Despite popular belief, turning on your “No Vacancy” sign is not necessarily a sign of success. If a hotel is only able to achieve complete occupancy by lowering their room rates drastically, having a head in every bed may actually cost the hotel money. While some may say that any revenue is better than no revenue, they’re not factoring in that having those rooms filled means more will need to be spent on housekeeping and staffing.
All hotels must focus on profitability rather than occupancy, but this is especially true for boutique hotels with less power to drive bookings. When reservation rates are stagnant, these smaller properties must get more from each guest to remain profitable, which can be difficult to achieve without alienating first-time and long-time guests alike. The key is to strike the right balance between sales and service.
Go Beyond RevPAR
Revenue Per Average Room (RevPAR) is a helpful metric, but it only reveals how much a hotel is making, not how much it is spending. Tracking gross operating profit per available room (GoPPAR) reveals much more about a hotel’s actual performance. By factoring in both variable costs (like housekeeping and energy consumption) and added sources of revenue (such as room service and minibar spends), hotels learn what forces are really driving the bottom line.
Shift the Business Mix
The obvious way to increase profitability is to raise rates across the board, but this will potentially drive occupancy down. The better strategy is to adjust the business mix to incorporate a larger percentage of high ADR rooms. If your hotel is on the smaller side, you can increase ADR by including creative upsell opportunities in specific room listings. Showcasing some rooms as including breakfast or a free airport shuttle is an easy way to increase value—and therefore rates. That way, even if occupancy is unchanged, the hotel is making more money.
Lower Guest Acquisition Costs
The cost of acquiring guests is a huge drain on hotel profits. In the average hotel, it represents 15%-25% of the total guest-paid revenue. Keeping this cost in check is notoriously difficult, but it’s possible once hotels begin collecting, storing and tracking guest data. Guest profiles ensure that outreach efforts are easy, efficient, affordable and effective.
Eliminate Regrets and Denials
Regrets are when a guest decides to abandon a reservation, and denials are when a hotel has to turn them away. Both these instances lower occupancy and revenue while building a bad reputation for a hotel. Over time, this forces hotels to lower room rates. One way to eliminate regrets and denials is with a better booking engine. When it’s easy and exciting to make a reservation, guests will be more inclined to pay full price for a room.
Get Better at Forecasting
Small changes to rates and availability can drive a bottom line up or down unexpectedly. Revenue management is much easier once a hotel is able to look forwards rather than backwards. Integrating and analyzing data from across touchpoints makes accurate forecasting possible. In turn, this allows a revenue manager to carefully calibrate profits and plan accordingly.
Ace the Guest Experience
Friendly service is nice, but helpful service is what really matters. When guests feel a hotel is going above and beyond to accommodate their needs, they are more willing to revisit the hotel, book a longer stay and pay for additional services. In short, happy guests are more valuable guests. Leveraging guest data, hotel staff can provide one-of-a-kind service.
Update the PMS
There is no one-size-fits-all way for hotels to become more profitable. Rather, it requires a unique combination of small and large changes made across the property. A next generation PMS makes it much easier to devise, implement and track those changes by providing visibility across a hotel and bringing control under one umbrella.
Another great reason to focus on profitability over occupancy is because it gives hotels room to grow. It’s probably not possible for most hotels to build additional rooms, but it is possible to make more from the rooms you already have. With the right approach, there is no ceiling on how much a hotel can make using the amenities it already has on offer.
RoomKeyPMS puts hotels in control of their bottom line. When you’re ready to become more profitable, contact us for a free consultation.
Photo Credits: Shutterstock / Monkey Business Images
