The Hotel Profit Playbook:
Data-driven Strategies to Move Beyond Rooms Revenue
SPECIAL REPORT
Hotel owners and operators have shifted from top-line data collection and analysis to making more decisions around driving bottom-line margins. Understanding labor and amenity costs, analyzing non-room revenue trends, and centralizing data from all revenue sources is arming hospitality leadership with the right data to make more profitable decisions.
Presented by:
Table of contents
Introduction: What is Hotel Total Profit Optimization?
Chapter 1: Holistic Analysis: Look Beyond Rooms and Include Ancillary Revenue
Chapter 2: Applying Revenue Management Principles to F&B and Spa
Chapter 3: Dig deeper: Understand Profit Margin at Each Outlet Across your Property
Conclusion: Centralizing the Data that Allows you to Make More Profitable Decisions
Sources
Thomas Barnhorst
Complex Director of Revenue, Islamorada Resort Collection
Daniel Zeal
Executive Chef, Sea Island Resort
Adam Mogelonsky
Principal, Hotel Mogel Consulting Ltd.
Raquel Ortiz
Director of Financial Performance, STR
Joseph Rael
Senior Director of Financial Performance, STR
Steve Hennis
International Society of Hospitality Consultants
Ryan Smith
Product Lead, MDO
Sudharsan Chary
Hall of Famer, MDO
Priya Rajamani
VP of Implementation & Support, Stayntouch
Tess McGoldrick
VP of Travel & Hospitality,
Revenue Analytics
Introduction
What is Total Profit Optimization in Hotels?
As hospitality continues to evolve at a breakneck pace, technological advancements are pushing the industry faster than ever before. And travelers have exited the pandemic with new and evolving desires. Small tweaks to improve customer satisfaction and boost top-line revenue are no longer enough.
Today, the best hotel owners and operators are consistently laser focused on running profitable businesses. “Really everyone in the industry is moving toward profitability as a new measurement,” says Joseph Rael, senior director of financial performance at STR, one of the industry’s leading providers of market data on the hotel industry worldwide. Rael was instrumental in the launch of STR’s Monthly P&L Report in March 2020, which just so happened to be a pivotal time for hoteliers to gain more insight into the true health of their businesses.
In recent years, hoteliers have made significant progress toward a more holistic view of their properties, focusing more attention on ancillary sources in their revenue management purview. At the same time, many have moved past the traditional top-line revenue management and introduced new ways to measure and budget against bottom-line margins.
The next step is combining those two efforts – broadening operational strategies to include management focus on all the revenue-generating avenues in a hotel, and measuring the flow through of each of those outlets to determine optimal profitability. A new term for this holistic approach to hotel ownership and management has emerged, called Total Profit Optimization.
Total Profit Optimization refers to the process of maximizing the overall profit of a business. In practice hotel operators consider various factors such as costs, revenues, pricing, staff efficiency, resource allocation, and market demand. The goal is to find the optimal balance between these factors to achieve the highest profit margin.
Key steps involved in hotel total profit optimization are:
- Revenue management: Setting optimal rates based on demand and adjusting pricing dynamically to maximize occupancy and ancillary revenue.
- Cost control: Evaluating expenses across various areas such as labor, energy consumption, procurement, and maintenance, and identifying cost-saving opportunities.
- Upselling and cross-selling: Encouraging guests to spend more during their stay, such as upselling room upgrades, promoting additional services and amenities, cross-selling dining and spa experiences, and creating attractive package deals.
- Operational efficiency: Streamlining operations through efficient processes, well-trained staff, and effective inventory management systems.
- Data analysis and forecasting: Leveraging data analytics and forecasting techniques can provide valuable insights and help hotels make more informed decisions.
Total profit optimization in hotels requires a comprehensive and holistic approach, considering all aspects of the business. In the following chapters, we’ll outline ways leading hoteliers are continuously monitoring key performance indicators, adapting to market changes, and implementing effective strategies to achieve maximum profitability while delivering exceptional guest experiences.
Chapter 1
Holistic Analysis: Look Beyond Rooms and Include Ancillary Revenue
Traditionally, hotel revenue management focused primarily on room revenue. However, a relatively new approach has emerged called total revenue management, wherein hotel management companies consider all revenue-generating areas, including rooms, food and beverage, meeting and event spaces, spa services, ancillary services, and other sources of income.
