How much should a tourism business spend on marketing?

Category: Marketing

When researching what budget your business should set for marketing, you’ll find a lot of figures and suggestions out there.

One of the most common rules of thumb is that your marketing budget should be 10% of your yearly revenue. However, I feel this method of figuring out how much you should spend on marketing is a little unsophisticated.

How much would you pay for more direct bookings?

I think a better way for tourism businesses to determine their marketing budget, is to figure out how much they will save in 3rd party commissions if they increased their direct bookings by a specific figure and then used this as a basis for their budget.

The core of this concept is that you need to pick a direct booking KPI (Key Performance Indicator) that you are going to aim for. Then you can work out your budget backwards from there.

Accommodation Operators

This is how I would figure out the budget requirements to generate more direct bookings for an accommodation operator.

Figures we will need:

DB = The number of direct bookings you want to achieve. The total number of properties/rooms times by 10 weeks of full capacity bookings.

P = The average price per night for a room.

N = The average amount of nights people stay at your business.

C = The percentage of commission you currently pay for bookings made through 3rd party engines.

Formula to crunch:

MB = ((P x N) x DB) x C

MB = The marketing budget required to generate the desired direct bookings

Example 1 – Small Accommodation Operator:

In this example, we run a property that offers self-contained accommodation for couples and families. We have 10 accommodation options at our property, prices vary between 250-300 depending on which option travellers go with. Most of the guests stay between 2 & 4 nights, very rarely do we have guests staying only 1 night. We currently get a lot of 3rd party bookings through bookings.com which we pay a 12% commission on.

Based on this information we can figure out a marketing budget that this business can use to generate more direct bookings.

MB = ((275 x 3) x 100) x 12%

MB = $9,900

This business could choose to do nothing and forfeit the almost $10k to booking.com. Or, they could invest that $10K into their own marketing and build value in their assets. Once they take their 101st direct booking then all of the assets they had built have already been paid for.

Example 2 – Holiday Park:

In this example, we run a holiday park that has over 50 accommodation options, ranging from budget style cabins to deluxe apartments. Prices per night vary from $150 to over $300 a night depending on the option. Most guests stay between 2-4 nights, but the length of stay increases during peak seasons. We’re on multiple different booking platforms with the highest commission paid of 15% per booking.

MB = ((210 x 4) x 500) x 15%

MB = $63,000

This business has a decent size budget and could look at doing some larger scale projects or run a comprehensive marketing campaign.

Attractions

The same formula can also be used for tourist attractions with some slight tweaks to the formula.

Figures we will need:

DB = The number of direct bookings you want to achieve. The total number of tickets times by average number of shows per month. (T x S)

P = The ticket price.

N = The average tickets sold per order

C = The percentage of commission you currently pay for bookings made through 3rd party engines.

Formula to crunch:

MB = ((P x N) x DB=(TXS)) x C

MB = The marketing budget required to generate the desired direct bookings

Example 1 – Weekly Music-Based Attraction:

In this example, we run a ticketed music-based attraction aimed at a middle-aged demographic. Tickets sell for $135 each and most customers attend with friends. On average 4 tickets are sold per order. We have signed up to red balloon to leverage their database of customers, but we pay a hefty commission of 25% on all tickets sales.

Based on this information the marketing budget to generate 100 more direct bookings works out to be…

MB = ((135 x 4) x 600) x 25%

MB = $81,000

Due to the rather large commission, this business pays the budget is of a decent size. A budget of this size means the business could look at hiring dedicated staff to focus on aspects of their marketing (like Social). Alternatively, they could look at using this budget for marketing campaigns during their off-peak season, where tickets are the hardest to move.

Summary

The method outlined in this blog article might not work for every type of business. If your business doesn’t pay 3rd party booking systems commissions and you’re generating plenty of direct bookings then you probably already have a decent marketing budget and strategy in place.

The key to making a budget like this work is tracking where your bookings are coming from and maximising the impact of channels that are delivering you the best results. Regardless of your business’s budget, there are plenty of things that can be put in place to establish ongoing value from your marketing.

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