How to Calculate Guest Acquisition Cost (GAC) Correctly

So, how much does it cost to acquire a booking at your hotel? At first, this seems to be a straightforward metric. However, it's much more complicated than that, so understanding what GAC is and how to calculate Guest Acquisition Cost (GAC) correctly is crucial.

Why? Because diverse guests arrive with varying acquisition expenses, and these costs are spread across various departments, which makes calculating the accurate cost quite intricate.

So, let’s understand GAC in detail today.

What is GAC (Guest Acquisition Cost)

Guest Acquisition Cost (GAC) is a metric to measure the total cost your hotel incurs to attract, convert, and accommodate a new guest.

In simpler terms, it quantifies the expenses associated with bringing a new customer through the doors of your hotel. GAC considers various costs related to marketing, sales efforts, and operational activities aimed at acquiring a guest.

GAC is a significant financial indicator because it provides insights into the efficiency and effectiveness of your hotel's marketing and guest acquisition strategies.

By calculating GAC, your hotel can assess how much money you need to invest to generate a new booking or reservation. This information is valuable for making informed decisions about resource allocation, marketing campaigns, pricing strategies, and overall business planning.

How to Calculate GAC (Guest Acquisition Cost)

An effective hotel channel manager offers a range of key features that streamline distribution, optimize revenue, and enhance overall operational efficiency.

The formula to calculate GAC is as follows:

GAC = (Total Marketing and Sales Expenses + Total Operational Expenses) / Number of Acquired Guests

Where:

Total marketing and Sales Expenses are the costs associated with advertising, promotions, online marketing, public relations, travel agency commissions, and other efforts to attract and convert new guests.
Total Operational Expenses are the costs related to the operational aspects of guest acquisition, such as training the staff, updating your website, improving guest services, and other activities to enhance your overall guest experience.
Number of Acquired Guests refers to the number of new guests your hotel successfully attracts and accommodates during a specific period, typically tied to a particular marketing campaign or time frame.

By dividing the combined costs by the number of acquired guests, the GAC provides an average of how much your hotel spends to acquire a new guest. This figure helps your hotel evaluate the return on investment (ROI) from your marketing initiatives and operational enhancements.

Understanding and managing GAC can lead to more efficient guest acquisition strategies, improved guest experiences, and enhanced profitability.

Importance of Calculating GAC (Guest Acquisition Cost) for Your Hotel

Calculating GAC (Guest Acquisition Cost) offers your hotel business many insights that contribute to strategic decision-making and improved financial performance.

Here are a few reasons why calculating GAC is vital for your hotel business:

1. Better Resource Allocation

GAC allows your hotel to allocate the marketing budgets more efficiently. You can direct your resources toward the most effective avenues by identifying which channels or strategies yield the highest returns on investment (ROI).

2. Gives a Competitive Edge

Understanding GAC enables your hotel to position competitively. By optimizing your marketing efforts and reducing acquisition costs, your hotel business can offer more attractive pricing to guests, leading to higher occupancy rates.

3. Improved Return on Investment (ROI)

GAC provides a clear picture of the ROI from different marketing campaigns. This insight helps your hotel identify which initiatives generate the most revenue and which need adjustments or discontinuation.

4. Ensures Long-term Sustainability

Your hotel can achieve long-term sustainability by managing and minimizing GAC. A balanced approach to attracting guests ensures a steady flow of revenue without compromising profitability.

5. Enhances Guest Experience

Calculating GAC can help your hotel business focus on the target audience and tailor the offerings to meet guests' expectations. This personalized approach enhances the overall guest experience, increasing guest satisfaction and loyalty.

Types of Guest Acquisition Costs

The world of guest acquisition is multifaceted, involving various strategies and costs. Guest Acquisition Costs encompass a spectrum of expenditures, each playing a distinct role in attracting new guests to your hotel.

Here are they:

1. Marketing and Advertising Costs

📙 Costs associated with designing creatives, paying for ad placements, and engaging marketing professionals contribute to the Marketing and Advertising GAC.

Marketing and advertising constitute the cornerstone of any guest acquisition strategy. Your hotel invests in various marketing channels, such as online advertising, social media campaigns, search engine optimization (SEO), and email marketing. These channels help create brand awareness and entice potential guests to consider your hotel for their stay.

