Understanding Guest Acquisition Costs: Why Independent Hotels Should Think Beyond ROAS to Better Understand Profitability by Channel
By: Dustin Caromano
Knowing your hotel’s guest acquisition costs is no easy feat. It requires a great deal of analysis and a deep understanding of your hotel’s unique ecosystem. Each hotel will look quite different when looking under the hood at all the various costs, both fixed and variable, across channels. And while the challenge might be grand, the reward is too. Getting granular will allow you to make educated and calculated decisions on where to source business, when to invest in marketing, and even help communicate the benefits of investing in technology to ownership.
Calculating ROAS Will Only Give You A Small View Into Acquisition Costs
There is no doubt that understanding the ROI and ROAS of technology, marketing, and sales investments will benefit your hotel's commercial strategy teams. As a marketer, I’m constantly benchmarking my campaign performance around ROAS. However, attempting to analyze profitability or channel acquisition costs through this lens often eliminates key components you should consider into the overall equation. Using your direct channel as an example, let’s discuss all of the factors that should be considered to truly understand the cost to acquire a guest via your hotel's brand.com site.
Understanding Direct Acquisition Costs
The rule of thumb is that your direct channel should be your lowest cost/highest margin channel. However, the list of considerations can be a bit more complex than let’s say your OTA acquisition costs. Because some costs are one-time and others are reoccurring, it’s important to give the proper weight when factoring into your final equation based on what period you’re looking to calculate for.
If you’ve built a website from the ground up or refreshed an existing site, you know it’s a labor of love that requires technical expertise to do most of the heavy lifting.
More than likely, you’re paying a monthly hosting fee to ensure your site is secure and live.
If you outsource the maintenance of your website, factor in those account management retainer hours or other fixed costs as they relate to ongoing updates.
Search Engine Optimization
This might be in the form of content creation, data aggregators, or tools to monitor your SEO performance.
Internet Booking Engine
Costs can vary based on CRS provider and tech stack. Don’t forget to consider pass-through or transaction fees as they relate to direct bookings.
Additional 3rd Party Technology
This could be in the form of upsell or retailing tools, restaurant and meeting space booking platforms, custom API booking engines, or chatbots.
Account for your digital marketing spend across PPC, SEM, social media, and any other channels that are driving traffic to your website. Campaign management and commissions costs should also be considered.
Your CRM costs should include its build, maintenance, account management retainer hours, plus other varied costs like 3rd party purchased lists. These costs may vary YoY like many other areas, so be thoughtful about how you allocate these costs when calculating your cost per acquisition.
This can be in the form of photography, videography, editing, ad creation, etc.
Any internal marketing, sales, and eCommerce team members' salaries should be considered. For those employees who aren’t dedicated to one channel, consider allocating a portion of their salary based on what time they spend focused on the direct channel.
These fees could be in the form of IBE product enhancements, 3rd party solutions, member benefits, and other ancillary fees depending on the way in which the loyalty program works at your hotel.
How A Profitability Analysis Will Guide Your Future Decisions
At a time when most hotels are struggling with a labor shortage and working with reduced teams, finding the time to spend on this level of analysis is going to be a challenge. However, its importance should not be ignored as the benefits far outweigh the struggles. When you can understand the cost to acquire a guest by channel, you put yourself into the driver's seat of one high-performing vehicle. Imagine being able to feel confident in what you are spending by channel to ensure you don't reduce your profitability, or being able to determine how technology investments can over time reduce costs even further. Until we as hoteliers start thinking in this manner, we are undoubtedly leaving money on the table and are less effective at making decisions holistically that impact performance.