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Kalibri Labs points hotels toward the true cost of guest acquisition

Kalibri Labs points hotels toward the true cost of guest acquisition

Source: Tnooz

One of the most under-reported stories in travel is that most hotel owners have no idea what their cost per channel is and what they’re actually getting per room.

That hasn’t been a problem this year or last year, because respectable growth in demand in many markets worldwide has kept everybody happy enough with bottom lines.

But the next downturn could bring an unpleasant surprise to senior executives in digital distribution who make macro decisions about channel optimization.

A metaphor for the problem is handling one’s personal taxes. At any given moment, you may not know what your tax cost for living in a particular place is. You usually have to pull information from multiple sources to calculate it.

The project can be complex enough than many people turn to professional software to help them figure it out.

Similarly, the costs of guest acquisition are spread across hotel profit-and-loss sheets — and some of the costs aren’t even on those sheets.

Kalibri Labs, a data analytics firm, says it has created software to help hotel revenue managers and ownership groups understand how much it costs to acquire guests through their own websites, third-party websites, and other channels.

More than 25 companies in the US and EMEA have shared their data with the company to get set up on its systems. The startup says it has analyzed between five and ten billion transactions, dating back to January 2011.

Kalibri Labs was founded in 2012, but only came out of stealth earlier this year. The startup, based in Rockville, Md., has 20 employees, and many of them are busy loading data from 30,000 hotels.

Tnooz: Doesn’t everyone already know that digital has changed everything?

Cindy Estis Green: No one’s ever had this data at an industry-level before, so hoteliers still lack an industry-level understanding of what being in the digital age actually means to their business….

Digital fundamentally changes the way hotels operate and ought to plan and budget, but a lot of hotels don’t realize that yet. They keep doing things the way they’ve been doing them and it doesn’t work as well, and they’re not quite sure why they feel friction.

When customers are acquired through a particular type of online channel instead of, say, calling an 800 number, every single function of the hotel is affected….

Tnooz: Why has it been so hard for the industry to come up with a metric, or a few metrics, so that they can see the cost of acquisition — and see if the light is flashing green, or yellow, or red, so to speak?

Cindy: These costs are spread across the P&L and aren’t grouped in the sales-and-marketing budget. Some of them don’t appear on the P&L because they are in buckets that hotels traditionally consider operational.

Things like commission cost have been put in the rooms division budget, which is an operational budget. Channel costs: If you pay the brand or you pay Sabre Synxis or whoever, whether you’re an independent or a brand, you’re paying, maybe, a voice fee.

Somebody is running your booking engine, and then you pay a booking engine fee. There are GDS transaction fees….

If you sell hotels via Google metasearch, you have commissions with Google, in your rooms division budget. But if you do pay per click media spending, or you do different kind of banner ads, that’ll show up in your sales-and-marketing budget.

Then we have the expenses that don’t show up on the P&L period. Those are wholesale orders, or opaque OTAs, or merchant-model OTA business, which in the US is over half of the business still….

The consumer books with Expedia, pays Expedia a hundred bucks, and then Expedia, through their credit-card account, sends money to the hotel through for $80.

That $20 commission nobody wrote a check for, so it doesn’t show up in the rooms division commission account. It doesn’t show up at the sales-and-marketing account. Yet it’s a real expense. It’s hundreds of thousands of dollars for a lot of hotels, but they don’t know if it’s rising or falling.

Then you’ve got commissions for third-party groups and meetings. Plus traditional wholesaler, Tourico, GTA, etc….

In the US market, close to half of the groups-and-meetings business is mediated at a cost of at least 10%, sometimes more.

Well, sometimes more, because the hotels usually pay a third-party meeting planner 10%, but then they often will pay bonuses and other things to their own regional or hotel staffer.

Nobody parses out the line items of the room division and other budgets. Nobody adds all of those up and then combines them with what’s in sales and marketing.

Tnooz: When you add them all together, what do you come up with, typically?

Cindy: If we take the total the guests pay, in the US, 15% to 25% is the cost of acquisition, and the numbers for last year were right around 20%, but the range is 15% to 25%. In Europe, the range is about 20% to 30%.

Tnooz: Is that big?

Cindy: 20% is a really big number. The only thing bigger, usually, is labor, and it’s growing at twice the rate of revenue growth.

Tnooz: And how does Kalibri Labis know what the percentages and growth rates are?

Cindy: We have data from close to 30,000 hotels, and it will be more than that by the fourth quarter. We’ve crunched the real numbers.

What we get from them is all of the transactions that occur in their hotels, so we know what channel it came through, and the rate they bought, and how much the person spent.

We have no private information: we don’t have guest names; we don’t have credit card information; none of that. It’s not necessary.

Right now, we’re between five and ten billion transactions, because our data goes back to January 2011.

We then gather information from each of the hotel companies.

We get from them all of the different costs that they have: travel-agent retail commissions, and wholesale commissions, and their fees with the GDS, and their transaction fees, and any other assorted other costs, loyalty costs, for example, for the brand.

We don’t get a data feed of those things, but we know what their deals are, and then we program those figures into the system, so every one of those five to ten billion transactions then runs through a cost machine to be assigned a cost.

Then we can aggregate all those costs up to be able to say that all the hotels in the US have spent 19.8% of what guests paid per customer acquisition in 2015, just for example.

For each hotel owner, we have live dashboards, so hotels can see metrics with actionable information, like “What’s my net ADR?” and, “What’s my Contribution to Operating Profit and Expense?”

We show differences by occupancy… We let you index a property against your brand, or against your chain scale, or against a comp set you select.

You can quickly ask and see: “What have I been spending per room night for commissions, and what for retail commissions? What have I been spending per room night for wholesale commissions? What have I been spending per room night for my channel costs?”

Our markets are US and Europe, but we know that we will expand to South America and to Asia sometime in ’17.

Tnooz: If a hotel doesn’t want to use Kalibri Labs, how can they estimate their cost of acquisition on their own?

Cindy: The hotels can, they can, once a year, do an analysis and just base their judgment on that analysis. They can just choose a couple of channels that they know are lower-cost and focus on those, and try to dial down the ones that are higher-cost, and see if they can start moving the needle.

You can do just simple moves like that that can … You get 2/10ths of a point improvement, that can go a long way to improving your net revenue without all the knowing every detail of what’s going on in the market.

The difference is you have to be proactive about really considering every demand driver you have, and you have to consciously want a certain …

Quantify the amount of business you want from every demand driver and go after it.

The biggest difference is being proactive, instead of just letting it all just flow in and thinking of OTAs generically, just one big category, or consciously knowing that you want a specific mix of each one.

You don’t need any Kalibri Labs services to become proactive and much more granular in the way you evaluate exactly each source of business you get. Most hotels have access to who’s booking into their hotels through their property-management system.

There will be some sessions on revenue management techniques at HITEC this week. And at theRevenue Strategy Summit early next month in D.C. And we’ll be working with American Hotel & Lodging Association to release new distribution trends survey data in three tranches over the rest of the year, to give the industry a big picture.

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