Hotel Pay-Per-Click Advertising: You do the math…

Search Engine Marketing (SEM) for your hotel

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 the cost per click somewhere north of Vladivostok…which it was probably designed to do. In the hotel arena, these inexperienced users 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 Internet Marketing 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.

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 10.0% marketing investment are rarified numbers indeed for many hoteliers.

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 bid for that are still relevant for your target audience
  • extend your key phrases to three or four words “downtown boutique your destination hotel” as these phrases are again not so actively bid 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 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!

About Keith Paulin

When not trying in vain to improve his golf handicap, Keith leads the team at iiWorks, a specialist company providing Digital Marketing Strategy Services for clients ranging from small business to national and international companies.
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