Home' Hotel Management : HM AUGUST 2016 Contents Astudy by the Hospitality Asset Management Association
(HAMA) released in 2014 across 468 upper-midscale to luxury
hotels in the USA showed acquisition costs were rising at two
times the rate of revenue growth. Total customer acquisition
costs in the North American market ranged from 15 to 25% of revenues.
No recent data is available for the Australasia market, but anecdotal
evidence clearly indicates similar trends.
The increasing influence of Online Travel Agents (OTAs) and other
booking brands like Google and TripAdvisor is dominating discussion
in our sector these days. Apart from the risk of commoditising the
hotel product, putting downward pressure on room rates, hotels see a
significant increase in the costs of commissions and booking fees on top
of existing customer acquisition costs driven by the hotel and brand's sales
and marketing activities.
Here's the problem: other than efforts to increase direct bookings
by the larger hotel chains, most hotels in our region still lack the
razor sharp focus on fully understanding customer acquisition costs
and driving the most profitable revenues. Are hotels maximizing net
revenue contribution? Do they consider the different costs of customer
acquisition by market segment and distribution channel in their daily
revenue management decisions? Is your hotel performing well in this
area or can it do better?
Traditionally hotels focus on driving Revenue per Available Room
(RevPAR) and their Revenue Generation Index (RGI) as key metrics for
revenue generation and market share. These metrics effectively place the
same value on a room sold directly to a customer than to a room sold at
the same price through an intermediary with a 15% commission.
More recently we see the use of Gross Operating Profit Per Available
Room (GOPPAR) to assess the overall profitability of a specific piece
of business, including ancillary revenues such as F&B spend. Neither of
these however specifically address the issue of total customer acquisition
costs nor, more importantly, the efficiency of the Sales, Marketing and
Revenue management resources. Apart from commissions, customer
acquisition costs include expenses related to Global Distribution
Systems (GDS), marketing, advertising, promotions, national and
global sales offices, loyalty programs, local sales staff, and other sales and
Based on the widely accepted principle that you can only manage
what you measure, it is time that hotels start using some more specific
metrics and benchmarks to monitor these costs and their effectiveness. In
the absence of any such metrics being included in the latest edition of the
Uniform System of Accounts for the Lodging Industry, which most hotel
management agreements use as the standard accounting and reporting
format, the following metrics suggested by the HAMA can be a good
starting point. They are: Net RevPAR: calculates the net revenue per
available room, after the costs of acquisition is removed from the P&L
revenue. Equals P&L revenue - (commissions & transaction fees + sales
and marketing costs) / available rooms; RevPAR Capture: indicates the
percentage of revenue retained by the hotel out of the amount charged
to the customer. Equals Net RevPAR/Gross RevPAR; and Net Sales
and Marketing efficiency: shows how much net revenue is generated
for every $1 spent in Sales and Marketing. Equals (P&L Revenue -
commissions & transaction fees) / total sales and marketing costs.
The objective is to increase net revenue contribution, a metric that
will resonate strongly with owners, management and brands. Being
able to compare to a benchmark group of similar hotels adds even more
power to these metrics. They serve as a guidepost at the hotel, regional
and corporate levels since often there are so many members of the team
involved in various aspects of the revenue strategy. Once hotels actively
measure and manage these costs, they will find ways to lower them.
Lowering customer acquisition costs and maximizing net revenue
is more than the simple decision to lower OTA and raise 'brand.com'
volume. It involves determining the right channel and segments to drive
revenue by season and day of week, not just considering RevPAR/RGI
but Net RevPAR. Hotels need to focus on building strategies around
segmentation by customer type and geographical market with margins
tracked by channel, segment and even down to account.
To achieve the required level of focus, it is important to have an
agreed set of metrics and a clearly documented set of objectives and
actions that can be articulated both internally and externally to owners
and other stakeholders. Then, somebody has to take responsibility for
efficiently generating revenue.
Hotel management will also benefit from conducting a detailed
analysis of the acquisition costs and ancillary revenues associated
with each channel and segment. Team members involved in revenue
generation must have a good understanding of the general profitability
and RevPAR capture by segment and channel which can then be taken
into account in their day to day decision making.
Today's marketplace may also require a fresh reassessment of the
allocation of resources to traditional sales channels versus marketing
channels. The crucial decision made by hotels and hotel companies
is about how much to spend and where. The new reality also calls for
greater involvement, and where required upskilling, of the hotels' finance
teams in analysing and monitoring revenue planning with a focus on
business acquisition costs and sustainable profit.
Then there are several tactical levers, that can be pulled to grow
profitable revenues, such as managing the Global Distribution Systems,
maximizing traffic to the hotel's own website, improving sales and
reservation conversion, customer retention, gaining advantage on
marketing content and promotions, growing ancillary revenues and up
selling, to name just a few.
Despite sometimes strict contractual obligations to OTAs, hotels
nevertheless have a number of options to maximize non-commissionable
revenues during high demand periods. Customer acquisition costs should
be a major discussion point between owners and operators. The hotel
General Manager, being responsible for profit optimization, needs to
ensure sales, marketing and revenue management functions are yielding
based on profitability and not just revenues.
Fully understanding and tracking the costs of customer acquisition
should be a priority for every property. It is not about avoiding OTAs.
They are a fact of life and here to stay. It is about creating business
acquisition strategies and tactics that deliver sustainable profits for hotels.
For the major brands it is important to deliver non-commissionable
revenues, as without this ability their economic value will decline. For
owners it is making sure to optimize net revenue that contributes to
profits and return on their investment. n
Managing customer acquisition costs is more than a simple channel shift, says Horwath HTL
Australia and New Zealand's WIM RUEPERT in an exclusive column for HM.
Challenges of customer
34 HM The Business of Accommodation
Links Archive HM JUNE 2016 HM OCTOBER 2016 Navigation Previous Page Next Page