No cost digital marketing in return for a % share of confirmed bookings - what every hotel needs to know about commission only marketing services.
We see Hotels more and more being sold into digital marketing services that have no upfront costs and work on a commission model. It’s very appealing too, as online marketing suffers from being difficult to understand, largely technical and therefore seemingly surrounded with smoke and mirrors.
Therefore, a digital marketing service where you are charged a %fee only when a booking is made, seems to solve many problems.
Unfortunately, when we at Internet Affected look inside many of these services what we see are hotels being charged % commissions on business that frankly they could have owned themselves at a fraction of the cost.
Even if the setting up of these services might be easy and hassle-free, if you are a hotel using them, we invite you to read on, as this post may be an eye-opener.
If instead, you are a hotel that is currently thinking about switching over to this type of service, this post will put you in a much sounder negotiating position ahead of any final contract signature.
At Internet Affected we provide hotels with a much more cost-efficient service compared to these commission based providers, that can deliver revenue at a fraction of the cost, while strengthening the hotel’s brand and longer-term traffic growth.
FIRST - THE SALES PITCH
Familiarity is always reassuring, so when a hotel is offered a commission package for Digital Marketing service provision, it resonates with an historic billing model: Online Travel Agents (OTAs) have been charging hotels this way for almost two decades.
The sales pitch for starting a commission-based service, might go like this:
Hotel: “So, how much does this solution cost to setup?”
Salesperson: “Nothing, we manage all your digital marketing, and you pay us a flat commission based on bookings and that’s it.”Hotel: “So you take care of everything? What do we need to do to start?”
Salesperson: “Very little, just add a small piece of JavaScript to your website and then you are all set to go.”Hotel: “How can I see the bookings?”
Salesperson: “When bookings arrive, you will be able to see them in your own online dedicated online control panel”
The service gets underway and immediately bookings start flying in from the campaigns!
However, in a commission service format, as soon as bookings arrives so to do the commission payments for the use of the service. If you are currently using such services, have the Revenue Management teams carried out analysis to see whether or not your hotel is actually getting more sales volume, or that sales volumes are more or less the same, with an increase in the cost of acquiring the bookings due to the commission charges you need to deduct from them?
THE ROLE OF CONVERSION ATTRIBUTION
How a company, whether Facebook, Google or your own commission-based Supplier, tells you that the campaigns they running are responsible for delivering revenue, is all tied up in what’s called conversion attribution.
We think it’s crucial for hotels to be clear about the role conversion attribution plays, because it can be the difference between owning a room booking directly, and owning that same booking, while having to pay out a commission when made.
Here are three questions that we think every hotel should be asking any Supplier providing a commission-based marketing service.
Our hope is that this can help hotels request better digital marketing measurement, reconsider existing agreements with commission-based Suppliers, and ultimately give consideration to an Internet Affected management service, that we know offers better performing cost efficiency metrics.
THE THREE FUNDAMENTAL QUESTIONS HOTELS SHOULD BE ASKING
Q1) HOW CAN WE VERIFY THAT BOOKINGS BEING DELIVERED THROUGH A COMMISSION-BASED DIGITAL SERVICE ARE TRULY THEIRS: CAN WE TRUST THEM?
Digital Marketing service terms and conditions can require an extremely specialised skill-set to be fully understood. The know-how required to de-tangle the impact of the fine-print around terms detailing conversion attribution, and the use of your hotel brand as part of marketing campaigns in Google search, is generally beyond the reasonable realms of an in-house marketing team, but also booking engines, (yes, they get offered these services too!).
Yet these are the clauses that need the most attention: We will now see why.
There are two main ways to measure the success of a marketing campaign (we’ll focus on revenue) and, for the most part, this is tied up in the attribution models that are being used to measure a campaigns success.
Whether it’s Google, Facebook or a commission-based Supplier, everyone wants to say the same thing: Your hotel booking happened because of us (…and so please invest more).
The ways advertising platforms tell you this (communicating their value) depends on a number of factors, but chief amongst them is the attribution model used for the campaign. Some further explanation of attribution models is needed to as the devil is in the detail.
ATTRIBUTION MODEL 1: Click-through conversion model
The click-through conversion model is best understood as follows: a person either, visits Google and clicks on an advert for your hotel, or their favourite news website and is shown an advertising banner – For example “Book our hotel it’s the best!” in a nice graphic. In either case let’s say the person clicks-through and then goes on to make a booking for a room.
With the click-through conversion model, because the advert was clicked, Google Analytics (or any other statistics tool being used) can register that click and is then able to associate any revenue to the campaign (determining whether this was an advertising banner, Google search or social media campaign).
