CHARLOTTE, North Carolina — The hotel industry can be overly focused on gross revenues and not look closely enough at the profitability of different channels, experts say.
Speaking during the "Solving the Profit Puzzle" session at the 2024 HSMAI Commercial Strategy Conference, Sara Harper, corporate director of marketing and ecommerce at KSL Resorts, said industry leaders should think more holistically about the costs of driving demand.
"We've been so focused on [online travel agencies], commissions and the cost of booking from a third-party perspective, that I think that we sometimes tend to forget all that goes into the cost of a web direct booking or our brand.com channels. We think that's the cheapest channel, but it's time to really validate that."
Andrew Rubinacci, chief advisory officer for Flyr, said it's true that brand direct bookings are often the least expensive, but the math can get more complicated, especially for smaller properties.
"If you're a 50-room, independent hotel with very little marketing effort, the OTAs might have a much, much better value proposition for you," he said. "I think that really comes down to you have to understand the data and take it all in and then make the best decision independently for your asset. And that's going to be different for every asset."
Rubinacci said part of the issue in truly gauging profitability for each demand channel is when there is too much focus from financial leaders on return on ad spend.
"You've got to look at the entire marketing spend and what it's costing to drive people to your assets," he said.
Simply chasing return on ad spend can lead to some bad tactical decision for hoteliers, Rubinacci added.
"There's diminishing returns," he said. "For an individual tactic, you can get very, very high return on ad spend, but if you're getting 100-to-1 and make $10 million, [you can't just] put $100,000 into it and make $100 million."
Other things hoteliers need to factor in include loyalty through brands, which can contribute to the costs of the hotels customer relationship management, and commissions on groups, Harper said. Particularly with group demand, it's important to think of all the intermediaries, including planners, who "wants their hand in the pot," she added.
"So by the time the group gets there, how profitable is it?" she asked. "Again, you can't just look through the revenue lens."
Hotel commercial teams need to understand the cost of customer acquisition from every channel, down to and including call centers, which she said often has better data to track than other direct channels.
"I think the bottom line is deciding what you want to measure and what your end goal is," Harper said. "Our goal as a company this year within KSL is to drive up our web direct by 5%. So we're looking across all of our channels. We want to take a bit out of a little bit of every channel, and it depends on which hotel and which market, to get our web direct share up that 5 points this year."
She said goals like that are judged on a portfolio-wide basis because there are still properties that will still be reliant on online travel agencies.