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The Staggering Costs to Hotels Managing Leads in an e-RFP Explosion

By Tom Costello
September 2012

Today, e-RFP channels are enabling meeting and event planners to flood the market with a tsunami of “leads” that has left hotels struggling to keep up with the demand, according to an article published in Business Travel News.

“It’s broken,” said Hyatt Hotels Corporation senior Vice President of Sales, Jack Thorne. ”The whole thing got out of control almost overnight with us.”

The e-RFP explosion largely is a result of the growing popularity for the mechanisms offered by electronic lead channels such as Cvent and StarCite, the article goes on to state, and the use of those tools by meeting planners and site-selection third parties. Users of those tools have the option not only to ask more than 100 questions of a potential meeting site, but also to forward that request to dozens of venues. The result is a far higher number of leads for properties.

Hotels have few options in dealing with such an influx, said Dave Lutz, managing director of Velvet Chainsaw Consulting and former president of the event planning and registration division of meetings-management third-party Experient. “It’s a very inefficient model and it’s not sustainable,” he said during the Cvent conference.

Hyatt notes that the conversion rate is approximately two percent of meeting leads from the major e-channels as well as their own site, Hyatt.com. Hyatt also suggests that such converted leads comprise only six percent of Hyatt’s business but replying to them can take up hours of a salesperson’s day.

The cost to respond to leads and the associated cost per sale are staggering.

Lead Assumptions and Cost Analysis

I estimate that a hotel sales manager will spend approximately two-hours on each lead that they field, respond to, and monitor (this time estimate was also confirmed by other hotel sales managers who I have contacted).

If this is true, the following assumptions can be made.

Sales Manager’s annual salary – $50,000.00 (sales manager’s annual salary not including benefits and bonus based on 50 weeks).

Sales Manager’s hourly salary – $25.00 ($50,000.00/50 weeks/40 hours – FICA and benefits estimated to add an additional 30 percent to the base salary and could raise the hourly salary to $32.50.

Lead assumptions based upon 30 leads per day received by a hotel

  • 30 leads a day
  • 150 leads a week
  • 7,800 annual leads (based on 52 weeks)
  • $25.00 to $32.50 base hourly salary of a sales manager
  • $50.00 to $65.00 cost to hotel to respond, monitor, and track each lead (two hours per lead)
  • $390,000.00 to $507,000.00 total cost to a hotel to respond to all leads

If you are a hotel owner or GM, read on.

ROI Analysis Assumptions

Let’s assume, based upon the lead volume above, that a hotel will convert two percent of the leads received from e-channels as referenced above.

  • 30 leads a day
  • 150 leads a week
  • 7,800 annual leads (based on 52 weeks)
  • Average Daily Rate (ADR) of $150.00 per room per night
  • Average lead @ 60 peak guest rooms (30 guest rooms/2 nights)
  • Total guest room revenue per lead – $9,000.00 (60 nights @ $150.00)
  • 2 percent conversion rate of annual leads
  • 156 annual leads converted
  • Total guest room revenue from total converted leads – $1,404,000.00
  • Cost to a hotel to respond to leads – $390,000.00 to $507,000.00
  • Cost per sale to a hotel – 28 percent to 36 percent

I’d like to hear from you, on or off the record, to see what you think about these numbers and how they affect your hotel.

About the Author
Tom Costello is the CEO and Managing Director of iGroupAdvisors, a performance improvement consulting firm that specializes in the hospitality and travel verticals. Connect with him on LinkedIn, Facebook, and Twitter or contact him by email.

Contact:

Tom Costello
tom@groupsinternational.com


 
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Also See: 4 Email Fails That Sales Managers Must Avoid / Tom Costello / August 2012

How Hotel Owners and GMs can Change 'The Top 10 Reasons Why Hotels Underperform' - Part 2 / Tom Costello / June 2012

How Hotel Owners and GMs can Change 'The Top 10 Reasons Why Hotels Underperform' - Part 1 / Tom Costello / June 2012


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