This model of attributing revenue or the campaigns value is easy to follow, as it fits with most people’s understanding of how online advertising works.
ATTRIBUTION MODEL 2: View through conversion model
By contrast the view-through conversion model removes the need for the user to click on the advert, instead two factors are used to determine the conversion:
1) the person simply views the advert and;
2) a time-decay (conversion window/attribution window) is used to determine whether a booking was made because of this type of campaign.
Did that sound confusing? It’s quite abstract,. so let’s revisit it with an example:
A person sees your advert on a web-page and then within a set period of time they visit your website and make a booking. Depending on the conversion window length set for the view-through conversions (1 day, 7 days, or even 30 days!), even though the person didn’t click on your advert, the campaign still gets attributed with the revenue as though they clicked through, because simply viewing the advert holds the same value.
Unlike human beings’, digital systems are able to measure 1000s of data points on a single web page - think about a web-page full of advertising and all those codes firing. It makes no difference whether there are 10 or 10,000 adverts, the digital systems will record everything. However, for us mortal humans it’s not quite so easy: think about the last time you visited a website, did you see and take on board the content and meaning of every single advert on that page? It’s highly unlikely.However, with the view-through conversion model running in a campaign, the assumption is that you’ve seen everything on that web-page.
That’s like assuming that a person standing in Times Square (New York), or even Piccadilly Circus (London) sees every single advert that was shown on every single billboard, and that it was because of these advertisements that at some point in the future a booking or purchase was made. This view-through window is usually defined in length by 1 day, 7 days or even as much as 30 days! It will be deep down in the contract detail.
If a commission-based Supplier is able to charge commissions to hotels using a view-through conversion model, there is then a shift in focus on what is important for those campaigns to work: it becomes more important to place adverts on website where people are most likely to visit, because only a view, and not a click, earns the campaign attribution. Clicking ads is no longer important!
At this point, it might look like we are out to bash the view-through conversion model, but it’s only because we can see it leads to poorly designed advertisements (due to the focus shift and goal to drop a cookie to capture attribution) and results in hotel’s handing over commission payments for bookings that could have quite easily been delivered through a more traditional flat fee service, such as those we provide at Internet Affected!
For decades hotels have been charged commissions through 3rd party booking websites and we already help them take back this direct booking business, the last thing hotels want to see are more commission services being offered to them which represent the painful continuation of these OTA style commercial agreements.
There are some cases where view-through conversions can have value as part of the overall digital marketing mix, but if you are finding that it is just these campaigns (we will show you how to find these in Q2 below) that are capturing your bookings, then you should be asking exactly what time-decay (attribution window) is being applied to the view-through conversion model campaigns they are running for you.Shorten it to 24-hours and it will reduce the size of your commission payments overnight!
With over 10 years managing campaigns for hotels, we think a 24-hour view-through attribution window, managed carefully inside a transparent conversion funnel is reasonable for hotels wishing to drive direct bookings.
When that view-through conversion extends beyond 24-hours, for us it starts to raise eyebrows in the office, and anything longer than 48-hours is probably indefensible, and should be questioned and justified by a Supplier.
Q2) HOW CAN WE AUDIT OUR CAMPAIGNS & ASSESS WHETHER OUR HOTEL IS AT RISK?
Because Google Analytics nearly always needs a physical click to measure a conversion it is practically impossible that you will see any view-through conversion data in your web statistics. Therefore any view through conversion data will have to be measured using a separate online system – which for us, as it might for any business owner, should start to sound a few warning bells!
Even if view-through conversions don’t get registered in Google Analytics, that doesn’t mean a hotel is without ways to anlayse the impact they might be having. Google Analytics will always store the last clicked website (traffic channel) that delivered a booking. It’s not information that Google Analytics shows by default, but it can be found easily.
What we recommend you do first is take a sample of 10-15 transaction IDs that are being provided to you as part of the report for commission payments due to your Supplier for their campaign management.
Then ask your in-house Digital Marketing Manager to look in Google Analytics in the section Conversions, then E-commerce, and then drill down to the Sales Performance report where a list of transaction IDs is also shown (usually Transactions, although this may be slightly different depending on how your Booking Engine has configured your reporting).
This report will allow you to match the Transaction IDs in your Supplier report, with the last clicked channel that Google considers to be responsible for the purchase.
You can see this extra information by selecting the Secondary Dimension option and “Source / Medium” filter. Google Analytics will then add a column to the transaction report that shows the last clicked channel.
Why this is important is that you might discover that the bookings you are getting are actually being delivered due to marketing campaigns you are running in-house, for example a Facebook campaign, or a newsletter campaign. That means you might actually be paying commissions to a commission-based Supplier for a marketing activity you are paying for from your hotels own in-house marketing budget!
