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The Revenue Consultant’s View of Total Profitability Management

Three experienced revenue consultants from around the world offer up their advice on how to boost profitability at your hotel, resort, or casino, from actually staying on-property and experiencing it as a guest, to breaking down departmental silos and building a revenue management culture.

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 

Understand Both your Financials and the Guest Experience

There is an old adage that says, “You can’t save your way to profitability”. And, while it’s pretty evident that profitability starts with superior top-line performance, there are some steps revenue managers can (and should) take to impact operational profitability:

  • Spend time with your financial controller. They can help you understand which elements (beyond rooms) impact profit most. While tackling the concept of “total profitability” can be daunting, particularly at large complexes and destination resorts, this small step will help you prioritize which areas to focus on.
  • Understand your guest experience from end to end. Could you research your destination to understand what would make your property stand out among the other available choices? When you make a reservation (by phone and/or online), what is that experience like? Are you given an opportunity to select an upgraded unit type or pre-book a spa appointment or dinner reservation, for example? Do you think that offer was compelling? Does the pre-arrival communication engage guests in advance by building anticipation for everything they can see and do when staying with you? Is it tailored to the nature of their visit?

I also suggest that a revenue manager stays as a guest at their property. No, not for a MOD shift – actually stays as a guest. During that stay, identify ways to appropriately encourage spending in the areas you identified above and how to make that guest experience frictionless.

Fostering trust amongst those responsible for execution and tracking results will open the door for even more opportunities to impact revenue – and profit – across your entire operation.

Trevor Stuart-Hill, Founder, Revenue Matters

Build a Revenue Culture

To embark on a journey establishing total profitability management, a revenue management culture environment should be established first. A revenue management culture is defined as a cross-departmental understanding of the importance of revenue management principles including fact-based data-driven strategies and the impact of discounting on profitability to increase demand.

Discounting

Based on the current pace pattern, a hotel that is forecasting to have a low-demand period may decide to run a discount-based promotion to increase demand for that period. Total profitability management in this case would mean that the hotel calculates the additional demand required to offset the cost of the promotion first, i.e. if a discount of 20% is applied, the property should generate 25% more room nights (simplified example using only one room type and one market segment) in order to generate the same revenue. The hotel then calculates the commission cost and compares the Net RevPAR (RevPAR minus commission) with the promotion and the Net RevPAR without promotion. Unless the incremental revenue (ancillary spend from F&B, spa, etc) from the additional room nights is significant, if the Net RevPAR with promotion is lower, then not running the promotion would be more profitable as the promotional discount would also apply to the demand that would come anyway.

Suite Inventory

The variable cost to sell a suite is insignificantly higher than a normal room (ignoring package elements like Club access for now) while the impact on profitability by selling a suite can be significant due to the price difference between a suite and a standard room. If a hotel is experiencing high demand for standard room inventory (more demand than available rooms), a highly flexible upsell strategy could be implemented to sell these suites upon check-in. Even if a 50% discount is applied, the variable cost to sell the room is more than covered and the impact on RevPAR and profitability would be positive.

There are many ways to apply total profitability management, but a key element of success is the establishment of that revenue management culture, which brings various departments (Finance, Operations, and Commercial) together to review the data and agree on a strategy together.

Stefan Wolf, Managing Director, Wolf Commercial Consulting

Remove Silos – Work in Unison

In my experience, it is common to find siloed topline and profitability growth strategy efforts at the property level. The commercial team is usually focused on the top line and finance on profit, but they’re not working in unison on new initiatives outside of the annual budget and business plan process. Today's top revenue generation leaders need to be disciplined in understanding how a new topline revenue growth strategy looks after expenses before launching it, short and long-term. 

It is recommended to break this down into two quick but detailed exercises:

  • First, create a list of the various ways you can increase total topline revenues for the targeted period, TrevPAR. Keep in mind, this will vary greatly depending on the type of property.
  • Second, identify the additional expenses associated with achieving the new revenue growth initiatives. Some initiatives may be a simple commission and distribution cost model while others, such as a Spa Wellness Weekend, will have notable complexity that requires strong collaboration with the finance leader.

 

This simple process will likely result in multiple strategy pivots, learning lessons, and ultimately improved profitability each year.

Jack Lindemuth, Founder, JLL Commercial Strategy Consulting

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 

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Sarah McCay Tams, Director of Marketing Communications.

Sarah joined Duetto in 2015 as a contributing editor covering Europe, Middle East & Africa (EMEA). In 2017, she was promoted to Director of Content, EMEA, and in 2022 promoted to Director of Marketing Communications. An experienced B2B travel industry journalist, Sarah spent 14 years working in the Middle East, most notably as senior editor – hospitality for ITP Publishing Group in Dubai, where she headed up the editorial teams on Hotelier Middle East, Caterer Middle East and Arabian Travel News. Sarah is now based back in the UK.

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