Google Hotel Ads’ business models: What you need to know to make the right choice
How Google's new Pay per Stay program works
Similar to the OTA business models, costs are only charged in the case of really materialized (completed), stays of the guests. This eliminates any cancellation risk for the hotels.
First, a commission rate (percentage of the booking value) is set for your property. Google uses this commission rate to define the visibility to give to your link. At the beginning of each month, a comparison report with the completed bookings in the previous month will be sent to Google by your provider. This report is used to calculate the monthly costs for your Hotel Ads campaign according to your commission rate.
How does google choose the ranking of my link with PPS?
Although a commission model, the visibility of your link is still determined by a cost per click. Based on conversion rate, conversion value and other factors, google will calculate an "e-CPC" and define your visibility level. This click price results from the breakdown of the commission according to how much cost per click Google would have earned.
If Google provides you with 1000 clicks that generated $6000 revenue from completed bookings at a 15% commission, Google will receive $900 for those 1000 clicks, resulting in an e-CPC of $0.9 ($900/1000). Depending on the competitiveness of the auction, Google then determines which ranking the ad will receive for this $0.9 per click.
Besides commission rate, your conversion rate and average daily rate also play an important role in the ranking. If it decreases, fluctuates or cancellations increase, Google will reduce the visibility of your ad to allow a more profitable advertiser, such as an OTA, to take over the ad space.
Comparing PPS, CPC and CPA: The different business models in a direct comparison:
Which model is best fitting for my hotel campaign?
It's worth taking a look at your visibility, costs and requirements for the Google Hotel Ads campaigns.
Aspect 1: Visibility
Case 1: You want your hotel to have maximum visibility and to be on the top position
With the cost per click (CPC) model, you have the possibility to dynamically manage your visibility level and control the costs by adjusting CPCs. In the case of PPS or CPA, on the other hand, you would be less flexible as you would be leaving total control of your visibility to google.
Case 2: You just want to be visible and want to limit costs to the fullest extent
In the case you are cost sensitive, all options are valid. The only difference is the risk level and flexibility. With CPC, there is a certain level of risk as hoteliers spend before receiving bookings. However, thanks to the flexibility of the model if conversion rate and ADR allow, costs can optimized to get very low distribution costs. With PPS and CPA models, the advantage is that the cost only occurs at the moment of booking or staying therefore there is no real risk. The disadvantage is the lack of flexibility which forces you to always have the same cost level.
Aspect 2: Granularity in Bid Management
The Google ranking is dynamic, which means it is necessary to adjust the click price regularly. Partly in order not to pay too much for visibility, but also to increase it if necessary in order to achieve more visibility. The CPC model offers the possibility of making the click price much more granular by changing the 1-cent procedure than the commission models, where only percentage adjustments can be made. In addition, the click price can be defined differently in the CPC model, for example depending on the LOS, the user's terminal device used, the days of the week, etc. - this is not possible with CPA and PPS.
Aspect 3: Flexibility of the business model
With the commission models, you can usually only adjust the commission and consequently the click price once a month, unlike the CPC model. This means, as described above, that you are less flexible within a dynamic marketplace. In the end, this means that with a commission model, you may pay too much for good visibility or pay little, but lose visibility and therefore direct bookings.
Ultimately, many different factors play a role in the choice of the business model and you must decide which one seems most efficient and promising for you. But no matter which model you choose, you will always pay Google a click price, whether commission or cost per click model, because Google works on CPC in its internal calculations. Consequently this always raises the question of whether you want to be a passive player in a dynamic market using PPS and CPA or do you prefer to be an active player with CPC.
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