Marketing is not an exact science. In a time where omnichannel marketing reaches consumers across multiple channels, it may be hard to tell which of your efforts are actually contributing to your bottom line. In order to tell where your marketing efforts have been successful, you’ll need to calculate your Return on Investment (ROI).
ROI measures the amount of revenue from an investment relative to the investment’s initial cost. The ROI formula is as follows:
(Sales Growth – Marketing Cost) / Marketing Cost = ROI
Your hotel’s marketing strategy may involve multiple investments—but how do you make sure that each one is worth your time, money and effort? Calculating ROI on marketing efforts can be difficult—after all, it isn’t always easy to isolate which marketing campaign led to sales. Factors such as reputation management and word-of-mouth marketing can be near-impossible to measure but still contribute to the bottom line. That said, ROI calculations can be used as indicators of success and help illustrate where you should be focusing your efforts. Here are some key points to consider when calculating your ROI across different marketing efforts.
Step 1: Calculate Your Investment
To calculate the ROI on a marketing campaign, first you need to calculate your spending. This means looking at the amount of employee hours used, the cost of hiring outside agencies, consultants or freelancers and any money spent on additional tools and resources. Try to make this number as exact as possible.
Step 2: Calculate the Conversion Value
As mentioned, calculating an exact value for each marketing effort can be difficult. In some cases it will be simpler than others—for instance, if you’re offering a specific room deal for a limited amount of time through your online booking engine, you would calculate the average purchase price of this promotion. In most cases, there will be multiple fringe benefits to consider—such as brand visibility, online engagement and customer loyalty. While you can’t always put an exact value on these benefits, you should take into account that they may cause your ROI to be greater than the calculated number. In some areas, you will need to make strategic calculations:
Calculating Conversions from Geo-targeted Offers
Geo-targeting is the method of pinpointing a website user and delivering particular content or offers depending on their geographical location. Using tools such as Offerly, hotels can provide enticing offers customized by location to potential customers.
It is important to measure ROI on different geo-targeting marketing strategies. Some geo-targeting strategies are native to mobile platforms: for example, location-based targeting that provides smartphone users with promotions or ads based on their map and app usage. When calculating the conversion value on your geo-targeted offers, look at which methods are generating the most referral traffic. Rather than group these geo-targeted efforts into one calculation, be sure to calculate mobile, web and app-specific offers separately to figure out where you should be directing future efforts.
Calculating Conversions from Online Promotions
The cost of online promotions will of course differ depending on the campaign, but can include creative costs, technical costs (such as website coding), strategic planning and management time. Measuring the ROI for your hotel’s online promotions can help identify successes and cut down future costs by focusing on the most effective promotions. The best way to calculate ROI across online promotions is to do A/B Testing, which is a method of comparing two things (an email, ad or campaign) against each other to see which performs better. By showing the A version of the promotion to some potential guests and the B version to others, you will be able to track which efforts are most successful. While results won’t be exact, A/B Testing can help you hone in on what type of branding, content or deals lead to the highest ROI.
Calculating Conversions From Your Online Booking Engine
Is your Online Booking Engine effective? One way to measure the conversions from your OBE is to compare how many bookings are made directly on site and how many are made through third-party Online Travel Agents (OTAs). While there are many factors that motivate customers to book directly on-site—such as the quality of your loyalty program—comparing direct and indirect web bookings can help indicate the overall quality of your website. Consider measuring direct bookings before and after changes to your online booking engine to ensure you are addressing common OBE errors.
Step 3: Measuring Your Success
By examining these areas separately, you should start to get an idea of where your marketing strategies are successful. Be sure to consider things like how much profit you’re gaining off of organic traffic versus referral traffic, and how your conversions relate back to the goals you set out at the beginning of each strategy. While calculating your ROI may not provide exact figures, you can glean a lot of important information on the success of your marketing efforts—and learn which strategies are driving your occupancy overall.
Need help calculating the ROI on your marketing efforts? RoomKey PMS has released an ROI calculator that can help you track your hotel’s profitability.
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