Are Your Promotional Investments Performing?

Sales & Marketing “Investment” Portfolio Performance & Tracking Mechanisms

Many in society are enamored with their stock market investment performance and from Monday to Sunday are absorbed in their portfolios. The casual investor checks his/her mobile phone app once a day and calls his broker once a week. Others don’t look often, but when they hear of a swing in the market, get on the phone immediately to see why they’ve just lost significant portfolio value. Needless to say, in the latter case, a great deal of damage has already been done by the time the broker is reached.

Sound familiar?! Let’s change a few phrases around to see if there is hotel relevance .

Many hoteliers are enamored with their sales & marketing investment performance and from Monday to Sunday are absorbed in their portfolios. The casual hotelier checks his/her mobile phone app once a day and calls the revenue manager once a week. Others don’t look often, but when they hear of a swing in the market get on the phone immediately to see why they’ve lost significant Gross Reservation Revenues and Profitability. Needless to say, in the latter case, a great deal of damage has already been done by the time the analyst is reached.

In either case, reaction time and the ability to change strategy quickly, are key factors in salvaging downward trends or catching unexpected surges. But without tracking mechanisms providing timely feedback, moments of opportunity CAN NOT be seized, nor downfalls averted; the result usually has costly consequences for hotels when trends are not caught in a timely manner. Sales & marketing “investments” should each be individually tracked, and performance analyzed on a weekly basis, either in house or through a program that calculates “investment return”. Here, weekly executive review ensures that “old reliables” are still performing and that new opportunities are gaining traction. If and when any ‘investment” begins to fall off, an early call to the affiliated vendors marketing manager might enable needed tweaking or an upgrade in exposure that can sometimes counteract sudden selling down turns. The old adage “the squeaky wheel, gets the oil” is often relevant in overcoming changing “investment” environments. The key is to have mechanisms in place to catch the unexpected early on.

Today I’d like to discuss an easy tracking mechanism used to summarize your Sales & Marketing “Investment” performances. The report shows the Return on “Investment” for each channel in which promotional dollars are spent to stimulate sales (see Exhibit “A”). In addition, a supporting detailed report, showing the specific investments that make up that Summary Report, allows the executive to review each “investment” individually. Each is an essential piece in the hotel revenue puzzle (see Exhibit “C”).

Hotels “invest” in marketing vehicles such as print, broadcast and social media, websites, internet and “vendor” relationships (in the case of vendor relationships, we consider commissions to be part of the “investment” made by the hotel towards production and include the same in our ROI calculation). It is also essential to include sales, marketing and reservation wages representing those responsible for generating hotel sales, into the equation. Wages are as much a hotel “investment” as are marketing expenditures and can be measured in the same way.

Groups of reservation-generating “vendors” are grouped into revenue channels based on like-kind Key Performance Indicators. Many of these vendors offer programs or advertising opportunities that can be purchased in addition to typical vendor marketing efforts used to promote your property. The result is that, each of these channels contains any number of hotel “investments” including 1. marketing dollars used to stimulate channel-by-channel productivity and/or 2. executive & staff time devoted. Each channel, in turn, produces a measurable return that can be monitored on a daily, weekly, monthly or annual basis.

Revenue Report Card TM strongly suggests that a weekly reporting period be implemented so that developing trends, opportunities and/or threats can be identified quickly and analyzed before they become “runaway” aberrations.

The following is a format that can be prepared on an excel sheet and that we use in our program to report Return on “Investment” for each revenue channel (Exhibit “A”) and each “investment” made. This is the summary page I discussed earlier (Exhibit “A”).

Exhibit “A”

While the above referenced schedule is only a partial list of this hotels revenue channels, please look at the format and I believe the philosophy behind it is easy to understand. Also keep in mind that, as in the case of reviewing any “data” through analysis, trends over extended periods create more meaningful and reliable output. That said, once benchmarks are established, deviation from what is considered “the norm” identifies changes in the market or in the way guests are interacting with promotional stimuli. Changes could dictate that action need be taken by the hotel.

Exhibit “A”, above provides a summary of selected channel-by-channel “investments” and associated returns. Here we can see that the overall hotel performance on selected “investments” for the 3 months and 12 months ended March 31 were $3.97 and $3.84 for each dollar spent, respectively. The reduction, in this case, when comparing the current period to the 12 succeeding periods, is a small one; 13 cents ($3.97 minus $3.84) and would not seem to warrant further investigation. Adding a historic and a competitive set comparison to return ratios would shed enhanced light on market conditions, share and changes in the landscape.

