2.5%
of room revenue is what many hotels spend on marketing, staff included
Hospitality Net World Panel
Most independent hotels set next year’s marketing budget the same way. Last year’s figure, a bit more if it was a good year, a bit less if it wasn’t.
Meanwhile the biggest marketing cost in the building doesn’t sit on the marketing line at all. It sits under distribution, quietly taking 15 to 25% of every room the OTAs sell.
The cost that isn’t on the marketing line
Commission is the price of winning a guest. It just doesn’t get called marketing. That makes the marketing budget look small and the OTA bill look like an unavoidable cost of doing business. Neither is quite true.
Hospitality Net’s panel of industry experts puts typical hotel marketing spend at under 2.5% of room revenue, staff included. Most of them argue an established hotel should be spending 4 to 6%, and a new or repositioned one a lot more. Their sharper point is that a percentage is a sanity check, not a strategy. Start from the gap you’re trying to close.
Start from the gap, not the percentage
The question isn’t how much you should spend on marketing. It’s how much of your OTA business you want to bring direct, and what that’s worth. Work that out and you know what you can afford to spend winning it.
Worked example
A 30-room hotel, on paper
Illustrative numbers. Plug in your own.
Take a 30-room independent with 70% occupancy and an average rate of £140. That’s roughly £1.07m in room revenue a year. If 60% of it comes through OTAs at 18% commission, the hotel is paying about £116,000 a year to be listed.
Move ten percentage points of that business to direct, from 60% down to 50%, and the commission saving is around £19,000 a year. A marketing budget at 2.5% of room revenue would be about £27,000. So a modest shift in channel mix is worth most of a year’s marketing budget again.
The money for direct bookings is already being spent. It’s just going to someone else.
What to put in it, in order
- The website and booking engine. Unglamorous, and first. If your own site is slower, clunkier or dearer than the OTA, every other pound you spend sends people there instead.
- Your own name in search. Plenty of guests already know which hotel they want and search for it by name. Make sure they land on your site, not an OTA listing above it. Metasearch and brand search are often the cheapest direct bookings you’ll buy.
- Past guests. Email to people who’ve already stayed costs almost nothing per booking. Most independents have years of guest data and send it nothing between stays.
- A reason to book direct. Rate parity means you usually can’t just be cheaper. You can offer something the OTA can’t. We’ve written about why a free breakfast isn’t it.
- Your need periods. Put PR and campaign spend against the shoulder months and the gaps in your calendar, not the weekends that sell themselves.
- Measurement. Track cost per direct booking against what the same booking would have cost in commission. Monthly, in a spreadsheet if that’s all you’ve got.
What gets cut first, and shouldn’t
When budgets get squeezed, the same three things tend to go first: guest email, photography and website upkeep. They’re the three that keep direct bookings coming in the year after. Cut the brochure reprint instead.
When to decide
Most independents set budgets between September and November. That’s the window to make the case to owners, with time left to get something in place for spring. If you need to prove it first, ask for a 90-day test with one clear measure: direct share, and cost per direct booking against commission.
The short version
Work out what the OTAs actually cost you, decide how much of that you want back, and budget to win it. Fix your own website and your own name in search first, look after past guests, and give people a real reason to book with you.
If you’d like a second pair of eyes on next year’s numbers, talk to us.
Want a hand?
Setting next year’s budget? Tell us your room count and how much comes through the OTAs, and we’ll show you what moving some of it direct could save.
GoodFolks works with independent hotels and hostels on exactly this: moving commission spend into direct bookings and measuring it properly. Here’s what we do for hotels, and why nobody books direct for a free breakfast.
