Many hoteliers only focus on what is in the hotel Profit & Loss statement.
NB: This is an article from Demand Calendar
If an item has a cost attached to it, it could undoubtedly be scrutinized and cut. Managing costs in a hotel is the easiest job in the whole world. Once the costs are reasonably under control, the marginal impact of continuing to work on reducing costs is not making much sense.
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Additional cost-cutting will upset guests and employees, leading to bad guest reviews, fewer returning guests, lower productivity, and higher employee turnover. Once hoteliers have managed to balance costs in their hotels, the entire focus should be on the top line, where the hotel can potentially increase profits.
However, there are invisible costs that do not show up in the Profit & Loss statement. These costs are, therefore, more challenging to manage and track. Here are a few examples of significant costs that negatively impact profitability. Here are three of the most common hidden costs in a hotel that management should manage.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the total cost of attracting customers or guests. It’s a critical metric for any business, but it’s particularly important in industries like hospitality, where competition is high and customer loyalty is challenging to maintain. Unfortunately, for several reasons, CAC is a hidden cost and hard to manage in hotels.
- Complex Calculation: CAC is not just about direct marketing or advertising costs. It also includes indirect costs like the salaries of the marketing and sales teams, the cost of promotions, the cost of running events or campaigns, and the commission paid to travel agents or online booking platforms. As such, the cost of acquiring a customer is often spread out across multiple line items in a hotel’s budget, making it difficult to calculate accurately.
- Variable Costs: The cost of acquiring a customer can vary significantly depending on the methods and target audience. For instance, acquiring a customer through online advertising may have a different cost than attracting a customer through a referral or loyalty program. This variability makes CAC challenging to predict and manage.
- Measurement Challenges: The impact of marketing and sales efforts can be difficult to measure precisely. For example, if a potential guest sees an online ad, visits the hotel’s website, and then books through a third-party platform, tracking that process and attributing the customer acquisition to the original ad can be challenging.
- High Competition: The hotel industry is highly competitive, with many hotels vying for the same guests. This competition can increase customer acquisition costs, particularly in popular tourist destinations or during peak travel seasons.
- Time Lag: There is often a time lag between when costs are incurred (like an advertising campaign) and when the results are seen as reservations. This time lag can make it challenging to manage CAC effectively.
- Guest Retention: A high guest turnover rate increases the CAC as more resources need to be spent to attract new guests instead of retaining existing ones. Retaining customers typically costs less than acquiring new ones, so focusing on customer service and guest experience is crucial.
- Changing Trends: Trends in the hospitality industry can change rapidly, and what worked to attract customers one year might not work the next. Hotels need to constantly adapt their strategies, which can make customer acquisition costs unpredictable.
Properly managing CAC requires a robust system for tracking marketing and sales efforts and their results and a strategic approach to budgeting for these activities. It’s also beneficial to focus on improving guest retention rates to lower the overall cost of customer acquisition.
