At Triometric, we often get into discussions about how to use the system and what returns the system can generate. It turns out that equating the investment in analytics directly to improvements in revenue can be, at least in a “back of the envelope” manner, very simply calculated for a hotel distributor.
Let’s assume we are an established, mid-sized hotel distributor with a significant proportion of directly contracted inventory augmented by some lower margin third party supply. The business statistics might look something like this:
The issue for the hotel distributor is all about converting searches and optimising the margin per booking.
Let’s talk about conversions first. A look-to-book ratio of 20,000:1 isn’t great and is bordering on too high. Whilst there are businesses out there running at 50,000:1 or worse the better setup businesses are less than 10,000:1 and the best will be significantly better than that. Whilst metasearch has fuelled an explosion in search traffic entering the underlying supply chain, the statistics above have so much room for improvement. Firstly the objective is to weed out the OTAs and other clients that are contributing to this shockingly high Look-to-Book number and seek to replace them with clients that aren’t diluting the business. This is about pushing revenue upward. Secondly, it’s time to get a handle on all the non-booking screen scrapers and shutdown their accounts – this is more about squeezing costs.
Turning to margins next, the opportunity is to understand what contribution gets made from each booking and how it can be improved. Our £100 per booking is based on a mix of direct vs. third party supply, stay durations, class of property, breakfast vs. full board and other ancillary revenues that could be added to the basic room rate. The business needs the information to understand how the booking price gets made up, what is being searched and of course what is being booked. How can the business optimise the margin? A discounted room at a directly contracted hotel provides more contribution to the business than a full price room via a third party supplier. It’s time to check the product fulfillment mix (direct vs. third party) in search responses. Can the marketers in the business offer better packages with meal plans, activities, extra nights, wi-fi etc? All of these are opportunities but the business needs the analytics to understand the current situation, devise improvements and then test and track them.
Its budgeting time. So what’s a reasonable investment in analytics? Let’s say the business just wanted to break even on an investment and improve revenues by 0.1% – yes just one tenth of a percent. That would give our business the right to invest some £91k per annum in analytics. That’s quite a decent budget. Let’s bet the returns are likely to be a lot better than 0.1% and even at 1% we could see a £910k – £91k = £819k improvement in profit for the business. Not bad?
The market leaders worked this out a long time ago.