Bonus Chapter: How to create an advertising budget for tourism operators [Template included]

Get your online advertising budget template here.

“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:

How to create an advertising budget

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:

1. Cost per Click: This is the average cost you pay to platforms such as Google & Facebook in exchange for a click to your website.
2. Conversion Rate: This is the rate at which customers on your website book a tour and become a customer.
3. Average Booking Value: This is the average booking value a customer makes on your website.

How to calculate return on ad spend

Expected Revenue = Advertising Spend Cost Per Click Average Booking Value

Where to find Data if you don’t have any

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

*Source: WordStream

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. 

Online Advertising Budget Template

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.

Why advertise across platforms?

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. 

• The benchmarks are for the travel industry as a whole. While it acts as a great guide to allocating your advertising spend, the reality is, the results from advertising your tour  or activity may differ significantly to the industry average. For example, if your average booking value is $1000 instead of $157, you should probably jump on Google Search Ads which have a higher conversion rate. Similarly, CPC may be different. So it’s worth testing other platforms with a smaller allocation of your budget.
  

• Keeping top of mind. It is said that the average consumer needs to be exposed to your business at least 7 times before making a conversion. Most people use both Facebook & Google daily, advertising across platforms allow you to be visible more often to your customers. Though it’s difficult to assess (you could do this with attribution modelling), this greatly helps your advertising campaign as a whole.
  

• They each have their strengths. Each platform has its own strengths and level of importance across different stages of the customer journey. For example, Google Search Ads are great for customers who are about to book, because if they’re searching for your service, they are likely already considering booking. Google Display Network (the banner ads you see on different websites) on the other hand, is great for increasing awareness of your tour but less likely to drive bookings right away. Facebook is great for retargeting and pushing people through the different stages.
  

• The level of competition may differ. Again, these are just benchmarks for the industry as a whole. The level of competition for advertising on each platform may and most likely will differ based on your specific tour or activity. For example, OTA’s may spend more on certain keywords on Google or customer groups on Facebook and it’s definitely not a good idea to compete against their big budgets. So if Facebook is extremely competitive for your business, shift to Google. 

Using your budget as a plan

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.

Bonus: Are OTA’s really expensive?

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.

#together4tourism