they invest in various ads each day. ROAS, in a nutshell, addresses the fundamental marketing question: “What can I get for [X amount of money] invested in this marketing channel?”
THE COST PER BOOKING METHOD
Another way to calculate the performance of your digital ad campaign is to compare like-with-like by putting your digital marketing spend in the context of your other channels, by measuring the campaigns according to the cost of booking.
As all you hoteliers know, OTA’s charge booking commissions in exchange for providing you with guests and in order to compare your direct channels with your OTA channels, we can frame our ad spend as a booking ‘commission’ paid to Google or Facebook. For Example:
If we spend 1,000 THB on Ads with a ROAS of 5:1, that would mean we are basically paying 20% to get that revenue. If we spend the 1,000 THB on ads with a ROAS of 10:1, we are essentially paying 10% commission for that revenue/booking.
Step back and re-assess your margins & booking channels
We need to think differently about the hotel’s digital marketing budget. We need to think in terms of opportunity cost and cost-of-booking, relative to other channels, such as offline agents and online travel agents.
Selling by alternative channels may end up costing you more to get the same booking as you have to pay commissions to get the booking, so why not lower your guest acquisition costs and get more direct loyal guests? Why not sell your limited room inventory to sell via the channels where you achieve higher ADR / ARR AND get the benefit of owning the guests booking process and therefore build a relationship directly with the guest?
- OTA Cost of Sales: 200,000 (sales) = 40,000 (at 20% commission)
- DIRECT Cost of Sales 200,000 (sales) = 20,000 (at 10% CPA)
Yes, deciding on your digital marketing budget will encourage you to think differently about where your guests are coming from and the costs you are paying to acquire them. The benefits are well worth it in the long term, so why not collaborate with an Agency that understands this process inside-and-out and will help you to achieve the best possible results for your hotel?
Talk to the Experts who have seen it & done it all before
The Percentage Company’s digital marketing team are on-hand to explain and demonstrate how much money your hotel should invest and can save by switching your hotel’s production from the more traditional offline and wholesale channels to direct digital channels. The Percentage Company provides digital marketing services for hotels around the world and our team has over 20 years of expertise in delivering digital marketing programs using the most up-to-date technologies, with a track record of increasing profits.
We are a group of creative and hardworking specialists with a passion for what we do. We’re the foundation of our company, as well as the driving force behind its success. Get in touch with us now to learn how we may collaborate to improve your business’s top and bottom-line outcomes. The internet era is forcing a shift in hotel marketing tactics, and it’s happening fast… Don’t get left behind!