ROI: Focusing on Return on Investment and Conversion
© Eric Goldreyer and Sandy Soule,
Return on investment (ROI) is a key factor in any business decision, both
when you are buying/ expanding/upgrading your inn, as well as in your
marketing. We’re going to touch on the high points of ROI in this article,
keeping in mind the limited capital and cash flow available to most
innkeepers. In a future article we’ll cover the relationship between ROI and
What is ROI? Return on
investment (ROI) measures how effectively a business uses its capital to
generate profit; the higher the ROI, the better.
Wikipedia, “ROI is used to compare returns on investments where the
money gained or lost is not easily compared using monetary values. For
instance, a $1,000 investment that earns $50 in interest generates more cash
than a $100 investment that earns $20 in interest, but the $100 investment
earns a higher return on investment.
- $50/$1,000 = 5% ROI
- $20/$100 = 20% ROI
To calculate ROI, the benefit (return) of an investment is divided by the
cost of the investment; the result is expressed as a percentage or a ratio.”
How does ROI apply to short-term marketing?
Measuring ROI for short-term projects is pretty easy. Let’s say you spend
$1,000 to print and mail a holiday newsletter to past guests, and it
delivers $6,000 in reservations. You spent $1,000 and netted $5,000, for an
ROI of 5X. On the other hand, if the mailing only generated $2,000 in
reservations, your ROI would be 1X. You might decide that that cost was
justified, because the lifetime value of a guest (for both repeat and
referral business) is worth viewing from a longer perspective.
You also need to compare the ROI of a printed piece to that of an email
newsletter. The cost of creating an email newsletter should be little or
nothing, especially if you are already using a service like
For example, if it costs you $200 to create and email your newsletter, and
it generates $2,200 in reservations, your ROI is 10X – you got back 10 times
more than you invested. While the return on investment for the email
newsletter is much better, the long-term branding may be less effective.
Click here to use this free marketing ROI calculator:
How does ROI apply to long-term
marketing? With 80%-90% of reservations coming from the
Internet, tracking the efficacy of your marketing investments is essential.
No one has unlimited marketing funds, especially innkeepers, but many make
the mistake of basing their buying decisions solely on the cost of a website
design, photo shoot, directory listing, etc., rather than a reasonable
projection of their ROI.
ROI teaches you that it’s about what you earn, not just what you spend. John
Wanamaker, known as the “father of modern advertising,” is famous for
saying: “Half the money I spend on advertising is wasted; the trouble is, I
don't know which half.” Not anymore! A large variety of measurement tools
and techniques now enable marketers to quantify the impact of advertising
activities. If your B&B or inn doesn't monitor its marketing costs for ROI
purposes, you need to ask why:
We've never thought about it
We don't know how
We were told it wasn't possible
If you checked the first or second box, talk to your webmaster and start
asking questions. If you checked the third box, then it’s time for a new
company to handle your website design/hosting/promotion (website DHP), and
it’s probably appropriate to purchase property management software as well.
Allocating limited resources:
Since most innkeepers agree that about 80% of reservations are
Internet-generated, make sure that Internet marketing is getting the lion’s
share of your advertising budget. When doing your business planning, don’t
spend so much on furnishings and décor that you have nothing left to spend
on the Internet advertising you need to get heads in your beds.
How can we tell what works?
- Ask potential guests: Because most callers say “the Internet”
or “your website” (which may be your website or a directory listing), so
its usefulness is limited.
- Use tracking software: You spend hundreds or thousands of
dollars to build/market your website, so use free Google Analytics to
see what works and what doesn’t. Because not all websites deliver the
same level of qualified traffic and conversion, tracking software goes
deeper to tell you:
- How many visitors come to your website
- Where they are coming from
- Which pages are they visiting
- From which pages they are leaving
- Which sites bring you the most traffic
- Which sites’ traffic converts the best (not all traffic is created
- Which sites deliver the most reservations (the more qualified the
traffic, the better the conversion)
- Which sites deliver the most revenue (average reservation value will
differ from one site to the next)
- And much more!
Google Analytics combined with fully integrated tracking can show you
exactly where your online/offline reservations and revenue come from –
not only in terms of traffic, but actual dollar conversion.
