Industry NewsRevenue Acquisition Costs Outpaced Hotel Revenue Growth

Revenue Acquisition Costs Outpaced Hotel Revenue Growth

BOSTON—Officials of the Hospitality Asset Managers Association (HAMA) today announced the results of a multi-year study that demonstrates that revenue acquisition costs outpaced hotel revenue growth from 2009 through 2012. The results were presented in “The Rising Costs of Customer Acquisition,” a white paper commissioned in late 2013.

The white paper addresses an analysis of the financial results of 104 upper upscale and luxury managed hotels with brand affiliations in the United States and Canada. It specifically looks at both the external costs of brand allocations (for marketing, advertising, major promotions, national and global sales offices, and loyalty programs) and third-party commissions (for group and transient bookings), as well as the internal costs of marketing and sales programs, including local marketing, sales staffing, and other expenses, including reservations staff.

From 2009 to 2012, the room revenue of this group increased by 23 percent, almost 7 percent compounded annually. The cost of customer acquisition from 2009 through 2012 grew almost as quickly as revenue, at just under 23 percent.

While total customer acquisition costs rose by 23 percent, brand allocations grew by 37 percent and third-party commissions by 34 percent, while local property marketing (including property specific Internet and paid search) increased by only 6 percent, or less than 2 percent per year.

As a result of the disproportionate growth of external marketing and sales costs, properties now control less of their marketing spend (44 percent versus 49 percent in 2009).

For the top 10 brands included in this study, cost increases during the three years ranged from a low of 10 percent to a high of 72 percent.

Room revenue of franchised properties grew by just under 22 percent during the 2009-2012 time frame, but their total acquisition costs rose by almost 27 percent, driven by increases in commissions of 48 percent and brand allocations of 36 percent and mitigated by on-property spend of only 15 percent.

“The travel industry has been undergoing enormous changes over the past 10 years driven by a combination of technology, a global recession, and the changing nature of global business,” said study author Frank Camacho, a senior travel industry executive and consultant. “Owners should be examining the long term relationships they have to ensure that they still produce economic benefits. If not, they need to consider this when choosing partners and negotiating new agreements.

“Implicit in the findings of this study is the conclusion that channel mix has a substantial impact both on revenue growth and its profitability. If rising brand costs are unavoidable in the near term, then effective channel optimization becomes even more critical,” Camacho added.