NB: This is an article from Tambourine
You’re precise with your numbers. You’re diligent and know where every cent of your hotel marketing budget is spent. Your owners and hotel asset managers decided to trust you with their investments and now rely on you to make the right decisions to turn the largest profit possible. However, there is one paralyzing question that can make even the most fastidious hotel marketer and general manager stammer nervously during an owner meeting:
“How Much Do All of These OTA Bookings Actually Cost Us?”
The truth is that this question is truly difficult to answer, and many hoteliers want to avoid it all together. But, it MUST be addressed as owners and asset managers are starting to hold their operators more accountable for the actual costs and real expenses of each channel. And with KPIs like ADR and RevPar peaking, owners are starting to realize that costly 3rd party channels and hidden OTA commissions are cutting into their bottom line. Not fully understanding your reliance on OTA bookings and their REAL costs to the hotel can eventually put the own owner/operator relationship on the line.
How OTA Costs Fly Under the Radar
While we all know that OTA commissions should be treated as marketing costs, they are often an ”invisible” marketing expense in your budget or internal hotel P&L. Because OTAs usually pay a net rate back to the hotel, you never see the actual cost show up in your financials. This is ultimately what makes the question, “How much does each OTA booking cost us?” a challenge to answer.
Unfortunately, other marketing investments needed to grow lucrative direct bookings aren’t given the same forgiveness in your property’s financial statements, and show up as tangible expenses.
Owner Priorities vs. Your Priorities
It’s common for owners and operators to not be on the same page about this issue from day one. Owners are concerned about maximizing asset profitability and performance. Owners want cost-efficient revenue. After all, the hotel is an investment – the more money saved per booking, the better.
By hiring you and your management team, they’re trusting that you’ll do everything you can to cut expenses, make sound financial decisions on their behalf and ultimately and diligently yield above-market returns.
The Real Reason Why Owners Continue to Cut Your Marketing Budget
Owners and asset managers are getting more savvy about how much you’re spending to bring in bookings. And the first place they’re going to scrutinize expenses is on your hotel’s P&L. Unfortunately, all of the cost-effective tools needed to bring in the most profitable reservations are listed in the property’s Sales and Marketing Budget and are ripe for getting cut simply because they are visible. These include hotel website design upgrades, SEO, online media and retargeting, email marketing, advertising, social media, reservation abandonment programs, etc. As you already know, it’s common for owners to inspect each line item, debate them with you during lengthy budget meetings, then adjust or slash as they seem fit.
But sadly… incredibly… they often cant see the biggest marketing cost of all: OTA commissions.
Growth of the channel that can bring in the most profit (your own hotel website) is hindered by budget restrictions, while costly OTA bookings are allowed to flourish under the radar.
Adopt an owner mindset and mindfully examine what costs are required to bring in the most profitable bookings. Then, consider how to start reducing your OTA “marketing” costs and moving those funds to higher margin direct marketing activities.
Read more articles by Tambourine