This post has been updated. Read the most recent version here: How to Budget for Hotel Digital Marketing in 2020.
With the return of budget season, the uneasy feeling of making decisions regarding hotel marketing budgets begins to aggravate hoteliers. The time and energy available to efficiently go through all the marketing proposals is limited. There is some concern about making the wrong decision, investing in the wrong channels, or getting completely bamboozled by some marketing snake oil. Some hoteliers are excited to plan a big enough budget in 2019 to support the initiatives they wanted to implement in 2018. Maybe you are somewhere in the middle, feeling worry about making the right decisions and excitement about funding exciting new initiatives.
Chris Johnson, VP Sales, Marketing and Revenue Management at Fillmore Hospitality, clearly put the pressure on proper budgeting for digital marketing in context when he said, “We have to take a step back and understand what we’re trying to achieve and understand if we’re applying the necessary resources to create a desirable experience for our guests to book with us directly.”
In this article, you will learn best practices for properly budgeting digital marketing services in 2019. With a better understanding of the most important digital marketing channels and recommended budgets for each, we will do our best to ease your worry and spark some excitement over what a proper marketing budget can do for you. You do not need to participate in every marketing opportunity available, but by identifying your goals early, you can focus your budget on the digital marketing initiatives helping you reach those objectives efficiently.
It is important to note, effective digital marketing services are rarely executed by the push of a button. We have witnessed a certain misconception in this industry that digital marketing is mostly automated. There are agencies that have automated some of their marketing processes with technology. When automation is the sole means of marketing, it often produces a rote, colorless marketing campaign following the same cookie-cutter checklist, regardless of hotel needs or goals. While these agencies, in many cases, may appear to be cheaper on the surface, their services come with a hidden cost. Specifically, overly automated campaigns often lack the customization and creative strategy that yield better performance.
Smart Budgeting for Digital Marketing
As the owners of a digital marketing agency, we oscillate between the highs and lows during budget season: the excitement of possibility and the angst of improper budgeting. We are always excited for what Blue Magnet can and will do for our current and future clients, but we cannot help but experience angst when our potential partners do not properly budget for digital marketing initiatives that will help them reach their goals. In turn, both the hotel and Blue Magnet fall short because we both miss a great opportunity to lower OTA dependence and focus on direct bookings.
We are going to be completely transparent in this post about how hotels should budget for their digital marketing in 2019. We want all hotels to consider the importance of proper budgeting for digital marketing, whether they work with Blue Magnet or work with any other agency. According to Johnson, “For hotels with independent websites, I would suggest 65% of a hotel’s marketing budget should be directed towards digital efforts and deployed against all channels.”
While all agencies charge differently for their services, the following guide offers you a rough idea of what you can expect to pay for various digital marketing services at a reputable agency. This is an honest look at the realistic costs of delivering best-in-class digital marketing services to hoteliers. There is a value to having a more creative, strategic approach to digital marketing, supported by the power and scalability of technology, and agencies charge accordingly.
First, let’s discuss value. What is the value of digital marketing to you? What is the ROI? Consider the following facts when evaluating the importance of your online presence:
- 60-65% of bookings are made online.
- Bookers spend an average of 53 days visiting 28 different sites over a period of 76 online sessions.
- More than 50% of bookers/ travelers use social media for travel tips & information.
- On Google, travelers conduct hundreds of searches, visit hundreds of websites and view thousands of images and videos just in the course of deciding where to go and what to book.
- Over 69% of travelers use a search engine to plan their trip.
The above data is just the tip of the iceberg regarding online trends and statistics. Your online presence clearly has the power to influence consumer behavior.
A Sample Digital Marketing Budget for a Hotel
Hypothetically, say you manage a 125-room hotel in a primary or secondary market. Your total annual revenue is $4.2 million and boasts a 75% occupancy with an average daily rate of $125. Let’s say 65% of that revenue is coming through your online channels. Of the 65% of revenue booked online, let’s say 30% of that is booking directly on your website and the remaining 70% is booked via Online Travel Agencies (OTAs). Here is how it breaks down:
- 65% of annual revenue via online channels = $2,730,000
- 70% of online revenue via OTA’s only = $1,911,000
- 30% of online revenue booked direct only = $819,000
Based on the 70% of revenue coming from the OTAs ($1,911,000), you would pay a 20% commission on that revenue, or $382,200.