By taking a holistic approach to revenue management, hoteliers can make informed decisions about pricing, marketing, and distribution strategies that optimize revenue across all channels and revenue streams. Total revenue management allows hoteliers to leverage technology and data analytics to gain a more comprehensive understanding of their customers and their behaviors.
In Hospitality Net, Anders Johansson, CEO of Demand Calendar, recently outlined four challenges to adopting a total revenue strategy:
- Diverse revenue streams: Hotels often have multiple revenue streams, which can make consolidating and analyzing financial data across the entire business challenging.
- Data consolidation: Consolidating financial data from multiple hotels, systems and software applications can be complex and time-consuming, especially if the data is not standardized or easily accessible.
- Real-time data access: Financial data may not always be readily available or up-to-date, making it difficult for management to make timely informed decisions.
- Different locations and currencies: If portfolios are spread across multiple countries, financial reporting and analysis can become more complex due to fluctuating exchange rates.
Because of these challenges, one prominent industry consultant argues that most hotel operators have not yet adopted the practice of total revenue management.
“Hoteliers aren’t yet seeing the need to align their cross-departmental performance to ensure we’re capturing the most revenue from a guest across all the various revenue sources within a hotel,” says Adam Mogelonsky, principal at Hotel Mogel Consulting Ltd. “It comes down to getting all the data in one place, which is very tough to do within each hotel’s technology architecture.”
"It comes down to getting all the data in one place, which is very tough to do within each hotel’s technology architecture."
Unlocking Total Revenue Management
Thomas Barnhorst, a veteran in the hospitality industry, would tend to disagree. Barnhorst’s career journey has seen him manage a broad range of offerings, from full-service hotels to a complex of resorts and more. His experience is a testament to the complexity of total revenue management in the hospitality industry, especially when it comes to managing revenue at a complex of resorts.
Today, he serves as Complex Director of Revenue at Islamorada Resort Collection. With around 360 rooms across the different properties at Islamorada – some of which even include houses – his challenge is not just in maximizing room revenue, but also in managing it across several different room types. For Islamorada, it’s not just a Queen or a King room type up for sale – there are so many “one-off” rooms, Barnhorst says.
Barnhorst notes that while a total revenue management strategy is still in its infancy stages at Islamorada Resort Collection, he seeks to bring over expertise from his success at other hotels. One example of this strategy is an innovative approach to managing cabana rates. By adjusting prices based on demand – higher rates on weekends and lower rates on weekdays – Barnhorst wants to maintain profitability while ensuring guest satisfaction.
Barnhorst is experienced in developing average-spend-per-guest strategies. “You can do it by room and by channel, so you know exactly how much an Expedia guest would charge on property,” he says.
Having the right reports is crucial to hotel operators putting forth the necessary visibility and transparency for ownership groups. Technology provides Barnhorst and his team with detailed reports that measure total revenue, broken out by outlet, and can be further dissected by dates and days of the week.
Total Revenue Management Starts with Automation
By Tess McGoldrick
VP, Travel & Hospitality
Revenue Analytics
Hospitality Revenue Management leaders have been talking about Total Revenue Management for decades. In the February 2009 issue of Cornell Hospitality Quarterly, under a section entitled “Managing the Entire Revenue Stream: Total Hotel Revenue Management,” Bruce Hoffmeister of Marriott said: “We are now looking at the whole hotel and how we are going to maximize our profitability by taking into account total revenue and not just room revenue.”
While some progress has been made, for most of the industry, Total Revenue Management still remains a vision, not a reality.
A big part of the problem is that many revenue teams are still operating in the weeds. They focus the bulk of their time on making tactical decisions on room pricing and availability. They walk through these decisions hotel-by-hotel, day-by-day, and rate-by-rate. That’s barely sustainable for one property, and it is simply impossible in an above-property world. A dreaded “leftover” of the COVID pandemic is the notion of needing to “do more with less.”
Through data and BI tools, today’s revenue managers can implement key strategies to determine the optimal mix of revenue and drive bookings through the most profitable channels. They can take time to experiment with Food & Beverage price increases to test price elasticity before making more permanent changes.
Moving to Total Revenue Management remains a tremendous opportunity – one that could drive billions of dollars of value for the industry. But to realize that opportunity, revenue teams must first change their mindset. They must embrace automating the tactical daily decisions on room pricing and inventory and moving to a process of management by exception. They will need modern technology to enable the change. That technology is out there, and innovative hotel chains and groups are embracing it.
