Marketing communications budgets for independent hotels and resorts
Before we go any further, there's this: The budget process for independent hotels is generally different than it is for chains. A director of sales or sales and marketing at an independent usually deals with the GM and the owner. The process with a chain is often through some combination of owner, management company and brand in addition. We get that. This is for independents.
And everywhere we say "budget" in this document, we mean what you're going to spend. Not "budget" as in what you're expected to bring in.
Settling on a marketing communications budget for your property isn’t the easiest thing on earth to do.
Certainly the various players involved have different priorities. Some of them are based on spending as little as possible. And often, you're being asked to earn more while spending less. 'Twas (almost) ever thus. It's never going to be easy, but there are some things you can do to alleviate some of the pain and frustration.
The first thing to do is be very clear in your mind what your goals and expectations are – build occupancy, increase rate, a little bit of both or just maintain and not lose any ground?
If the last of these is your goal, budgeting is easy – spend pretty much what you spent last year, maybe taking into consideration a bit of inflation and price increases. But generally, standing still is the easiest and cheapest thing to do.
Assuming you want to move ahead in some way, the next thing to do is to start with a budget figure and determine the smartest way to spend it. Please do not start with a list of tactics (new website, e-mail program, PPC, advertising, public relations, etc.) choosing from an almost infinite list and assigning a cost to each one. We can almost guarantee that you'll end up with more "things" than you can afford. The better approach is to have a firm budget figure, spend it all and spend it wisely.
Sometimes this means you won't be able to do everything you have in mind. This is actually a good thing, because it will force you to evaluate and prioritize those efforts that will bring you the best return toward your goals. If your goals are aggressive, but aren't willing to apply aggressive resources to them, well then, the whole budgeting exercise can seem a bit pointless. The point of determining a budget it to develop a tool with which you can accomplish something.
In any case, once you work out what your priorities are and the best places to apply your budget, whatever it is, then you might want to take a look and see if what you are able to do with your available resources lines up with your goals and expectations. If so, good on you. If not, it's time to go back and re-think one or the other.
That's pretty much the process – 1) settle on goals and expectations, 2) start with a budget to reach them and 3) apply it in the smartest way you can.
Figuring out the budget
So let's get to how we think you should actually figure your budget.
(Note: We've developed a simple Excel budget worksheet that should help you direct your thinking and play around with different scenarios. It should also give you a running start on a marketing strategy, because it can help you decide what combination of ADR and occupancy will get you to whatever finish line you have identified. Get it here.
Obviously – well maybe not obviously, but it certainly seems right to us – your marketing communications budget ought to be a percentage of your revenue. And, while it's fairly easy to determine your revenue and your revenue goal (you know this - room nights times occupancy times ADR) coming up with that proper percentage to apply to marketing communications can be a little dicey, mostly because so many things go into the computation. Like:
How many rooms do you have to share the cost burden?
What sort of revenue comes from things like F&B or a spa?
What's your current occupancy? And what's your goal?
What's your current ADR? And what's your goal?
Should you base your budget on current figures or goal figures?
What's the competition like?
Are you a new property?
Are you renovating this year or next?
Has something significant changed that has altered your competitive circumstances?
Not to mention the large number of moving pieces that go into a marketing budget and plan. We could probably go on for a while. But we won't.
We usually start with between 2% and 5% of revenue. And to be honest, 2% is pretty much a stand-still level. There is a floor amount that you're going to need to spend to reach your goals regardless of your revenue. Things cost what things cost. A 100-room property, for example, with an ADR of just $125 and an occupancy of only 75% ($3.4 million in annual revenue) is looking at $68,000 and change at just to stand still.
A budget of 3% is going to work harder. We don't think it's wise to automatically default to the lowest level.
We know that if you're reading this, you're probably not certainly in the $125/night ADR category. That's just for illustration purposes with easy math.
How does this apply to me?
Generally, the smaller the property or the lower the ADR a property has, the larger the percentage of revenue it needs to spend. By the same token, a larger hotel or one with a much higher ADR can apply a smaller percentage of revenue to marketing communications.
And there is a legitimate discussion of whether the occupancy and ADR figures you use in your calculations ought to be your current figures or your target figures. We tend to come down on the side of your target figures (or apply a higher revenue percentage) if your goal is to grow at all. If it sounds a bit like asking you to invest in your goals, well then, that's because it is.
Again, download the worksheet here and play around with it for yourself.
This probably sounds to many of you very much like an agency pitching for a bigger ad spend. It's not. What it is, we hope, is some straight talk on how to figure out how much you ought to budget to grow or (if you insist) stay the same.
We said before, there are lots of considerations to a budget and lots of moving parts in a marketing plan. And sometimes, you need to apply a bit of common sense or gut feeling. But generally, there is a process you can follow that won't make you crazy and might help you get a budget that will adequately support your goals and meet your expectations.
We think this is it.
One last thought
For as long as we've been doing this stuff, we've seen companies again and again under-budget what they need to reach their goals. And then be disappointed with the results.
Whether you've invested in a new property or renovations, want to grow or re-brand yourself or even just drive up ADR or direct bookings, there simply is not a more cost-efficient tool at your disposal than advertising and marketing communications - in whatever form you choose to employ it.
You can pressure your sales force to do more or send e-mails to your list of current guests until the cows come home, but nothing will reach more potential new guests or deliver a reason for them to pay you a premium as cost-effectively as mass communications.
If you need a business-based argument to take to your CFO, that's it.
Don't overspend. But please don't under-budget, either.
You can download a printable PDF version of this here.