The cost of direct sales. Part I: Calculation
Would you go on a diet without knowing or controlling your weight and without using scales? Then why, as a professional, do you want to boost your direct sales without knowing its cost?
Few basic issues of hotel marketing are surrounded by so much lack of knowledge and are subject to so many manipulations. We hear hoteliers say that “It costs nothing”, reports funded by OTAs which reach the conclusion that they incur the same high costs as intermediated ones and others which state that nobody knows the cost.
Most independent hoteliers would not be able to respond with an exact figure. Knowing it will justify and allow you to quantify your direct sales boosting actions at the expense of other channels, which comes with the savings estimate it entails.
Let’s talk about cost, more specifically on its percentage and especially the direct online sales one, not including offline ones (phone, call centre, etc.). By no means is the cost the only variable you should control. Focusing on it now does not mean neglecting other essential and complementary ones, such as average price.
In this article we compile everything that you need to know to shed some light on the subject. In this first part we analyse why you should know the cost, why it is so complicated to find out and, above all, how to calculate it. In Part II we will address the adequate figure and how to identify and increase necessary investments.
Before you calculate anything, take the following four points into account:
1. We are looking for a percentage
Agency-type intermediaries bear a transparent cost: their commission percentage, which is known even before receiving the first booking. We do not need to obtain the amount in euros from its commission paid every month, nor its production in terms of generated bookings. It does not affect the period that we want to measure, which is the future or past, long term or short term. The average percentage is about 16-25%.
In order to compare, we want to obtain the same type of figure with direct sales: the percentage of cost, EXPENSES divided by INCOME. Easy? Yes, but there are many complications along the way that explain the mystery about this figure which you must know before you obtain the exact cost.
2. Fixed costs: Allocate them an amortisation period
Direct sales usually require fixed investments (recurring ones or single payments) which are amortised over a period of time. Intermediaries, in their internal finances, also incur in these expenses but translate them into a simple percentage cost or fee per booking for hotels. For direct sales, nobody will make this calculation on behalf of the hotel.
In the list of expenses, you must not add the total number of expenses but rather the one which corresponds to the period that you wish to analyse.