Making the Investment in Digital Marketing Services
You decide to invest in digital marketing services to drive consumers to book directly on your website. Those initiatives have the potential to increase direct bookings from 30% to 50%. Consequently, OTA dependency decreases to 50%. Therefore, your total online bookings are now split as follows:
- 50% of online revenue via OTA’s = $1,365,000
- 50% of online revenue booked direct = $1,365,000
The commission you save by lowering OTA bookings from 70% to 50% is $109,180. That’s great, but remember there was a marketing cost to increase those direct bookings from 30% to 50%? Roughly, assume the following digital marketing investment to achieve those results:
- Website Management, SEO & Paid Search Management = $30,000
- Paid Search Media Spend = $60,000
- Total Annual Digital Marketing Costs = $90,000
That means that over the course of a year your hotel would yield the following results:
- OTA commission savings = $109,180
- Cost of Digital Marketing = $90,000
- Net Profit = $19,180
The net was $19,180. That figure may not make your head spin, but remember this is only one year of marketing. What is the long-term value over 5 years?
Year 2 – 40% OTA, 60% Direct
- OTA Commission – $218,400
- Net Profit – $73,800
Year 3 – 30% OTA, 70% Direct
- OTA Commission – $163,800
- Net Profit – $128,400
Year 4 – 25% OTA, 75% Direct
- OTA Commission – $136,500
- Net Profit – $155,700
Year 5 – 20% OTA, 80% Direct
- OTA Commission – $109,200
- Net Profit – $183,000
And this does not even factor in occupancy or ADR increases.
Chris Johnson understands the importance of this investment for Fillmore Hospitality, noting, “I have seen countless budgets cut spending trying to hit a flow, not realizing that pulling back these efforts delivers a lower return as we surrender our efforts to the third-party sites.”
Incremental Growth of Revenue
Not only will your incremental revenue grow larger each year from investing in direct-booking digital marketing initiatives, but your property will also retain critical information from your guests (eg, email addresses and other personal information) which the OTAs do not release to hoteliers. Your hotel will hold the relationship with your valued guest in the long term as opposed to the OTAs. Therefore, diverting bookings to OTAs is a short-term strategy. You gain bookings but sacrifice revenue. Investing in digital marketing efforts to increase direct-bookings generates more revenue in the long run.
The following are some of the most important digital channels to consider in your hotel’s 2019 marketing budget. This is not an exhaustive list – there are other components to digital marketing we are not covering in this article, such as reputation management, targeted promotions, blog marketing, website technologies and more. Instead, we chose to focus on the more critical areas of digital marketing that pertains to the majority of hotels.
Website Design & Development
Think of your website as a capital investment–an asset that depreciates over time. Washing machines, carpets, and furniture are usually depreciated over 5 to 7 years. Your website also loses value over time. Not from wear and tear but as design concepts evolve and new technologies are introduced. You may already know your website’s dated design is due for an overhaul. If your current site design is at least 3 years old, consider budgeting for this item in 2019.
Budgeting to Refresh the Design of Your Website
A redesign does not mean you are creating a completely new website. Think of it like a house. The framing of your house will remain intact, but the part of the house people see, like the siding, the paint, and the trim, will be updated. The same is true for a website, the backend structure of the site remains more or less intact; however, the design we see on each page will be updated to look different. These changes can include font styles, color schemes, layout changes, and of course the images used.
Budget: If you are redesigning, consider $2,000-$5,000 for a design refresh.
Budgeting to Build a New Website
When you finally decide to invest in a brand new site, note the content management system (CMS) upon which your site is built.There are two types of platforms on which to build a website: a proprietary CMS or an open-source CMS (you may be familiar with WordPress, which is open source). Each have their pros and cons. Some agencies build their hotel website on proprietary CMSs and some build on open-source CMSs. Be sure to ask the agency how they build your hotel website.
If the CMS is proprietary, think long and hard about this decision. In most cases, if you ever wish to discontinue services with that agency, you will not be able to take your website with you. The cost of ending the relationship is building and hosting a brand new website. This is not the case with websites built on open-source platforms, which can be moved to most any agency. You can look at it like this: a website built on a proprietary CMS is like leasing your site and a website built on an open source CMS means you will own your website.
Budget: If you are looking to build a brand new site with new professionally written copy and solid initial SEO, budget a minimum of $10,000. The budget increases from there the more fancy bells and whistles you wish to have integrated into the site.
Ongoing Website Maintenance, Management & Hosting
The safest, cleanest, most efficient car is the one that is regularly maintained. Your website is no different. A website needs monitoring and maintenance to make sure it is running optimally. If site speed slows, your SEO will suffer. If security vulnerabilities are not monitored and maintained, your site can be hacked. Forgoing maintenance on a newly built website is failing to take proper care of your most valuable digital asset.
Ongoing Search Engine Optimization
Surprisingly, there is an old myth saying a website only needs to be optimized once for organic search. Propagators of this myth claim websites require only an initial optimization and then rarely need to be optimized again.
This is bunk. First, Google makes over 500 changes to their ranking algorithm each year. Second, your competitors are most certainly investing in ongoing SEO services to drive traffic to their sites. Third, never neglect a channel that serves as the travel planning launchpad for over 50% of hotel guests. When you consider all of that, there is no effective way to take a one-and-done approach to SEO.
