“Diversify your distribution and reseller network”, “don’t put all your eggs in one basket”, “you can’t rely on just one source of distribution”. Yes, yes, we’ve heard it all before. In fact, you can’t spend more than 5 minutes online without seeing a post about this. But as much as we hate seeing this repetition, it’s true, kind of like when your mom kept telling you to stop playing with your food.
Okay, we all know it’s important but how much should I spend?
Today, we’ll answer that question, or at least try to. It’s a tough one. Especially for businesses that haven’t done it before, If you don’t have any historical data around online advertising, where do you even start?
Here’s some bad advice I heard. Start with $100, test and go from there. No, I can’t even begin to tell you what a bad idea that is. That would be like throwing jello at a wall and seeing what sticks, except the jello is $100 bills.
If you’re spending your own money, isn’t it better to have a plan? Wouldn’t it be better to know, at least approximately, the bookings you’ll receive from your advertising spend?
Well, you can do this with an:
As with anything else in life, you can create a budget, this’ll allow you to forecast your return on advertising spend, which will then help you to decide how much to spend on each platform.
The main elements of the budget that’ll help you forecast your return on advertising spend (ROAS) are:
Expected Revenue = Advertising Spend Cost Per Click Average Booking Value
If you have those figures from your business’s historical data, great! But for most operators who are just starting to advertise online, chances are you won’t have this data available to you.
Here’s the good news, we don’t have to make everything we need by ourselves. I’ve never made my own fried chicken, when I want fried chicken, I go to KFC.
So if you don’t have data, get it from someone else. An easy way to do it is through:
Industry benchmarks are the average results found and collated from hundreds, if not thousands of businesses across the industry. For example, a quick google search for “Facebook CPC industry benchmarks” would produce many results. Don’t worry though, we’ve done the googling for you!
In the travel industry, according to WordStream, the average cost per click is USD$0.63 and the average conversion rate is 2.82%. According to GetYourGuide, the average booking value is USD$157, however, you should probably already know your average booking value.
Based on that, assuming your ads are produced and managed as well as the average advertiser in the industry, we can estimate that for every $1 spent, you can expect $7 in booking revenue in return. Meaning your ad spend is about 15% of your revenue.
If you’re interested to see how your advertising spend is expected to perform across different platforms and decide on how you should allocate your advertising spend, we’ve created an online advertising budget template for you.
But….Facebook shows the best returns.
Great question! Based on the benchmarks, we can see that Facebook is expected to perform the best, so why bother with other platforms? Well, a couple of reasons.
Finally, use the benchmarks and your budget to plan how you’ll allocate your budget, then continue to test from there. For example, in our template, from a budget of $2000, we allocated $1000 to Facebook, $500 to Google Search & $500 to Google Display Network based on our expected returns with benchmarks. Once we start seeing different results across the different platforms, we can start adjusting accordingly.
Based on industry benchmarks and how you allocate your budget in the template, you’ll see that your average ad spend will be between 19-25% of your booking revenue. Isn’t that pretty similar to the commission rates you pay to online travel agents? Do the OTA’s still seem expensive then if they manage the ads (which do take A LOT of time) as well as provide customer service to your end customer?
Of course, there are merits to both advertising on your own and online travel agents. And we definitely do recommend trying out online advertising. However, this just demonstrates that what OTA’s charge is actually quite reasonable. In fact, here’s our take on digital marketing and online advertising vs online travel agents.