The top channel return performer above, for the first three months, is “Channel 9c – Membership Traveler Books”. 9c is returning $20.96 and $19.66 for the 3 periods and the 12 periods ended March 31, respectively, for every dollar spent. As a hotel that caters to the senior market, this “investment” is one that has proven itself to be worthwhile in terms of return, but is not producing a material contribution to hotel revenues. The question that comes to pass then is whether an increase in the size of the advertisement and, in turn, the amount of the “investment” could produce a significant increase in reservations. The potential, shown in the return ratio, would certainly suggest that it would warrant further investigation and testing.

The highest Gross Reservation Revenue producer above is channel “14f – Wholesaler / Receptive Operator” that returns $3.34 for every dollar spent. By viewing Exhibit “D” below, we also see that the channel cost here is (31.1%); one of the highest channel costs at the property. Despite this, the vast majority of all reservations are coming through this channel. With a low return of $3.34 for every dollar spent, these vendors then have their profits further diluted because of a lower Average Daily Rate and higher occupancy; the latter of which requires higher concentrations of housekeeping attention. In reviewing the entire list of Returns on “Investment” Report (Exhibit ”A”), those “investments” producing the highest returns should be looked to first for possible exploitation in potentially untapped demand, with the goal of displacing as much of Channel 14f business as possible.

The typical day-to-day “fill pattern” for channel 14f, at Shady Tree Resort also needs to be examined. In this case let’s assume that day-to-day fill pattern is pretty consistent. Assume that their two highest contributing Wholesaler / Receptive Operators each contribute 15 guaranteed room nights per day (30 room nights per night). Shady Tree Resorts weekends are typically their need periods and as a result possess unsold inventory. The 30+ guaranteed Wholesale/Receptive Operator room nights on Friday, Saturday and Sunday are valuable and would be burdensome to replace. The goal then would be to find and separate those Wholesaler/ Receptive Operators that are more likely to fill the hotel on Friday, Saturday and Sunday and separate them from others by placing them in a new separate channel. On Tuesdays and Wednesday, when the hotel is typically sold out, Wholesaler / Receptive Operators beyond the guaranteed room nights mentioned, would be issued a stop sell or have their minimum stay restrictions increased. This would enable higher profit channels to replace the Wholesaler/Receptive Operator channel. Needless to say, the new Wholesaler/ Receptive Operator channel that shows an arithmetic advantage in filling the hotel on the weekends, would not be closed or restricted.

In the case presented above, Channels 5a - OTA Tier 1 (15-19%) and Channel 5b – OTA Tier 2 – (20%-31%) are producing the highest return ratios of the selected channels presented. Exploring ways to drive additional occupancy through these channels would provide the hotel with business at a significantly higher rate of return. In addition, each of these channels “fill patterns” must be explored in order to determine the overall and optimal channel mix. Channel-by-channel demand also plays a significant role.

An important factor when analyzing “investment” ratio’s at a hotel, is to find the properties annual break even return ratio. This enables the property to have a set minimum goal that must be reached for every ‘investment”. Those that are not meeting that published burden should be flagged and eliminated in future periods.

The best place to begin testing channel-by-channel potential would be to introduce additional promotional funding to those channels that are producing higher return levels. As previously mentioned, a review of a channels historic filling patterns are essential in order to fill needed days of the week. Each study will reveal the hotels optimal investment amount and the associated return it should bring. This establishes a, so called, “Investment ceiling” for each promotion and ensures that “investment” dollars are not wasted. Another consideration is how different seasons at the hotel affect hotel “investments”. Different “investments” will, of course produce different results at different times of the year.

I always document the conclusions derived from studies to writing so that they can be referred too and used in the future and in the budget process.

Websites and other productive channels Investing in changes to a hotels website may seem to be an intriguing opportunity that can produce higher returns. Proceed with caution however, if your website is already producing a sizable return. Exhibit “B” below shows that the return ratio on The Shady Tree Resort website is $19 to $1. Before considering changes, one must consider that this is already a high returning “investment” and may very well be an optimal result. It therefore is appropriate to question whether introducing additional funds toward increased profitability is the wisest course of action. An alternative on a highly productive website (or any productive channel) might be to “invest” in smaller increments that are, in turn, monitored and if appropriate increase those “investments” over time. Once large sums are committed to complete website overhauls, it is too late to pull back. The worst case scenario is that you suddenly find yourself with an “investment” that is providing lower returns.

