Work Out Your Merry Cost of Net Sale
Undoubtedly you’re planning for the new year will already be in full swing. Our key tip to hoteliers looking to become more profitable in 2020? It’s a deceptively simple one: start tracking your net cost of sale.
The OTA ‘billboard’ effect is the invisible chain locking hotel’s into outrageous OTA commissions. Booking.com and Expedia charge anywhere from 15 and 23% for an independent hotel to nibble at the dominant market share they have cultivated over the past 20 years.
Surely it’s impossible for independent hotels to become masters of their own brand? To lower their cost per sale whilst becoming less reliant on the OTAs? This myth is still buried in the distribution noise. With the help of an experienced digital agency, a hotel can drive its own brand awareness and increase direct revenue at a fraction of the cost of an OTA. The Avvio Digital Marketing team typically returns a cost of sale of 7-9%. That is more than half of the cost of Expedia and at our very highest of 9% that is half the cost of the genius programme!
So how do we calculate ‘cost of sale’? Various factors need to be taken into account: ad spend across google, bing and metasearch, potential booking engine commission and any official site management or license fees. These all contribute to your overall ‘direct booking’ cost of sale.
It’s important to remember that an official website generates more than just room revenue. Dining, wedding, conference, leisure and spa – to name a few – are all ancillary revenue streams that are not taken into account when considering official website ROI. Booking.com and Expedia take their excessive commission slices on room revenue only whereas the digital marketing efforts for the official website do not consider any ancillary revenue generated when measuring against ROI. Of course why would you? It’s not reflective to the whole picture as there are so many other contributing factors. So how do you balance this against the OTAs to get a fair comparison?
The best way to do this is to compare like with like so you should only be comparing the booking engine commission and the media ad spend on the high intent channels, rooms specific licence fees vs the booked room revenue. Hosting costs, ancillary marketing spend and digital marketing management fees should be considered by the hotel when looking at the overall ROI however they should be discounted when comparing booked room revenue vs OTAs booked room revenue.