So, to answer the question we asked above – how can we tell what
works – let’s do the math for some possible sample sites:
sends you 1,000 potential guests/year in traffic
- Site A converts at a 1% conversion rate, generating 10 reservations
- If your average reservation from Site A is $300, that site delivered
10 X $300, or $3,000 in revenue.
- If Site A costs $200/year, your ROI is $3,000 minus $200 ($2800),
divided by $200 (cost of investment) for an ROI of 14X.
Site B sends you 700 potential guests in traffic
- Site B traffic is highly qualified and converts at a 2% level,
generating 14 reservations. It brings you 30% less traffic, but 40% more
reservations since the traffic is more qualified.
- If your average reservation from Site B is $325, then that site
delivered 14X $325, or $4,550 in revenue.
- If Site B also costs $200/yr, your ROI is $4,550 minus $200 ($4350),
divided by $200, for an ROI of 22X!
Site C sends you 2,000 potential guests in traffic
- Site C traffic is also highly qualified and converts at a 2% level,
generating 40 reservations.
- If your average reservation from Site C is $350, then that site
delivered 40 X $350, or $14,000 in revenue.
- If Site C costs $400/yr, your ROI is $14,000 minus $400 divided by
$400 for an ROI of 34X!
As you can see, multiple variables affect your ROI more than the dollar
outlay and the traffic stats. To get your ROI, determine your total
revenue per channel by multiplying your traffic times the conversion
times the average reservation (per channel), divided by your annual
Pareto’s Principle holds that about 80% of your business comes from 20%
of your sources. After all, the quality and reach of websites varies as
much as the difference between an ad running during the Super Bowl does
from one appearing on a local cable station at 3 a.m.
Although statistical analysis is extremely helpful, most innkeepers want
to know which sources generate the best ROI (whether directories,
associations, chambers of commerce, etc.) before signing up. Keep these
guidelines in mind when making your choices:
- Google the phrases travelers use when searching for a B&B, like
“Savannah B&Bs,” or “Cape Cod bed and breakfast” and see which
directories come up.
- Check the directory’s Google page rank.
- Go to
Quantcast.com and compare the traffic of the site you’re
interested in with other leading B&B sites. If they don’t show up on
Quantcast at all, don’t waste another minute.
- Read the directory reviews and comments on
- Check with other innkeepers, either in person, or via online
What if I’m getting traffic to my website, but it’s not converting into
“In just one-twentieth of a second, people make aesthetic judgments that
influence the rest of their experience with an Internet site. If the
first impression is negative, you’ll probably drive people off.”
(Behavior and Information Technology Journal)
It’s a lot less expensive to double the conversion on your website than
to double your traffic. Here’s what you need to increase your website
- Good photos (click here for more information on inn photography)
- Easy, intuitive navigation
- Clear and consistent call to action
- Real-time, secure, online reservations
- Reviews (links to major review sites are more credible than guest book
To illustrate the link between conversion and revenue:
- If you have 1,000 monthly visitors and get 10 reservations, your
conversion rate is 1%.
- If the average reservation made from your website is two nights at
$175 nightly, your monthly gross is 10 x $350 = $3,500.
- If an updated website increases the conversion half a percentage point
to 1.5%, you’ve increased your monthly gross income by 50%! (15 x $350 =
$5,250). That’s an extra $21,000 per year!
We’re in a squeeze for cash. What should we do? Look for opportunities
that allow you to test ROI with minimal capital expenditure by using
marketing that offers one or more of these qualities:
- Satisfaction guaranteed or your money back
- Monthly billing for easy cash flow and immediate ROI results
- Requires payment only when a reservation is generated
- Don’t skimp on a cheap booking engine
or availability calendar – the most
effective conversion tool on your website!
Even a tiny increase in your conversion
percentage will deliver thousands of
additional dollars of revenue per year.
What’s the connection between ROI and branding?
Although most of your marketing should focus on areas where you can see
a direct result on reservations, it’s important to reserve a portion of
your budget for branding projects that increase your repeat and referral
business. These range from involvement in community projects and media
and public relations, to using logo’d coffee mugs, room key fobs,
clothing, etc., and will be covered in a future article.
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