As part of our Hotel Heroes program, the hotel industry leaders offer their insights and advice on how to surmount some of the most pressing issues facing hoteliers today.

As hotels allocate their budgets for 2020, Joe Pettigrew, Director of Revenue Maximisation, Europe Hotels, at Starwood Capital Group draws from his industry experience to give you his top tips for building an effective distribution budget for your hotel.

Joe Pettigrew | Director of Revenue Maximisation, Europe Hotels, at Starwood Capital Group | Founding member of the Hotel Heroes panel

It's that time of the year again - budgets. Now is a great time to recalibrate the tactics and strategies you deploy on all your channels to achieve the performance you need.

Budget allocation can shape your hotel's strategy for the year ahead, and set the tone and expectations for what you deliver. That's why building the distribution plan that's right for your hotel is crucial.

Here are three key considerations to have when allocating your budgets for the upcoming year.

1. Cost of sale analysis

First and foremost, ensure your overall Sales and Marketing cost line on your P&L is in alignment with your hotel's overall business mix.

The spend within the Sales and Marketing line must be proportionally reflected in the total revenue from your entire business mix. For example, if transient retail segments deliver 70% of your entire room revenue, then you should be investing a similar proportion of your budget into supporting that segment. To find out whether your Sales and Marketing budget is misaligned, group it by market segment and run a cost of sale analysis.

Often, you will find a disproportionate amount of budget against your sales-related channels. For example, your global distribution system (GDS) may only make up a small portion of your business. But it's typically inflated by things like GDS media campaigns, preferred placements and consortia preferred programmes. So once you consider the GDS booking fees, you might find out that it has the highest cost of sale compared to other channels.

Similarly, you could be spending a disproportionate amount of money on performance marketing to support direct bookings. But after closer analysis, you could find that you're overdoing it, and your cost of sale on that channel exceeds that of OTA bookings.

2. Direct channel efforts

Let's talk about how to budget for direct channels. First, separate all of your budgets on direct channels into these four categories:

  • Channel share
  • Market share
  • Fixed costs
  • Conversion rate optimization

The channel share should include all media campaigns solely designed to reduce the cost of sale, such as brand paid search, metasearch and remarketing. These campaigns target guests who are already aware of your hotel with a high propensity to complete a booking. As they're at the bottom of the purchase funnel, you're only trying to ensure that the guest books on your channel rather than with OTAs. Don't forget about the COS: anything over 10% might not be an efficient use of your budget.

Perform this exercise channel-by-channel, including such platforms as Google, Bing, Tripadvisor, Trivago, Facebook and more. Naturally, you'd want to allocate higher funds towards channels that perform well for your hotel. Also, you can build a clear plan for how to improve your ROAS on channels that underperform.

The market share includes all media campaigns that are designed to generate incremental bookings at your hotel. These campaigns help you compete against other hotels in your area within the existing demand of your city, and normally consist of non-brand paid search and display advertisements.

OTAs offer a significant value here at a guaranteed COS % (commissions). That's why the COS of your market share campaigns should not exceed that of commissions you pay to OTAs. I personally recommend a maximum threshold of 20%!

Shift funds to campaigns or ad groups that are performing well, while having a clear improvement plan for ROAS on those that don't. And don't be afraid to stop underperforming campaigns altogether!

Fixed costs are the costs you need to spend to maintain your direct booking channels: your website agency, hosting fees, interface expenses and others.

Finally, conversion rate optimization. Hoteliers tend to use websites for showing information about their hotel and making sure that room rates and types show up correctly. However, a conversion-driving website requires continuous optimization. If you take a set-and-forget approach to it, you risk missing the opportunity to improve your direct conversion rate.

Next year, reduce the budget you allocate to underperforming campaigns that are running on your website and scale up campaigns that deliver high returns. And remember - a better-converting website also reduces acquisition costs!

3. OTAs and wholesalers

Look at your channel performance by booking window and length of stay to get a clear understanding of the value your third-party channels can deliver where your direct channel cannot.

If you find out that some of your partners overlap in markets and show similar booking patterns, then don't be afraid to drop one of them - especially if they happen to overlap in peak periods! Similarly, partner with a channel that can fill the gaps you need to drive incremental business to your hotel.

Pay close attention to your wholesalers to find additional opportunities to streamline accounts, and keep only the ones that genuinely add value to your business.

In summary, use cost of sale and booking pattern behaviour analysis to shape your distribution strategies for next year. Changing your budget allocation strategies can seem complex, but once you run the numbers you can find great opportunities to improve your hotel's performance next year!