ROI Considerations For Hotels

An excellent question that come up on LinkedIn from Simon Carkeek, Executive Director at the equally excellent EyeForTravel, is relevant to every hotelier out there. It most certainly inspired this article (unfortunately it is of very little use to him as an answer – for which I apologise) which I wrote thinking of “the best in class” rather than what is really happening in the market. The question (reproduced with his permission) can be found here:

“What determines where travel companies advertise online? And what rates are paid for various types of advertising?

I am currently looking into the costs of and reasons for online marketing campaigns and wanted to ask the group what determines whether a site is worthy of advertising budget. I’m less interested in SEO or the PPC campaigns on the likes of Google, MSN and other generic search engines, but rather the budgets people allocate to advertise on travel specific sites such as deals publishers, meta-search engines and online travel communities / social media sites. Specific information I’m looking for includes:

What kind of volumes of traffic do advertisers look for? What kind of click through rates do they look for? What are the going rates? What revenue models work the best (PPC, PPA, commission based)? Banner advertising – do companies still pay for impressions/page views, or would it always be a PPC model these days? What do advertisers look for in a site other than traffic levels?

Does anyone have/know of any documents/research with this kind of information that you are able to share with me? Or do you know how I’d go about find this out for myself?

Any advice you can give is much appreciated. Will be happy to share my findings with anyone who is able to contribute.”

Simon Carkeek, Exec. Director, eye4travel

Mr. Carkeek’s question is indicative of the complexity and variety of answers he is expecting to receive. Different companies obviously have very different ways of thinking, and there will hopefully be many different, specific figures that will go his way. If this is the preliminary groundwork for another excellent report from eyefortravel, I can only wish them the best of luck in quantifying some of this stuff.

The answer to "where do I spend my money best for marketing" is one you should be answering every day.

Having worked in multiple environments, I know that less accountable factors such as “gut feeling” or habit are still in use, but I have also come across a couple of examples of “doing it properly”, and that is what I think you might find useful here.

The client was a luxury collection with properties mainly in USA and the Caribbean. Upper 4 star hotels in their majority – with a couple of really famous properties in the mix and an unusually structured management team. (Hopefully further down it will become clear that this is relevant because it allowed for efficient flow of critical information amongst executives).

• Can we measure the results?

Investment in electronic advertising was always subject to one paramount criterion: Measurable ROI. Irrespectively of the method of calculating charges (PPC, % commission or “exposures”) if a channel or the company’s internal processes and systems could provide reasonable measurement of results, the campaign had a good chance of taking off.

• How much additional work would it cost us?

It is relevant to mention here that the costs of the campaign were also evaluated against the processes and work-load that would be generated by the campaign. The specific collection was rather “lean on the ground” without large teams of people delivering at property level so if a campaign had certain complexities to it (e.g. delivering of a promotional item or value-add-on for a booking) we would always take these into consideration.

• What were the opportunity costs?

Opportunity costs were also looked at in every case, and from two slightly different points of view.

Traditionally, we would examine the potential return in terms of volume (we were looking primarily at volume of roomnights here, not just the % of ROI as the right roomnight levels always justify a little more aggressive payments). If a certain opportunity A was looking like generating more than another opportunity B, then opportunity A would get the green light first. This staggered processing of opportunities was very useful – amongst other reasons – because of man-hour considerations; so only the number of opportunities that could realistically be handled would be eventually allowed to take off, and the decision didn’t have to be conscious (you often run out of time before processing opportunity F, but you didn’t run out of time in the midst of working on opportunity B or C just because you allowed the processing of opportunity F take up vital time).

The second, and rather non-traditional view of opportunity costs, is associated with the cross evaluation of ROI against all other revenue generating channels and segments.

To understand this approach and the logic behind it, it is relevant to mention here that the collection run almost completely (they were in the forefront of trying to do so with wholesale business as well) on BAR.

With occupancy levels being low during large sections of the year (this was a very new company with a lot of properties coming out of massive long-term renovations, so the starting point was lower than one would expect) the importance of filling up the hotels was at the top of the to do list. (Every revenue manager will tell you that you fill up your hotel first; then you may start any serious efforts to yield through improving your ADR).

Working with such a pricing structure, and with empty rooms to fill, the company would look at each campaign and could compare the opportunity costs and potential ROI across segments. As long as the ROI could be measured, a comparison was very easy. Would we spend 5 thousand dollars in aiming at incremental business in Expedia for additional % commission in each booking, or would we give this money up as a promotional add-on for an e-mail campaign to loyal members? Would we invest it in GDS cpm based advertising or would we go for brochure contributions with yet another wholesaler (which would produce results in a year and a half from the point of investment)?