Exhibit “B”

Shady Tree Resorts “Investment” Choices Exhibit “B”, above provides a look at different choices that can be considered by the Shady Tree Resort. Despite enjoying a $1:$19 return on their website, they are considering a $32,000 overhaul of the site. The alternative, as previously discussed, would be to make a smaller “investment”, and monitor the market reaction. The smaller “investment”, in this case, would also free up $10,000 in additional “investment” dollars that can be considered for alternative channel promotion.

The Shady Tree Resort has the opportunity to increase the hotels exposure in their Global Distribution System (hereafter the “GDS”) channel through an “investment” of $10,000. If they spend the aforementioned $32,000 for the complete overhaul of the website, they would be unable to make the $10,000 “investment to the “GDS”.

Hindsight being 20 / 20, we can see that the smaller investment of $2,500, used to enhance the original website, produced a $22 return on each additional dollar invested and, in turn, new total website profitability of $507,737. Had the hotel “invested” $32,000 in a new website, profitability would have been $507,000. For all intents and purposes, the two alternative actions (investing $2,500 or $32,000) brought in close to the same profitability on the website ($507,737 compared to $507,000). The $32,000 overhaul eliminates the smaller enhancement costing $2,500 from the equation, and results in increased website profitability of $96,980 ($507,000 minus $410,020). It also eliminates the potential that would be brought in by the $10,000 “investment” in the GDS. The important immediate factor here, is that both the $2,500 and the $32,000 “investments” bring in very similar profits. At face value, the choice here would be clear.

If the alternative choice is made, $10,000 becomes available to increase GDS channel exposure and that result can be seen as an increase to channel profitability of $211,764. In turn, the smaller enhancement to the hotel website produced additional profitability of $97,717. Those two actions increased total hotel profitability by $212,501 ($719,501 minus $507,000) over what would have been earnings had they chosen to re-vamp the website.

Due Diligence Hoteliers will at times jump at new revenue generating propositions without adequately qualifying them. Due diligence, in vetting potential “investment” opportunities, must use only what is relevant! Geographic production could see a hotel in south Florida investing $7,000 in an AAA Book advertisement and produce a return of $34,000 ($1.00: $4.86). That same investment made on the west coast of Florida, on the other hand, might produce $119,000 ($1:$17). Picking appropriate measures limits hotel exposure to unexpected return shortfalls.

Exhibit “C” below, shows the underlying detail that makes up the summary report (shown in Exhibit “A”) and provides a line-by-line analysis of each individual “investment” contained in a revenue channel. The presentation provides precise “investment” performance information. You can see below, in a simplified format, “Channel 9c – Membership Books – Traveler”, at the Shady Tree Resort. Once again, this can be done on an excel sheet.

Exhibit “C”

As you can see above in Exhibit “C”, Shady Tree Resort, a hotel that caters to senior citizens, entered into advertising agreements for the first six months of the year totaling $87,000. Of that total ‘investment”, Channel 9c, -Membership Traveler Books accounted for $16,000 of those fees ($9,000 and $7,000 for Automobile Association USA and the Senior Travel Book, respectively). Performance highlights for each of the “investments” are shown.

For every dollar spent on “Channel 9c, -Membership Traveler Books” an average of $20.95 was returned. Of the two travel books, the “Senior Travel Book” produces the higher return ratio with a variance between the two of $5.83 ($24.23 minus $18.40) for each dollar spent. Also take note and compare the return on “investment” here to the other hotel investments (totaling $71,000). These, provide a $7.87 return for each dollar “invested”. In this senior marketplace, the travel books show the greatest potential for possible expansion.

Finally, we look at “Channel 9c – Membership Traveler Books” channel cost of (20.1%) shown in Exhibit “D”; by comparison to the other channels shown it is moderate. Comparison, however, to Channel 14f – Wholesaler / Receptive Operator, shows a sizable (11.0%) differential with Channel 14f running a (31.1%) channel cost. It is far more profitable to use Channel 9c and in this case the only revenue conclusion toward greater profitability would be to displace 14f to other more profitable channels.

Exhibit “D”

In closing, Return on “Investment”, when evaluated on a weekly basis, will pick up important changes in 1. the market place and in 2. customer engagement with promotional stimuli. This uncovers trends, anomalies, upswings and/or down turns. Hotels become far less susceptible to unanticipated swings and trends when reporting is more frequent.