The Key Metric Behind Total Revenue Management
Because it provides a more holistic view of the revenue generated across an entire property, more hospitality leaders are turning to TrevPAR (Total Revenue Per Available Room) as a key measurement in their benchmarking and operational strategies.
To calculate TrevPAR, hotels add all revenue generated from room sales, food and beverage sales, meeting room rental and spa services, and other sources of revenue, such as parking, resort fees and pet fees. This total revenue is then divided by the total number of available rooms in the hotel.
By analyzing TrevPAR, hoteliers can identify areas where they can increase revenue, such as by promoting the hotel’s food and beverage offerings or by increasing sales of additional services, such as spa treatments or other amenities.
It’s a timely topic as ancillary revenues outside of hotel rooms seem to be skyrocketing. According to STR, TrevPAR at U.S. hotels in March broke a record, clocking in at $238.22, up 17.5% over March 2022 and the highest for any month on record. Rooms revenue accounted for some of the growth – average Revenue Per Available Room (RevPAR) in March was $103.35 – but hotels made significant revenue gains outside of the rooms department.
“Ancillary revenues have picked up, especially post-COVID. Along with a renewed interest in travel, people are also taking advantage of the ancillary services that hotels offer,” says Raquel Ortiz, Director of Financial Performance at STR. “Definitely restaurant revenue has been up – not so much from group business – but transient guests are driving revenue gains in the F&B, spa and golf departments.”
STR measures TrevPAR as part of STR’s new Monthly P&L Reports, which take many of a hotel organization’s ancillary revenue sources, such as F&B, Golf, Spa, and Meeting Space into account, and even provide payroll benchmarking for each.
Some of that revenue is driven by guests who are visiting the property specifically for restaurant reservations, a tee time or a spa appointment, and won’t end up staying overnight, which is fairly common in the luxury and resort spaces, adds Sudharshan Chary, Hall of Famer at MDO.
“At Mandarin Oriental, for example, there are guests who come to eat at the property even if they’re not staying there, and Mandarin tracks those guests through their recognition program,” Chary says. “They make quite a bit of revenue from people walking in to have lunch at a Mandarin Oriental and they want to understand what that guest’s total spend is, regardless of whether it’s on food, beverage, spa appointments or rooms. And that same kind of thinking goes for a lot of the other properties.”
“If you’re looking at revenue figures for somewhere like Atlantis – they’ve got a waterpark, they’ve got parking, they’ve got 30 different restaurants at a single property – TrevPAR is a nice figure that leadership can use to understand which divisions are under- or overperforming,” adds Ryan Smith, Product Lead at MDO.
TrevPAR Analysis Could Reshape Hospitality
A wider availability of revenue data from the ancillary outlets across a hotel has led to some interesting discoveries in the industry.
Almost immediately, hoteliers can observe record growth rates from other departments outside of rooms and compare it with slower gain in the rooms department, and begin to question how much emphasis they should place on managing entertainment options over managing rooms revenue.
“I think it definitely changes the way hoteliers think, especially because it’s so much harder to increase rooms revenue versus increasing the prices on spa services or menu items in your restaurant,” says Raquel Ortiz, Director of Financial Performance, STR.
Analyzing the data, would a smart hotelier ever move away from offering overnight lodging and instead focus on running a spa, for example?
“We’re working with a hotel group that’s done exactly that: You have to book the spa package to get a room,” says Ryan Smith, Product Lead at MDO.
Other hotels are using the connection between room bookings and ancillary entertainment options in equally creative ways. At Pebble Beach Golf Links on the California coast, often considered the No. 1 public course in the country, tee times are only available to resort guests, meaning you have to stay onsite in the Lodge, the Inn at Spanish Bay or Casa Palermo to play. Each lodging facility fetches around $1,000 per night or more, advanced tee times require a two-night minimum, and a round of golf costs more than $600.
“Smart hoteliers do the same thing with function space,” suggests Sudharshan Chary, Hall of Famer at MDO. “If a good function space manager is experiencing high demand, they won’t reserve meeting space or a ballroom unless the contract has hotel rooms attached to it. They’re always thinking about the property holistically, not just that one revenue center.”
