In years past, advertising was one of those big unknowns. You knew you had to do it, but were uncertain of the precise effect it had on sales. Sure you would have sales spikes when campaigns were live, but you could never attribute the exact figures. It simply wasn’t an exact science.
It was a bit like exercising - you know you need to do it, but you can never precisely quantify exactly what effect it’s having on your body. And if you keep to the same routine, there is always a law of diminishing returns as your body adjusts. Companies who advertise using the same tactics and channels year in and year out might similarly see the plateau effect and perhaps these results will diminish over time. So it’s good advice to reevaluate your approach to advertising regularly.
The good news is that there has never been a better time to reassess and recalibrate your marketing strategies. The digital era has ushered in unprecedented levels of transparency and accountability across its various channels. Every ad, every click, and every action is now accountable. Every sale is traceable back to the original call to action.
As a result, we have moved away from reactive marketing planning that learned retrospective lessons to proactive planning that reacts in real time to campaign performance. Advertising has changed through the years and it’s now possible to discover exactly how effective your strategies are, and importantly, you can now optimise campaigns in real time and double down on better performing campaigns.
With that in mind, we’ve looked at the five metrics you should keep close attention to - tweak these dials favourably and you should see specific and quantifiable returns.
1. First up, the biggie - Return on Advertising Spend (ROAS)
This one does exactly what it says on the tin, and great returns here mean that all your activities combined are heading in the right direction and generating revenues for your company and your marketing budget spend is being justified. Great results here are likely to help the case for bumping up your future budgets because your initiatives are seen as a safe bet. Some of the best, and most consistent, advertising returns are being seen on GDS platforms.
While the global average Return on Advertising Spend on a Travel Commerce Platform is 18:1, some cities are seeing even bigger returns. For example, hotels in Hong Kong typically see an average return of up to $42 for every $1 spent on preferred placement advertising on a Travelport’s Travel Commerce Platforms. In Paris, the average return is up to $26 for every $1 spent. In Seattle, it’s $25 and in Mexico City you can expect average returns of up to $22 for every $1 spent.
2. Cost Per Acquisition (CPAs)
CPAs are a more granular metric. The action might not necessarily be a sale, it might just be opportunity to discover more info and thus push a customer closer to the sale, so it’s an important metric to keep tabs on. Wordsteam have recently published average industry CPAs and for those in the Travel industry the average Cost per Acquisition in 2018 for Google Search campaigns is $44.96 and the CPA for Google Display Network ads is $99.13.
3. Marketing Originated Customer Percentage (MOCP)
MOCP is designed to show how much new business is a direct result of your marketing team. To calculate the Marketing Originated Customer Percentage, divide the number of customers who started as marketing leads in a given period by the total of new customers in the same period. It’s a great metric to specifically prove your marketing effectiveness as there is nothing vague about metrics that state - “This is how much the business grew because of marketing.” In the hotel industry you can measure with precision the occupancy rate that resulted from your marketing activities.
4. Customer Acquisition Costs Recovery Time
Customer Acquisition Costs (CAC) are the total number of sales and marketing dollars spent on average to acquire each new customer. To calculate it, just divide your total sales and marketing costs for the required assessment period and divide it by the number of new customers for the same period. The CAC Recovery Time is the time it takes for you to recover the money you spent to acquire new customers. To calculate the CAC Recovery Time in months, divide the CAC figure by the average amount you receive from your customers in a month (the margin-adjusted revenue). A one-year CAC Recovery Time or less is generally touted as the standard, although this varies according to industry.
5. Customer Lifetime Value (CLV)
The Customer Lifetime Value is the return you get from a customer over the course of their relationship with your company. If you have regular returning guests in your hotel, this is of particular significance. To calculate the CLV, just multiply the average amount your customers spend per booking by the number of repeat sales and by the average customer lifespan. So for example, if the average booking is $150 and they book twice a year on average and the average lifespan is 3 years, then your CLV = $150 x 2 x 3 = $900.
So there you have it, the five essential metrics that hotel marketers really should keep close attention to. Remember your boss/CEO will be keeping tabs on these numbers, so choose your strategies carefully and optimise campaigns in real time to maximise results.