2. Sales and Distribution Costs

📙 Your hotel often collaborates with online travel agencies (OTAs), travel agents, and tour operators to reach a wider audience. These partnerships come with a cost, typically in the form of commissions or fees based on the room revenue.

These expenses are essential for increasing your hotel's visibility and reach in the competitive market.

3. Promotions and Discounts

📙 The difference between the discounted price and the regular room rate, along with any additional costs associated with running promotions, constitutes the Promotions and Discounts GAC.

Promotions, discounts, and special offers are practical tools to attract new guests, especially during off-peak seasons. While these strategies can increase bookings, they also contribute to the GAC.

4. Operational Enhancements

📙 Creating a memorable guest experience requires operational enhancements. These include training staff to provide exceptional service, investing in technological improvements like a user-friendly website or mobile app, and upgrading amenities.

While these enhancements contribute to attracting new guests, they also impact the GAC by increasing operational expenses.

5. Content Creation and Distribution

📙 The creation and distribution of content, whether for your website, social media platforms, or marketing campaigns, come with their own costs, contributing to the Content Creation and Distribution GAC.

In the digital age, content plays a pivotal role in guest acquisition. High-quality photos, videos, virtual tours, and written descriptions showcase your hotel's offerings and allure.

6. Loyalty Programs and Guest Retention

📙 Costs associated with program development, rewards, and administrative management fall under the Loyalty Programs and Guest Retention GAC.

Loyalty programs are designed not only to retain existing guests but also to attract new ones. While these programs can increase guest loyalty and encourage repeat visits, they also contribute to the GAC.

Understanding the different types of guest acquisition costs (GAC) helps you make informed decisions, allocate resources effectively, balance financial viability, and offer exceptional guest experiences.

How to Measure GAC (Guest Acquisition Cost)

Measuring Guest Acquisition Cost (GAC) involves a systematic approach to determining the total expenses incurred in acquiring new guests for your hotel or accommodation business. By calculating GAC, you gain insights into the financial efficiency of your guest acquisition strategies. Here's a step-by-step guide on how to measure GAC:

1. Identify Relevant Costs

Begin by identifying all the costs associated with acquiring new guests. These costs span various areas, including marketing, sales, promotions, operational enhancements, etc. Make a comprehensive list of all expenses incurred while attracting, converting, and accommodating new guests.

2. Gather Expense Data

Collect accurate and detailed data for each cost element identified in the previous step. This may involve gathering receipts, invoices, and financial records related to marketing campaigns, advertising expenses, staff training, distribution fees, loyalty program costs, and other relevant expenditures.

3. Determine the Number of Acquired Guests

Count the number of new guests you acquired within a specific period. Depending on your preference, this could be tied to a particular marketing campaign, a month, a quarter, or a year. The key is to have a defined timeframe for measuring GAC.

4. Calculate Total Costs

Sum up all the costs you identified in step 1 to calculate the total expenses incurred in acquiring new guests. This should include direct costs, like marketing expenses, and indirect costs, such as operational enhancements to attract guests.

5. Apply the GAC Formula

Use the GAC formula to calculate the cost of acquiring a single guest. Divide the total expenses by the number of acquired guests to get the average cost of acquiring each guest.

6. Interpret and Analyze

Interpret the calculated GAC value. This figure represents the average amount of money spent to attract, convert, and accommodate a single new guest. A lower GAC indicates more cost-effective guest acquisition efforts, while a higher GAC might suggest areas for improvement in terms of efficiency.

7. Compare with Revenue

To gain a clearer picture, compare the calculated GAC with the revenue generated from the acquired guests. If the income per guest surpasses the GAC, it suggests a positive return on investment. If not, you should reevaluate your guest acquisition strategies or pricing structure.

8. Continuously Monitor

Measuring GAC is not a one-time task. Regularly monitor and update your data to adapt to changing market conditions, evolving guest behavior, and shifting marketing strategies. This ongoing analysis helps you fine-tune your guest acquisition efforts over time.

How to Calculate Hotel Guest Acquisition Cost (GAC)