Adwords Return on Investment

We recently met with a motelier who was happy that it cost him $100 in Adwords cost for every booking – he got 7 bookings from $700 in Adwords campaign for the month. His room rate is around $120 per night ($104 excl gst). He seemed very happy that his occupancy had increased by 100% and that is what counted to him.

I admit I don’t know everything (I don’t know what I don’t know either) but when most of the industry is complaining about 15% commissions they are paying to and other OTAs, how is paying 96% commission equivalent to Google for Adwords a good deal and return on investment? And that is without considering cleaning costs etc!!

To me he is clearly throwing money away and making a loss on each booking. I think he could have increased occupancy by dropping his price to $50 a night and he still would have been further ahead if a higher occupancy rate is all he really wanted.

Please help me!! I fail to understand this but have seen it several times – we have seen other moteliers paying $80-$90 for each booking with Adwords..

Please tell me what I am missing in my understanding . Perhaps I am missing something really important and obvious?

How is higher occupancy with a net financial loss better than lower occupancy but with a decent net profit? I look forward to hearing if my logic is flawed!

Note – you can use ecommerce conversion tracking to see exactly what your return on investment and cost per sale is from Adwords, Tripadvisor or other advertising.

As a benchmark, research suggests that conversion rates are around 2-5% for travel sites – so if your Adword cost per click is $1.50, the cost per booking is probably in the range of $30-$75. What percentage of your sale value is that? Is it acceptable and better than the OTA’s that you are complaining about?