A recent survey from a vendor considering changing the pricing for its online booking products raises the question, “How (and how much) should you pay for online booking software and property management software?” Since the prices of online booking software and and property management software can be considerable, this two part series will look at the online booking software prices suggested by this survey, as well as the way other vendors price their products.
Yesterday (August 7, 2012) some innkeepers received an email from BedAndBreakfast.com asking them to complete a survey to express their preferences about several new proposals for pricing their booking products. On first blush the pricing sounds attractive. On deeper consideration, it may not be as good as it sounds.
When considering different vendors of online booking and property management software, it is important to keep in mind that RezOvation sells property management software (RezOvation GT, for example) as well as online booking software (RezOvation Booking Engine, Webervations), but its sister company, BedAndBreakfast.com (both are owned by HomeAway) also makes money on bookings through its own bookings on the directory website, and through Expedia and partner sites. That brings at least three separate products into consideration for our purposes.
The survey sent to innkeepers (presumably those using ResOvation GT, since most of the prices suggested would apply to that product) asked for responses indicating how innkeepers would feel about several different pricing structures. Currently RezOvation charges a monthly fee based on the number of rooms the property has, with one rate for RezOvation GT only, and a higher rate for those using both RezOvation GT and its Booking Engine, its online booking software. Meanwhile, BedAndBreakfast.com charges a commission in the 25-30% range for bookings through its directory booking button or through Expedia and its partners.
The survey seems to suggest that the company is considering making some significant changes to these price structures. They propose several potential pricing structures. For example, they suggest removing the monthly fees for RezOvation GT (and the Booking Engine), as well as the commissions for BedAndBreakfast.com and Expedia bookings (N.B, see correction below), and imposing a $2.95 fee on the property for every booking (whether it is made online or not).
!! CORRECTION 9 August 2012 – Thanks to Tammy for verifying that the proposal was removal of the 25-30% commission on BedAndBreakfast.com bookings, but not on bookings via Expedia and its partners. This will not alter the basic considerations, but the specific results will depend only on the number of bookings you get that originate with BedAndBreakfast.com, without considering the Expedia-related bookings.
Alternatives include imposing a higher fee, but for online bookings only, or shifting the fee to the guest, as an additional charge at booking time.
In order to weigh these options, it is important to look at your own records and see how these rate changes could impact you. For example, let’s take a hypothetical property with 7 guest rooms, selling about 1000 room nights per year, using RezOvation GT and the Booking Engine, and getting a small number of bookings via the BedAndBreakfast.com booking button. Using the published rates for these products we would have:
Annual RezOvation GT/Booking Engine cost: $720 ($60/month)
6 Bookings via BB.com (9 nights): $520 (30% commission on approx $1,735 value)
Total annual cost of bookings: $1,240
The actual amount the new proposed prices will cost will depend on several factors: the number of total bookings (which, for our sample property we’ll assume to be 600 bookings), the actual number of bookings obtained via BB.com, and, for the price plan charging for online bookings only, the number of your bookings that are made via the website.
Using our assumptions above, with the commission removed for BB.com bookings, we have:
Cost of online bookings (600 at $2.95 each): $1,770.00
That is a significant rate increase for our hypothetical property.
On the other hand, the key is in the number of BB.com bookings. What if we had a lot more of those? Suppose we had 100 of them? The exact numbers will depend on the rates charged, but sticking with the example above, our current rates would be:
Annual RezOvation GT/Booking Engine cost: $720 ($60/month)
Bookings via BB.com (100 bookings, 170 nights): $9,832 (30% commission on approx $32,772 value)
Total annual cost of bookings: $10,552
This would reduce to the same figure of $1,770 for the 600 bookings as above, under the new scheme.
As mentioned at the outset, if you get a lot of reservations via bookings directly from the BedAndBreakfast.com directory booking button, the new proposal is a huge win for you. If you get few (or no) bookings that way, the proposed new price structure will likely cost more than you are currently paying.
So, what is the bottom line? There is a “sweet spot” where the savings becomes worth it for our hypothetical property. If they accept more than 10 bookings (at least 17 nights) via BB.com bookings, they will save money under the new program. If they accept fewer than 10 bookings from those sources, they will save money by staying on the current system.
Of course, your mileage may vary. Your actual occupancy, rates, ADR, etc., will affect the outcome of these calculations, so you should look carefully at them before deciding what is best for your property.
What is driving this survey? BedAndBreakfast.com doesn’t tell us in the email or the survey, but it seems likely that they are trying to increase revenue without upsetting their clientele (innkeepers). Innkeepers have not been shy about expressing their concerns about prices from BedAndBreakfast.com and RezOvation. Innkeepers, as a group, are also business owners with fairly tight budgets. It seems likely that this is an effort to reach out to innkeepers both to show they genuinely seek input (and thus soften the blow when the increases come), and to try to find a rate structure that will be acceptable to as many innkeepers as possible.
BedAndBreakfast.com and RezOvation have attained positions in the industry where they are expected to produce top quality products, with top-notch support. All that costs money. Still, their primary clientele is not, by and large, a wealthy group. They need to find a way to get a bit more out of innkeepers’ collective pockets (and into their own), without raising too much of a ruckus.
What would happen under such a new price structure? In theory, this could backfire. With no commissions on direct BedAndBreakfast.com bookings, innkeepers may start putting more of their rooms on that system, resulting in more bookings via that channel (which may also result in more Expedia/partner bookings at a much higher commission), but with much lower cost (and much lower revenue to BedAndBreakfast.com/RezOvation). Since they’re much too intelligent to let that happen, it must mean that the current high commissions are not generating enough revenue, and perhaps this is an effort to get more inventory on that system (basically, on the GDS system).
Innkeepers are aware that BedAndBreakfast.com has been running popup ads for discounts (essentially giving away some of their commission to discount the property’s full-price rate) on bookable properties. This seems to indicate that there have not been enough guests booking directly on the directory site. The new price model proposals seem to indicate that the discounts haven’t been doing the job, either. Could this be a sign of trouble in Austin?
Next week: How Much Should You Pay For It – Part 2