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Hotel Pay-Per-Click Advertising: 
You Do the Math
by Keith Paulin, October 2006

The saying goes something like “A fool and his money are soon parted…” and buying pay-per-click advertising without doing your math homework can quickly have hoteliers sharing the same fate.

Pay-per-click advertising (those “Sponsor Results”, “Sponsored Links” or “Sponsored Sites” above and to the right of the organic or natural search results on the major Search Engines) has to be one of the smartest money-making ventures of all time. Advertisers bid against each other in a frenzied auction environment, competing to appear higher up the list of ads that accompany the natural search results.

As of today, to appear at the very top of the page in the Sponsored Links in the UK for “London Hotel” will cost you over GBP1.30 per click; in the US over $3.00 for “New York hotel”; in Australia more than $2.60 for “Sydney hotel” and in France more than EURO1.40 for the search term “Paris hotel”…that’s per-click…it costs you nothing to show your ad but the moment someone clicks on the ad and is routed to your web site, the meter clicks over one more time and takes another little nibble from your credit card balance.

Developed by the really smart guys at the Search Engines, the pay-per-click auction environment encourages the great majority of inexperienced users to bid up the cost per click somewhere north of Vladivostok…which it was probably designed to do. In the hotel arena, these inexperienced bidders are probably the same people who measure their performance in terms of ARR rather than RevPAR.

Still, it’s only a couple of bucks isn’t it? Well, based on data that indicates that the majority of hotel web sites convert less than 2.0% of clicks that go through to the site, at $2.00 per click, it just cost you more than $100.00 to convert that sale! 

Given the prices being bid per click at the moment, it appears that few hotel managers and marketers are doing that math, so we have prepared the “Hotel Marketing Workshop Pay-Per-Click Calculator”. You will be able to quickly and simply work out in advance, exactly what the maximum cost per click you ought to be paying based on your Average Online Room Rate, Average Online Length of Stay, Percentage Marketing Investment Per Sale and Estimated Conversion Rate.

Using this simple tool (it’s just a spreadsheet and some basic formulas), you will be able to choose what level of investment per click will give you a reasonable Return On Investment (ROI). And may prevent you from pouring your scarce marketing dollars down the porcelain through over-expensive clicks through to your web site. You can download it here or visit www.hotelmarketingworkshop.com and follow the links to this article and download it from there.

Now for that math lesson…let’s say you run a mid-scale inner-city hotel and your Average Online Room Rate is $200 and Average Online Length of Stay is 2 nights. You Revenue Per Online Sale is therefore $400. Now, before your eyes glaze over, it’s not much more complex, just keep following the bouncing ball a bit longer. 

Most hotels allocate somewhere between 3.0-7.0% of revenues to marketing expenses, so let’s keep it simple and say that you would normally spend 5.0% of your $400 revenue on marketing costs ie $20.00. Your web site converts 2.0% of visitors to sales (1 in 50 – sad isn’t it but that is the average conversion rate and yours may well be lower) which means that you should only spend a maximum of $0.40 per click on pay-per-click ($20.00 x 2.0% = $0.40)…not much is it? $0.40 will get you on about page seven in most markets for high volume keywords. Maybe your bookings for next month are looking a little soft so you are prepared to up your Percentage Marketing Spend to 10.0% of Revenue Per Online Sale or $40.00; that still means a maximum cost per click of $0.80 to give you a modest ROI.

So, why in the name of Conrad Hilton is the price bid today for the key phrase “your destination hotel” up to $3.00 per click on Yahoo Search Marketing and even higher on Google?

If you “reverse engineer” the math, at $3.00 per click with a 2.0% conversion rate and a 5.0% marketing investment and a 2 night stay, your hotel would need to be achieving an Online ARR of…wait for it…$1500.00 per night; perhaps in parts of Saudi Arabia that may be achievable but seldom in downtown anywhere else.

And the Search Engines are smiling all the way to the bank…even at a 5.0% conversion rate and 10.0% marketing investment that’s $300.00 per night; a not unheard of ARR, but 5.0% web site nett conversion rates and a 10.0% marketing investment are rarified numbers indeed for many hoteliers and their web sites.

So, what can you do to make PPC work for you? It’s all there in the formula:

  • research keywords that aren’t so actively competed for that are still relevant for your target audience and bid on those – less volume yes, but a much more reasonable cost per click
  • extend your key phrases that you bid on to three or four words “downtown boutique your destination hotel” as these phrases are again not so actively competed for
  • select and implement the very best Web Booking Engine you can find to make that final step to conversion as user-friendly as possible
  • increase your Revenue Per Online Sale by either increasing online rates or encouraging longer stays
  • find and be prepared to pay a professional to manage your pay-per-click investment with the skills to maximise click through rates and the lowest cost per click
  • call Hotel Marketing Workshop to help you increase your conversion rate through a better web site experience (oops…that darn commercial keeps sneaking in)
  • OR you could just keep bidding up the cost per click like everyone else and slowly go broke while the Search Engines keep charging your credit card
At Hotel Marketing Workshop we don’t actually manage pay-per-click advertising for clients; there’s nothing wrong with PPC when well-managed but we just prefer to do what we do best…developing and designing great web sites that maximise the conversion of visitors (from whatever source – PPC, Search Engine Optimisation, referrals from inbound links, online and offline ad campaigns) to online revenues.

And we are happy to help you find and select a PPC advisor as part of your overall hotel internet marketing strategy and work with them to maximise your online revenues…and we’re OK at the math too!

Keith Paulin is the General Manager of Hotel Marketing Workshop (www.hotelmarketingworkshop.com).  Keith has worked in senior marketing roles within the hotel industry (Hilton, Regent, Hyatt, Accor) and in other industries (HP, Lion Nathan, Shell) and holds degrees in Marketing and Business Management. Hotel Marketing Workshop works with chain and independent hotels, large and small, delivering tactical, practical hotel internet marketing strategies that work and then assist with expert implementation. Keith has a deep interest in the world of e-commerce, Search Engine Optimisation and Search Engine Marketing and a clear track record in producing growth in RevPOV (Revenue Per Online Visit) for hotel clients. 

© 2006 - This article may be reproduced in entirety without prior permission provided the author bio and a link to www.hotelmarketingworkshop.com with the Anchor Text "Hotel Marketing Workshop" is included.

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Contact:

Keith Paulin 
General Manager 
Hotel Marketing Workshop
Level 9, 123 Epping Road
North Ryde    NSW   2113
Sydney, Australia 

E: contact@hmworkshop.com
V: 61 (0)2 9882 1644 
F: 61 (0)2 8875 7878
W: www.hotelmarketingworkshop.com

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Also See: Hotel Web Sites: Building More Inbound Links to Your Hotel Web Site from Other Web Sites / Keith Paulin / July 2006


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