How can hotels correctly calculate their costs per acquisition?
— 9 experts shared their view
Cost optimization and profitability: Cost-optimization has always been a central notion in revenue management. That being said, the pandemic brought renewed attention to the topic. Today, more than ever, proper cost control is crucial to navigate these difficult waters and prepare for the "new normal." Whether we like it or not, every single decision revenue managers take on a daily basis, has an impact on the bottom line, meaning that revenue management is not only about optimizing the revenue streams, but also about increasing profitability. Favoring the distribution channels with the highest profit has become imperative in our industry. But how can hotels calculate the cost-per-acquisition of each channel? What should be taken into consideration? And how can this analysis influence one's distribution decisions?
Finding a calculation that fits every hotel is impossible – different taxation, rules of cost allocation, franchise vs managed vs owned % fees, P&L fee structures, etc.
We also need to be realistic. RM has never had the notion of cost optimization – it's just been talked about for the last 1000 years, as much as we talk about TRevPAR.
The industry must decide what it wants 'Revenue Management' to be, because at the moment, we want it to be everything, yet we don't even have the capabilities to cover Rooms Revenue Management properly, so how are we growing those capabilities overnight? This doesn't mean we can't get there, but we also need to be realistic about getting one thing right and more importantly adopted industry wide before "chasing the next squirrel".
There is also a big difference between profitability and driving profit!
Revenue Manager One focuses purely on profitability %. Only takes highly profitable customers, turns away all the low-cost business – it's not profitable enough, right???
Yet forgets that the hotel never fills!
Revenue Manager 2 focuses on profit – gets offered a piece of business but has to pay 50% commission – realises profitability is bad, but considering there is no displacement – hotel made additional profit on this and was able to upsell.
If you want to get started though: Keep it simple:
- Focus on acquisition first, then on how to get the client through another channel that works better for you: better marketing channels, better PR, higher profit, loyalty – not everything is $$$ value.
- Don't get hung up on profitability %. In High demand times Cost of Acquisition matters, however, in Medium and especially LOW demand periods there is no displacement, and profit-generating business should be taken to drive profit.
- BEFORE you start on your journey into profitability – talk with your finance director to figure out WHICH cost is actually making or breaking profitability.