As not-for-profit entities, everything a Destination Management Organization (DMO) does is typically funded by a combination of state appropriations, grants, memberships and/or designated portions of specific taxes collected by states and/or local governments. These taxes are often referred to as lodging taxes or atax (accommodations taxes) and are paid by people who stay in hotels, motels, and vacation rentals (primarily visitors from out of town) and htax (hospitality taxes) paid by people who purchase admissions tickets for attractions and/or who dine in and out of restaurants, etc. In the case of htax, both visitors and locals pay these taxes.
Atax and htax percentages charged by states vary state-to-state; with some as low as 1% and others as high as 15%. The taxes charged (and the % of those taxes apportioned to DMOs) by local municipalities varies as well. When tourism and travel are doing well, the money flows into DMOs pretty consistently and the promotion of economic development through tourism and travel activities ensues - visitors stay, dine and do. In turn, hotels, restaurants and attractions prosper and new ones open, etc., etc., etc. All of this activity also provides funds for paving streets, installing street lights, the construction and maintenance of parks, wayfinding signage being updated, etc. All of this activity benefits residents (and visitors), produces jobs that help employ the local workforce, and helps local households pay less in other annual taxes.
But when the pandemic hit and impacted the tourism and travel industry, it halted life as usual and created many vacancies in hotels and vacation rentals. In most cases, it limited restaurants to take out or outdoor dining and it required many attractions to operate at limited capacity or keep their gates and doors locked completely.
Many DMOs operate on a July to June fiscal year. So, for the 2019/2020 year, the pandemic hit these DMOs in the last quarter when their fiscal year was winding down and much of the budgeting for the 2020/2021 fiscal year was being finalized. Obviously, these 2020/2021 budgets will need to be revisited. For DMOs with January to December fiscal years, the majority of 2020 will be deep in the red with the potential for a slow recovery in 2021. While the tourism industry has seen an uptick in visitation, it’s not anywhere near the level it was over the same periods a year ago. So, whether your fiscal year starts in July or January, managing your existing budget and budgeting going forward will likely be one of your DMO’s biggest challenges over the next year or two. It's going to require an effort on both sides of your budget, which means defending your value and fighting for every "revenue" dollar that used to come pretty easily to evaluating the ROI for every "expense" dollar spent.
Evaluate every expense and revenue dollar.
Start by looking at every single line item in your budget - revenue and expenses. It might be that you have never looked at each of these line items with such a critical eye, but now’s the time to start. Here are some insights in no particular order that you can apply as you embark on this novel budgeting process:
Tighten your belt.
- Cut your travel budget — travel shows have been canceled for the most part, which means the registration fees should also be down.
- Are you paying for things you don’t need? If your visitors center is closed, do you need the carpets to be cleaned as frequently?
- What about the budget for promotional items? Don’t stock the visitors center or market with as many products to sell if your numbers are down.
- Can you cut your printing budget? Or at the very least reduce it and rely more on digital versions of the brochures you create and distribute.
- Will you need to produce and print a new visitors guide or will the one you printed last year (based on 2020 demand, you likely still have quite a few on hand) suffice for the next year too?
- Instead of raises, offer more paid time off to employees. This has been a tough year for everyone and I’m sure you want to reward and retain the good folks.
- Save on your board expenses by having all meetings over Zoom for the next year.
- Adjust your advertising to areas that drive more immediate travel and that will have a strong ROI that you can defend in a year.
- Consider outsourcing marketing or creative to an agency (we have done this for many years for clients here at Stamp but are definitely seeing an increase in interest in this service arrangement). You'll only pay for what you need and reduce the full-time salary overhead for the work.
- Investigate whether your payroll could be done through ADP, which would reduce your accountant’s time, allowing you to add other responsibilities to them or change them over to part-time status.
- Cut the 1-800 number — and the fees associated with it.
- Have you looked into renegotiating your office printer lease agreement? Or how about shipping options?
- Instead of redoing your whole website, consider creating a landing page.
Take advantage of free tools.
