Total profitability is defined differently for different property types. For casino resorts, it might be understanding and harnessing loyalty, for business hotels it could include understanding the potential revenue displacement of accepting a large group or event.
Put simply, total profitability is about understanding all of your property’s multiple revenue streams, channels, and costs and creating a strategy that makes them work together to maximize your top and bottom-line performance.
This blog is an excerpt from our latest special report, How to Boost Your Hotel’s Total Profitability. Download your copy here: https://www.duettocloud.com/special-reports/how-to-boost-your-hotel-total-profitability
However, despite the many different types of hotel properties out there, there are three basic considerations to a total profitability strategy:
- Clarity and data to understand the spend and stay patterns of guests
- Channels through which guests book
- Costs of acquiring guests through various channels and providing ancillary services
In order to measure customer value, hotels need clarity and understanding of the spend associated with each guest or segment and to apply a relative weighting to that spend. Spend can include food and beverage, spa, parking…
The challenge in measuring holistic guest spend is that this spend data could be sitting in your PMS, loyalty program database, or in your CRM. Here is where having an integrated technology stack comes into play. By being able to access this data, understand it and act on it in your RMS, you can better drive revenue.
Profitability is about understanding your top-line revenue streams and the bottom-line profit they feed back into your property. It’s a simple equation of revenue – costs = profit.
Understanding and managing the cost of delivery on any of your revenue generators is vital. For rooms, this is often a case of channel management. Commission structures vary from online travel agents (OTAs) to global distribution systems (GDSs) or your own channel website or call center.
Costs can be flat fees, a cost per booking or a commission structure. Either way, they erode profitability and need to be tracked and managed.
Knowing your acquisition costs will enable you to understand which channels are most profitable.
It’s essential to understand the behavioral inclination of the guest to ascertain what it is that you need to put together, whether as a package or promotion, to drive revenue for the hotel.
If you know what will appeal to the guest, and what channel they prefer, you can provide personalized offers that convert and are profitable to your business.
How a Revenue Management System Optimizes Your Hotel for Profit
A revenue management system (RMS) such as Duetto enables revenue teams to take a holistic approach to hotel revenue management, incorporating rooms, F&B, MICE, and other ancillary spend data.
An RMS can provide visibility on all revenue streams and channels, all in one place, to enable your revenue teams to make the most informed decisions on room rates, packages, and promotions.
Choose an RMS that operates on a data-sharing open API, as this will enable you to integrate and exchange data across your other hotel technology solutions, such as your PMS and CRM. Duetto ingests more data than any other RMS, giving revenue teams the confidence to manage and optimize for profitability.
The Duetto Difference
Total profitability requires an understanding of more than just static rates. A static rate system with fixed forecasts will not enable you to react to revenue opportunities that come your way. That is why Duetto is built on an Open Pricing methodology.
Using Open Pricing, hotel revenue management teams can yield all segments, room types, and distribution channels independently and in real time. It ensures you put the most profitable business in the right rooms.
Open Pricing enables you to adjust your business according to your understanding of the marketplace, and the five variables we have listed above.
- Here’s an example: Imagine you have 15 rooms still available, and 25 available bookings for these 15 rooms. Now, 10 of those 25 bookings are from an OTA on a high commission structure. You want to try and take as few of those bookings as possible, rather than operate with a static pricing rule that takes bookings on a first-come basis and then closes everything else out.
Using the Duetto Rate Engine (DRE), hotels can yield based on spend. DRE takes guest worth (total spend, including ancillary and room spend) and surfaces a price based on that. This enables hotels to focus on the total of what that person brings to their property besides what they are paying for the room.
Each guest will spend a different amount when they stay with you – on food and beverage, spa, golf, casinos, etc. Hotels need to focus on total guest spend and attracting those guests who will spend more, rather than just taking average daily rate (ADR) as a barometer for profitability.
Duetto's pricing algorithm takes into consideration the costs per occupied room, so it never recommends a rate below how much it costs you to turn your room over.
Duetto can also vary these costs by segment or room type. For example, cleaning a suite costs more than a standard room. Hotels can input what services they provide, and these can be factored into pricing and reporting.
The algorithm can also add or deduct taxes and package costs, to enable users to see revenue from a gross and net perspective.
Optimize for Groups
Duetto’s groups’ pricing tool, BlockBuster, provides profit-based rate recommendations. For groups business specifically, revenue teams can build out a quote that takes into consideration how much it costs you to provide ancillary services, such as food and beverage, meeting space, equipment rental, etc.
For example, BlockBuster can collect from the hotel information about how much it costs them to provide breakfast, or how much it costs them to provide a meeting room, and it takes that data to provide a true profit calculation for all of these ancillary services.
BlockBuster also considers folio data, looking at the actual spend for group guests on-property. This can include room service charges, parking fees, or renting cabanas at the pool.
With this data, hotel revenue teams can decide if they want to reinvest any of the profit from these services back into the rate recommendations. So, for example, the food and beverage cost margin is 20%. And then the rest is markup that is passed onto the guest. You may want to reinvest some of that profit back into the rate that you give to the group to incentivize them to stay with you, especially in lower-demand periods.
Hotels need systems that allow them to make choices to control their business. Your revenue management needs to be consequential. Then it will be profitable.
Discover more about pivoting your business strategy to total profitability in our latest eBook: How to Boost Your Hotel’s Total Profitability. Download your FREE copy today: https://www.duettocloud.com/special-reports/how-to-boost-your-hotel-total-profitability