The primary decision making tool was a universal % target for commission/payment levels. All BAR model channels would be analysed for a % cost of roomnight. The most expensive would be the “walk” point in negotiations for pricing of advertising, the cheapest would be the “wish” point and anything in between would be acceptable.

Another important criterion came from relationships. Larger organisations, companies that were important to the collection had more bread-and-butter business for the hotels, would always get priority. Without breaking parity, and working with a narrow range of commissions even for the best partners, giving them advertising dollars was the single method of showing preference to them on a day to day basis – and it worked well too.

The principle of this universal % payment/ROI approach rings true. For me, comparing costs and monetary/relationship benefits across all relevant channels (which is only really realistic if your pricing model is BAR and parity) has to be the correct way to run a business. It allows for nimble, justifiable and accountable investment.

In final point? There may be varying levels of money you have in the marketing pot, and as a company most likely there will be varying attitudes towards different media, accounting and payment practices and personal views. Choice for investment should come following consideration of alternative opportunities, their real costs (obvious and hidden) and always, always based on measurable results. Even if the non provable media with which you are presented has more to offer in your opinion, think of the way and cost you will have identifying bookings from it. In my experience you will always be better off with the measurable; if for no other reason, because you will be able to show your boss an unsinkable ROI figure 🙂

Yannis Anastasakis

eHotelworks

Letting Google choose the best web booking engine? Let the results speak up.

Experience has taught me (and I presume most of us) that Google comes up with lovely, useful and free solutions. Despite the massive influence they have on how you and I are designing and running our electronic business (I can think of many worse companies to do this) I constantly find myself admiring them as they seem to have a knack for identifying real solutions to real needs, before you and I even know we need them.

So, are you looking for a free way to collaborate with colleagues on a word or excel document (well, close enough to word or excel anyway)? Google docs will give you the answer.

Some results - like the efficiency of a booking engine over another - are easier to quantify than you may think

Do you want to use an interactive map for showing your hotel’s locations, maybe against local attractions, whilst allowing your on-line visitors to examine distances, directions etc.? Google maps is there for you and – again – it is free.

Do you want to evaluate the credit-worthiness of a website you are visiting? The Google toolbar will offer as much as any one company can, and it will throw in the deal (the free deal that is) a few useful extras like the really rewarding and empowering voting buttons. (So if Europcar upsets you with their dodgy last minute charges, you can always vent a little by clicking on the appropriate button). It is worth mentioning here that the best solution for quick site evaluation that I have come across this far is a toolbar in Firefox that apart from the Google ranking and backward link options, also offers data and options from Alexa and Compete.)

Of course, from all the great tools Google have, the Google Analytics are closest to my heart as they are very nearly the best solution out there, and they are (once again) totally free. It is one of these Analytics tools that I was thinking about today, as I was reminded that not everyone knows what they can do.

The topic was approached as I was having a conversation with a gentleman from Canada. Good properties with a rather imperfect website – which should nevertheless do enough of the job it is supposed to do. The company seems to be using two different types of booking tools between all their properties, one that comes out of the PMS – which is really, really badly done, but comes free – and one from SynXis – which is really, really well done, but you have to pay for it. Unsurprisingly, he noted that the properties using the free version of the booking tool are performing less well on-line than the ones that are using the paid-for SynXis’ tool.

He didn’t have to say much from there on, as the scenario is the same around the world. I could tell that he is fairly sure that the PMS’s questionable booking tool is damaging conversions to bookers, but it is difficult to argue against something that is free.

We all know that when it comes to the guys that pay the bills, taking a stance requires certainty and – if at all possible – facts.

In scenarios similar to ours, one needs to be able to argue that making a change will generate sufficient ROI. ROI which should more than cover the costs of the % commission to a paid-for booking tool provider. The ROI would also have to be demonstrably higher than the original solutions as one has to consider the opportunity costs of the % commission and the time/effort investment that one is inevitably going to undertake with such a change. Usually the problem is not so much the lack of conviction, but the lack of hard data.

There are a couple of solutions that I have seen to this problem, including the running of the two bookings tools on the same page (think two buttons, practically next to each other). This is obviously not all that brilliant for a number of reasons. Effectively, two “book here” options equate to introducing a factor that will confuse not only your results, but also your visitors. You are going to be using prime real estate on your home page for this, and by changing your web-page you are messing with the actual subject of your study. There will also be visitors that will choose by clicking on both, and there will be visitors that will visit one of the two (the one they would like least) and decide they don’t like it enough to use it. There are many more reasons that you will be able to think, but the underlying fact is that this is not the best way to go about it.