Fortunately, there are many different ways SEO can be executed based on your business’s unique goals and objectives. For example, Blue Magnet has three to four different variations of SEO packages depending on a hotel’s objectives.
At a minimum, hotels should conduct a bi-annual SEO audit, analysis, and implementation or clean-up. This is a base level service simply maintaining a foundation for a website’s organic presence. It scrapes the barnacles off the ship, keeping the website sailing smoothing and preventing it from sinking into the murky depths of the search engine rankings, but does not improve the site beyond its initial potential.
On the other hand, if the hotel’s objective is to aggressively increase the performance of the existing web pages, as well as drive incremental traffic and revenue through the creation of new content, a more advanced level of SEO service would be required. As you would expect, the cost can vary fairly significantly depending on the scope and aggressiveness of the SEO services desired.Therefore, when an agency has only one SEO package, make sure the SEO service they are offering will meet your objectives.
Social Media Marketing
To clarify, we are not talking about paid social; rather, this is a the cost for an agency to manage the organic marketing on various social media channels (Facebook, Instagram, Twitter, etc). This means: managing and optimizing social media profiles, creating compelling content/posts 3-5+ times a week, engaging with your social media followers, managing the reputation on these channels, and much more.
Hoteliers often feel that the cost is high for such a service. If your agency fails to produce engaging copy for your social posts or it posts the same exact content across all social channels, then we would agree that hoteliers should not pay a lot for that service; however, if you want to show measurable results based on your specific objectives for your social media campaign, there is much greater value in that service, and consequently, much more time involved for the agency to properly execute those services.
Budget: $500-$2,500/mo (Based on how many social channels are being managed, the amount of content being published per week, and additional services such as paid advertising or reputation management.)
Even though there are other paid advertising channels that should be considered as part of your marketing mix, such as meta-search, display, OTA ads, and others, in this section we focus solely on Paid Search (eg, Google Ads, Bing Ads, etc).
The amount a hotel should budget for media spend is always contingent on the competitiveness of its market and the objectives of the campaign. The budget is also dependent upon how effectively the agency manages your campaign. The greater your digital marketing agency’s competency in managing the campaign, the lower your Cost-Per-Click (CPC) will be.
Targeting the Entire Funnel
Blue Magnet’s philosophy has always been to use Paid Search to cover the entire booking funnel and our campaigns are designed to follow users throughout their travel planning journey. This keeps our partners relevant to their customers at the three main phase of the sales funnel: 1) creating awareness about the business, 2) prompting consideration of the product, and 3) encouraging action in the form of a purchase.
We create prospective campaigns (top of funnel) in order to create awareness of the product, even if these campaigns do not traditionally experience high ROI. Other campaigns then complement this by targeting searchers in the consideration phase, pulling the booker further down the funnel.
Our final campaigns take the searcher to the action phase, ideally converting them to a paying customer. To cover the entire sales funnel you have to be darn good at maximizing the media spend budget.
In conclusion, if an agency is effectively running a top- to bottom-of-the-funnel campaign, you may see an ROI on paid search as low as 2:1. We would suggest that an agency is doing a good job at a 7:1 ROI.
Media Spend Budget: In general, the following is a good place to start as long as you keep in mind there are many factors affecting these numbers like property size, competition, market, and destination:
- Small destination (secondary or tertiary markets): $2,000-$3,000+/mo
- Larger destinations or airport properties: $3,000-$5,000+/mo
- Major/primary Market: $5,000-$7,000+/mo
Agency Management Fees on Paid Advertising (Paid Search): this can vary widely. Today these fees are typically based on a percentage of the media spend. Depending on your budget and agency, you can expect to these fees to be anywhere from 15% – 50% of your media spend to go towards paid search management fees.
In 2019, do not shortchange your opportunities when it comes to digital marketing. Make sure you have a well-integrated digital marketing presence by focusing efforts within each important channel that is contributing to the consumers’ booking journey.
There are many digital marketing channels available to businesses. While one need not participate in every opportunity in order to foster a productive online presence, it is important to select the most important channels to reach the identified goals and focus time and money on making those efforts produce the results you seek. “It’s all about creating the best possible experience from the top of the booking funnel, through conversion, to the property experience and beyond,” states Johnson. “It includes web, mobile, social media, paid, and organic efforts.”
You are not alone in understanding all these elements of digital marketing and how they will work to bring results to your hotel. Contact us and we can schedule a quick phone call to go over your budget needs. We can go through the goals for your hotel and help you determine the right marketing mix to help you achieve those goals, even if it means guiding you to a different agency or service. It is more important you feel confident you have the right marketing for your hotel’s ongoing success.