How comfortable do you feel about next year’s budget? Determining Cost and Revenue is a critical topic for today’s destination marketing organizations (DMOs), which are constantly looking for new ways to secure funding to remain competitive, but it can be difficult to gain sustainable, long-term funding. Reductions in budget due to changes in government or myriad other factors can hinder your destination’s ability to plan for the future.
As a result, DMOs can spend a significant amount of time trying to seek out additional funds. Some of these methods include creating co-op campaigns and platforms, collecting membership dues, and selling ad space in vacation guides. And while some of these efforts may be successful, they often soak up resources and prevent DMOs from looking at the bigger picture and focusing on their marketing and management role.
At the same time, DMOs and consumers have experienced significant shifts as traditional sources of revenue are being challenged. One of the primary ways DMOs have been funded has been via a hotel bed tax, but new accommodation models such as Airbnb are challenging the old models.
The diagram above outlines the spectrum of funding models DMOs are typically involved with today, from government-led appropriation on one end, to industry-led models on the other. It’s important to understand where your destination sits on this continuum and the risks and solutions present in different approaches.
The appropriation funding model: risks and benefits
Historically, one of the predominant destination marketing funding models is based on appropriation, which can include taxes like the hotel bed tax, or some form of government-aided funding. This model has been the mainstay for most DMOs, but as economies ebb and flow, tourism can often be caught in the crossfire.
For example, Destination Canada (formerly the Canadian Tourism Commission) is funded by the Government of Canada’s general tax pool. In 2011, Destination Canada was recognized as having the world’s strongest national tourism brand. However, in 2012 its annual budget was cut from C$72 million to C$58 million – the lowest it received in years. By 2015, the Canada brand had slid down to a fifth-place ranking. This shows how unpredictable government funding can be, and how vulnerable destinations can become as a result.
In 1993, tourism in Colorado faced an even more troubling scenario when the US state eliminated its US$12 million tourism promotion budget entirely. As one case study explains, “Colorado’s domestic market share plunged 30% within two years, representing a loss of over $1.4 billion in tourism revenue annually. Over time, the revenue loss increased to well over $2 billion yearly.” It’s taken years for tourism in Colorado to recover from this setback.
The appropriation funding model has challenges and risks, but it brings positive results for some destinations. For example, Travel Manitoba has recently set forth a new model in partnership with the Government of Manitoba. The Government approved a “96-4 funding model” that dedicates 4% of tourism tax revenues to tourism marketing and development. This could help create a significant boost to the tourism economy in the province and an increase in funding for Travel Manitoba. While it’s not set in stone forever, this approach will help the tourism industry grow.
Seeking alternative funding solutions
Where there are challenges with government-led funding, some destinations work to create new solutions. When Washington State had its funding pulled in 2011, a private sector coalition (Washington Tourism Alliance) quickly sprang into action to mitigate the situation. Washington is the only state in the US without a state-funded tourism office. In many ways, this may signal a shift towards an industry-based funding model.
Destination Canada has also turned to industry for funding. To mitigate its loss in budget, the Tourism Industry Association of Canada (TIAC) lobbied Ottawa for $30 million over three years to reach the American market, under the condition that funds need to be matched by industry at a ratio of 1.25:1.