piles of coins reflecting changes in hotel marketing department expenditure

According to the 2021 edition of CBRE’s Trends® in the Hotel Industry report, total operating revenue for the average hotel in the sample declined by 62.2 percent from 2019 to 2020.

NB: This is an article from CBRE Hotels

This is by far the greatest decline in revenue recorded during the 84-year history of the Trends® survey.  For reference purposes, operating revenues declined by 18.4 percent during the Great Recession in 2009.

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Hotel sales and marketing department expenditures can be viewed as an investment to obtain revenue.  However, facing such extreme reductions in revenues, the marketing department, like all others, was tasked in 2020 with the mandate to cut costs.  A review of the changes in marketing department expenditures from 2019 to 2020 provides some interesting insights into how U.S. hotels adjusted their unit-level marketing tactics in response to the industry recession.

To assess how U.S. hotel sales and marketing executives altered their plans in response to the dramatic fall-off in performance, we have examined the sales and marketing department expenses of a same-store sample of 4,028 properties during the years 2019 and 2020.  The study sample consisted solely of hotels that have on-site sales and marketing personnel.  In aggregate, the properties averaged 214 rooms in size, with a 2020 occupancy of 34.9%, and an average daily rate (ADR) of $144.48.  This is down from an occupancy of 74.9% in 2019, along with and ADR of $184.03.

All Expenses Reduced

CBRE’s Trends® in the Hotel Industry survey tracks 15 different expense categories within the Sales and Marketing Department.  These include seven labor related costs, three franchisee related fees, and five specific marketing expenditure categories.

From 2019 to 2020, the average property in our study sample cut their marketing department expenditures by 53.1 percent.  For reference purposes, the aggregate of all hotel undistributed department expenses declined by 39.8 percent during the year.  With revenues declining by 64.1 percent at these same hotels, sales and marketing department expenses as a percent of total revenue increased from 9.2 percent in 2019 to 11.9 in 2020.

Within the sales and marketing department, franchise related fees comprise the biggest percentage of total department costs.  In 2019, franchise related fees averaged 48.8 percent of total department costs.  Since most franchise fees are typically charged as a percent of rooms revenue, the 63.3 percent decline in rooms revenue for the study sample triggered a 58.2 percent decline in franchise fee payments.  The precipitous drop in franchise fees is the primary reason why marketing department expenditures declined to a greater degree than the other undistributed departments.

Labor costs are the second largest expense within the sales and marketing department.  In 2019, the combined cost for salaries, wages and employee benefits equaled 28.5 percent of total department costs.  From 2019 to 2020, these costs were cut by 44.9 percent.  Among the various labor related costs tracked by CBRE within these departments, the greatest percentage declines were observed among the salaries and wages paid to non-management personnel, service charge payouts, and bonuses.

Read rest of the article at CBRE Hotels