A better solution would be a process of concurrent website monitoring and analysis (hello Google Analytics). This is much more simple than it sounds, and it will give you (at least theoretically) a clear and clean image of visitor behaviour. It is a technique that allowed eHotelworks’s partners to develop the internationally culturally optimised templates we are selling through our HelloWorld packages (it effectively allowed us to see what types of look-and-feel in international versions of websites converts best on a per country basis).

The same technology (without the complexity and costs associated with significantly changing your website) will allow you to take your existing pages and copy them next to the original ones. You then change the link of the “book now” button (or the code of the search behind your mini booking tool) to that of the new booking tool. You then promote your website normally, but each time someone clicks to see your webpage they are given one of the two versions. Assuming that all other parameters are unchanged, you could theoretically sit back and wait for the enlightening and comparable results.

The theory is that if your new booking tool is performing better than the old one, you can look at the incremental revenue that the new conversion % across all bookings and you can see how much better off you would be if you were using the new tool for everything.

This is also going to give you interesting data for your negotiations with your CRS supplier. I can think of no more solid an argument from a hotelier asking for a discounted % fee from its CRS provider, than the one that is backed with hard data of this type. “This is how much money I make above what I get from the PMS’s tool, so I can only go ahead with using you if you make your tool available at this reduced percentage”. Solid, truthful and backed by data. To be honest, as a systems sales person I would do my utmost to give this intelligent hotelier the reduced percentage, just to keep them as a friend! (The grumpy old man inside me is already muttering under his breath that there just aren’t enough good negotiators out there any more).

So this is all good and easy, in theory. Alas, practice is always a little different, so please beware:

In practice, using a better CRS, one that will allow you to do more things than the old one, and one that looks better than the old one (thus giving the all important signals to your visitors that you care), should always generate more conversions. It really always should. And running the experiment as described above – sticking to visual comparability – is not giving the better tool a full chance to shine. In other words, changing only the link may not give it enough of a chance to generate more bookings. And if you do more of the stuff you should be doing (promoting your product through the additional features) you are not running a straight comparison any more.

Not to mention that having a good account manager from a CRS specialist firm looking after you, over time, it is always going to be more productive for you than having a PMS account manager who is invariably treating connectivity and the booking tool as an “add on” rather than a lifeline.

Additionally, very rarely have I come across a hotel that is doing all it could to maximise visitors to their website. With less than the potential numbers of visitors arriving, the value of the increased conversion ratios is also lower than the potential. In other words, 5% increased conversions is nothing to write home about if you take ten bookings a month from your website, whilst it is a lovely increase in profitability if you take a thousand.

It is interesting to mention here that increased numbers of visitors (usually driven through aggressive campaigns and because no campaign is perfect) tend to be more demanding than your usual lot. If for example you are running a PPC campaign for the first time, you will get visitors that would otherwise not find you. And you will find that they are less determined to stay with you than the usual clientele – that found your website organically after doggedly looking for it. So suddenly you are talking to visitors that may be much more easily put off. Hence, looking good throughout may suddenly be much more important than it used to be when you weren’t pushing for visitors.

For all these reasons and depending on your property and market, the better booking tool may be one good step in the direction of more bookings, but as a standalone step it may appear not to be worth it. An orchestrated web business generation effort is usually worth much more than the sum of its parts, because your website booking process (from search engine optimisation to repeat guest hunting) has each step optimising the results of the previous one, reducing drop-outs. This is a fine yet important point as introduction of the improvement elements one by one may never individually look good on paper. In the website optimisation business, more is much more!

In conclusion, I recommend caution but definitely action. Run the test (it is cheap, and it is easy), have a look at the results and use them to your advantage. Use the new booking tool’s bells and whistles through a gradual introduction to the concurrent website to evaluate the impact of each step. Use this data to estimate the benefits of additional facilities that you won’t be able to use in a test environment. Get the results and interpret them. Run a campaign and use links directly to the features of the booking tool. Compare results to older campaigns.

There will still be a lot you won’t know as most of the advance facilities of a booking tool come into their own with time as people don’t adjust to new technology overnight.

In any case, there will be hard data in your hands. Data that will most likely show you how you are better of with a good booking tool. Even if you don’t take into consideration the other long term benefits of empowering technology, you are going to be better off for having tried to stop your accountant and floor manager (PMS) to run your sales.

Yannis Anastasakis

eHotelworks