Best Practices for Managing Hotel Distribution Costs
Distribution costs have been steadily rising over the past several years, driven by the increasing market share of online travel agencies (OTAs).
NB: This is an article from Rainmaker
In fact, a Kalibri Labs study shows commission costs rising at twice the rate of revenue growth through 2015. An important role of revenue management is to manage distribution costs in order to leverage the right channels in optimal ways to achieve business success.
Look Beyond Channel Cost to Channel Profitability
It’s imperative to understand the true costs associated with each channel. Most hoteliers understand the benefit of shifting share to direct channels from third-party channels. But as with any distribution channel, you must take into account all cost drivers such as customized discounts as well as any complimentary products or services used to encourage direct bookings. Further, remember to include costs associated with voice (call-ins), digital marketing, website maintenance, search engine optimization (SEO) and search engine marketing (SEM).
There are important distribution-related costs to consider with brands as well. Approximately 60 percent of all new rooms under development within the U.S. market will be branded. And brand channel costs as a percentage of average daily rate (ADR) have grown significantly over the past decade, increasing 34 percent on average. These increases include new costs to support online marketing efforts, royalty fees, loyalty programs, and reservation fees.
Beyond a close examination of costs, however, it’s essential to assess net revenue per available room (NetRevPAR) and overall profitability per channel and customer segment. Examine total guest value (including room and non-room revenue) to determine which channels are bringing in your highest paying customers at the best cost. And don’t simply spread your inventory equally across all channels, or focus only on the least expensive channels. Evaluate daily demand fluctuations across all channels. Then make data-driven decisions on the optimal mix for maximum profitability on any given day.
Make the Most of Google AdWords
Hotel distribution is constantly evolving, with channels like Airbnb and Google transforming the playing field. With lower distribution fees of 3 to 5 percent, Airbnb may prove a cost-effective channel for its target market of boutique hotels and small independents. And as Google is often the first touchpoint for many travel shoppers, smart hotel owners are beginning to rely on Google AdWords to drive more direct bookings. AdWords can be expensive, so it’s important to use this tool efficiently to keep your costs down. A key way to do this is by building an effective list of keywords for your AdWords campaign.
Keywords Hold the Key
Choosing the right keywords can be a challenge. And you may be tempted to use common keywords that have high search volumes such as:
- Chicago hotel
- Stay downtown Chicago
- Chicago stay
However, you’ll likely achieve higher conversions at a lower cost by using long-tail keywords. While it’s true long-tail keywords have smaller search volumes, it’s more targeted, and costs are lower due to less competition. Focus on your differentiators, the features and amenities that make your hotel unique. Then create long-tail keywords that are relevant to your business offerings. For example:
- 24-hour check-in Chicago hotel
- Corporate event hotel in Chicago
- Chicago hotel with spa
Claim Your Name
Another key point is to take the basic yet essential step of bidding on your own brand name. Because if you don’t do it, it’s
Revenue managers are faced with a complex distribution landscape comprised of changing commission costs, an increasing number of channels, and changing net rate agreements. You can no longer afford to be reactive, but must proactively utilize software and intelligent solutions to keep you ahead of the curve – managing channel profitability and making strategy adjustments with the potential for enormous bottom-line impact.