This is why setting a very short view-through conversion window (24 hours) is crucial, otherwise a hotel may see these view-through campaigns starting to own revenue across other online traffic sources and campaigns!
The above steps are an easy exercise for hotels to carry out in-house, to help them frame the value view-through based campaigns might or might not be bringing, and steps to take to correct them.
Q3) IS MY HOTEL GIVING AWAY EASY BOOKING REVENUE THAT WAS PROBABLY MINE TO BEGIN WITH?
The simple answer is yes, there is an extremely high probability of this. When hotels are asked to add JavaScript codes to their web-pages, generally all visitors to the hotel website are then tagged as part of future marketing activities (such as omni-channel display re-marketing, Google search ads etc). This will also include your existing customers! This is why when we setup our campaigns for our hotels, we are only looking to convert very specific guest segments. For example, people that have started but not finished the booking process.
Consider this scenario:
A brand loyal hotel guest visits your hotel because they are thinking of coming to celebrate New Year. They have already stayed your hotel in the past. They visit your website to see the Christmas offers and then leave.
During their visit they are tagged (by the JavaScript code) and identified as a potential prospect for future advertising. They are then followed around the web endlessly with adverts asking them to convert (it’s important to remember that they don’t necessarily have to click the ad, just viewing wins the campaign attribution) and as the economic driving force for these campaigns is commission based, you can be sure that those adverts will be being shown 100s of times.
At a future time, that person then comes back and books. Depending on the view-through attribution time-decay in your contract, you may end up being charged a commission on that booking, when in reality your hotel owned that guest and it was only a matter of time before they would have come back and booked anyway.
At Internet Affected our omni-channel paid marketing services are charged using a flat-fee model irrespective of the revenue they deliver. When we sum our management fees and the hotel’s media spend and compare with overall revenue delivered, Internet Affected management works out costing hotels between 4% and 10%. Commission-based services are usually set at around 15% on received bookings. But remember, we’re only converting business that your hotel can’t, not your existing guests!
That means on €500,000 of direct booking annual revenue, it is the difference between a hotel paying a commissions-based Supplier €75,000 versus between €20,000 and €50,000 using an Internet Affected management service.
That’s a saving of between 25K to 55K of revenue that your hotel could be investing elsewhere, such as making your website convert guests more effectively during their visit.
THE BIG TAKE-AWAY
At Internet Affected we advise that hotels look very carefully at what is happening to the revenue being generated through these commission-based solutions. Revisiting Google Analytics prior to switching on these services can provide a healthy snapshot of how a hotels online revenue was distributed previously - have there been any large shifts in sales volume from the Direct channel into the commission-based channels (usually identified as Referral in Google Analytics), did anything else change? Has transaction volume truly increased year on year since switching over to a new service format?
At Internet Affected we have developed a range of Analytics filters that help us quickly understand these changes.
Managing the Digital Marketing landscape is something we are very proud of being able to do for our luxury hotels. For over a decade we have been providing technical analysis to help them avoid the pitfalls of signing up to services where they might literally be giving away revenues that they could themselves own, via yet another OTA commission formula.
If you are using a commission-based Supplier for driving your hotel revenue we hope this post provides you with some extra ways your teams can analyse the true value these services are bringing your property. If instead, you are on the verge of signing up, we hope this post de-tangles some of the technical terms you might find on those contracts.
At a time when we are all being made to look closely at what we are paying for, and ask the value it brings, we hope this analysis can help your hotels continue to survive and come out the other side of this health crisis stronger and better prepared for the future.
For over a decade Internet Affected has been helping luxury hotels to drive their direct room booking strategy as well as increasing inquiries for their meetings and events, F&B, weddings and Spa business segments too.
If you’d like to talk to us about the kind of services we can provide to your hotel, we would be delighted to speak with you. Our services can provide your hotel with a more cost-efficient and hotel tailored marketing solution expanding your online business.
Our real-time call scheduling function below makes it easy too - You can setup a call right now with meeting and access details sent automatically and adjusted for your local time-zone. We would be happy to provide you with any answers we can if you have some doubts about the service your hotel is currently using.
About the Author
Glyn Spencer Hopkins is the owner of Internet Affected and has been working exclusively with hotels for over a decade.
Internet Affected provides web marketing services tailored to the individual personalities of hotels; a complete range of digital services designed to help them take back ownership of their hotel brand from the OTAs. Specialized marketing solutions to increase guest loyalty, food & beverage bookings, events and wedding inquiries, clearly reported in straightforward language.
