Hotel marketing costs are affecting profitability more than ever.
With profit growth slowing in the lodging industry, the focus among hoteliers is now shifting toward closely controlling costs, especially among management companies, whose earnings are directly tied to property performance (and incentives are tied to profits).
As the pressure to find cost savings mounts, experts say one of the most significant expenses to watch is marketing, which has only grown more expensive with the rapid growth of digital media.
In general, hotel management companies care deeply about costs, which have a direct linear effect on their ability to achieve profitability/incentive targets. And these days, marketing costs (especially OTAs and third-party channels) are rising at an alarming rate. Industry averages for marketing expenses typically range from about 4% to 7% of overall expenses, but can vary widely depending on the hotel and its management.
“Marketing is a minimum of probably 6% of your expenses, so it’s a pretty big number,” said Richard Millard, Chairman and CEO of Trust Hospitality. “It could be as high as 8% to 10%, depending on what you’re doing.”
Between just internal staffing, OTA commissions, digital marketing programs (paid search, banner ads, etc.) and other forms of advertising (print, radio, TV, billboards, etc.), hotels are currently fighting a rising tide of seemingly obligatory marketing costs. And all too frequently, it forces managers to scrimp elsewhere.
“Marketing is costing more and more, and that means the training and service level of people on the hotel side suffers, because some way, somehow that money has to be saved,” Millard continued. “So what we as an industry often cut back on, instead, is human resources and training.”
But it doesn’t need to be that way.
Finding the Right Balance
Smart management companies can still find methods to keep marketing costs from getting out of hand, while continuing to do all the right things to get their properties noticed in the marketplace. It requires careful planning, but it’s not impossible.