Social media gives you a platform and an audience to help you grow likes and build trust. Review Google Maps and Google listings — is your information and photography up to date? Can you make a plea to your partners to spend some time updating theirs? If you have to cut your photography budget, reach out to people on Instagram that have used your hashtag and shared great photos to ask for permission to use them yourself.
Some of the digital tools you might be using come with a cost but this year it might be worth it to reduce down to the free version. This means email providers (Mailerlite or Mail Chimp), task managers and productivity tools (Trello, Asana, Slack, Canva, Invideo.io, etc.).
Make Reductions in Force.
I know this is not a very popular reality. However, even Pre-COVID19, for many small to mid-size DMOs, the expense associated with employing staff is most likely one of the largest (if not the largest by far) portions of your budget when you include payroll taxes and insurance on top of each salary. At the end of the day, it is business, and it is taxpayer dollars that fund most DMOs. So, if you haven’t already, it’s time to take a critical and objective look at your team — what roles and tasks can be eliminated, consolidated, outsourced, or done by systems and tools thanks to modern technology? Is there anyone on your staff that has been contemplating retirement soon anyway who may be able to step out to create an opportunity to retain or even recruit an up-and-coming team member?
As we speak with DMO leadership, this is one of the most difficult issues they are facing. And many DMO leaders have never faced this sort of situation. But leaders have to make hard decisions for the good of the entire organization — you may not have realized it, but making these kinds of very hard decisions is what you signed up for when you took the top job.
- Can you sell your promotional items online? On Facebook marketplace?
- What about creating and selling face masks with your brand on it? Branded hand sanitizer?
- If your office has been working virtually since March pretty well, have you considered not paying for office space and keeping the work-from-home status as semi-permanent?
- Now maybe the time to take your printed brochure or visitors guide and make it digital.
- Live stream Facebook and Instagram Live broadcasts from behind the scenes with stakeholder team members sharing what they are doing to survive and what precautions are being implemented to keep people safe.
- Make your content go farther by repurposing it.
- Can you co-op with some local partners to share the cost of advertising that will benefit all of you?
Hit your grant applications out of the park.
You might usually apply to the same 5 grants year after year and just change the dates on the top of the page. And that might have worked in the past. This year, however, you should treat those grant applications as if a large portion of your operating budget depends upon the results of your efforts. Because it just might. This might mean outsourcing to someone to write the grants for you or just getting a brand new set of eyes on them to help evaluate what you’re doing and how you’re communicating it in the grant. It might mean asking for more money or applying to different grants that had not been on your radar. It might also mean looking back at all of last year’s grants and asking for your scores for feedback to improve this year’s application.
If you don’t know who the decision-makers are in your neck of the woods related to the atax, htax and the appropriations you receive, now's the time to do your research. Prepare a cheat sheet of the impact of the work your team produces on the local taxpayer. Write to your local and regional legislatures and request a meeting. Write to your local papers. Talk to your Chamber, your county and city counterparts. Find out what they need from you so you can keep or earn more of the money.
Actively Manage Your Budget.
When the money coming in is tight, especially without knowing when there will be an end to this pandemic, it’s up to you to actively manage your DMO's budget to the expected revenue on a month-to-month basis. To evaluate everything. To fight to defend the work your DMO does and the impact of your work in the past, in the present, and most importantly as we look ahead to a recovery of the tourism and travel economy. And to keep making every single dollar count.
Maybe it’s because you know that every dollar spent in tourism marketing returns back to the community. Maybe it’s because you love what you do. Either way, in case you find yourself in a similar situation, where the tried and true funding sources are all being attacked, nitpicked and dipped into — leaving less on the table for you and your DMO — you must find a way to keep doing what you do best. Because at the end of the day, tourism is economic development. And this means its recovery from the impact of this pandemic is dependent on what you do day in and day out.
If you’re overwhelmed with where to even start, sometimes it takes a fresh set of eyes to help create or evaluate the strategy that’s best for you. If you’d like some help, contact us here.