Chapter 2
Applying Revenue Management Principles to F&B and Spa
As a large majority of hotels have adopted some sort of dynamic pricing for their rooms, the next evolution of revenue management is moving beyond rooms, and many leaders have adopted total revenue management strategies for a more holistic approach.
One area that is ripe for innovation is F&B Revenue Management, and hotels are adopting the same principles and techniques that apply to room revenue management in their various F&B outlets, including full-service restaurants, bars, coffee shops, and grab-and-go marketplaces.
F&B revenue management techniques largely focus on dynamic pricing, or adjusting the prices of menu items based on customer demand; and menu engineering, or adjusting the menu offerings to maximize profits.
To unpack F&B dynamic pricing, let’s identify four different “fences” that could influence dynamic price changes at your hotel F&B outlet:
- Time of day. Prices may vary depending on the time of day or meal period, such as breakfast, lunch, dinner or happy hour.
- Day of the week. Prices could potentially be higher on weekends or during peak times.
- Portion sizes. Prices may also vary depending on the portion sizes offered, with larger portions typically costing more.
- Location in the restaurant. Items may be priced differently depending on where they are located on the menu or where they are served within the restaurant, such as at the bar or in a private dining room.
A recent National Restaurant Association report on the State of the Restaurant Industry 2023 addressed dynamic pricing in restaurants. It found that 79% of consumers are favorable or somewhat favorable toward variable pricing. Just over 70% of consumers reported they would order smaller-sized portions if the price was lower, and nearly 80% of consumers would be favorable toward discounts on lower demand days and times.
"Consumers are fine with variable pricing when done in a consumer-friendly way."
“Consumers are fine with variable pricing when done in a consumer-friendly way,” writes Cornell University Professor Emeritus Sherri Kimes. “This means offering value to the consumer. It doesn’t mean discounting all the time. If restaurants offer lower prices during low demand times, it also means that restaurants can charge higher prices during other periods.”
The key to F&B revenue management is using data to analyze guest demand and purchase behavior. Data can also help you identify which items contribute to the highest average checks, which employees are skilled at tasks like upselling, and which menu items (or bottles of wine, for example) drive the most to the bottom line.
With some basic practices, you can improve performance in several areas, including traffic (covers), sales (average check), and service (improved reputation and guest satisfaction). Access to structured data and intuitive visualization across these outlets will allow you to make more profitable decisions.
Analytics Power F&B Profits at Sea Island Resort
Sea Island Resort on St. Simon’s Island off the coast of Georgia is home to 12 full-service and three quick-service restaurants, including the only Forbes Five Star restaurant in the state of Georgia, The Georgian Room. It is the only resort in the world to have received four Forbes Five-Star awards for 10 consecutive years.
Daniel Zeal started as a Sous Chef at Sea Island more than 17 years ago, and over time worked his way up through the kitchen into executive positions. For the past four years, he has served as executive chef. His time these days is spent less often hovering over a hot grill and more often in the office crunching numbers to ensure Sea Island’s 15 F&B outlets run with the highest profit margins possible.
“Every day we have a running P&L. Prior to working with Datavision, when I needed to look at my labor costs or my food costs, every day I would be pulling those numbers from our Point of Sale systems at each outlet and frankensteining an Excel doc to make sure I was hitting my budget,” Zeal says. “About 10 years ago, I met with my F&B director and with the Datavision team and said, ‘There has got to be a better way.’ We built a spreadsheet, and Datavision began extracting revenue numbers by location from Micros into that. Now we just pull purchases for day prior, enter them and hit F9, and we have a running food cost.”
Zeal uses Datavision to monitor everything from revenues to quantity of items sold, all the way down to the individual check. He can see items sold by outlet, by meal period and by server.
“For the past 10 years, it’s the only reason we’ve been able to consistently achieve food cost results,” he said.
Total Revenue Management Powers Success at Luxury Resorts
The luxury hotel sector is a case study for the success of total revenue management. What is one item or service that you absolutely must have, and would pay almost anything for, no matter what the cost? For many of the world’s wealthiest individuals, it’s a vacation at a luxury resort. If you’ve recently shopped for that ultimate high-end getaway, you’ve likely experienced some sort of sticker shock and have been left with the impression that luxury resorts can seemingly charge whatever they want for a nightly rate.
Skyrocketing rates are prevalent across the entire hotel industry, with the luxury segment leading the charge, but the resort space sits at the epicenter. While rates at U.S. luxury hotels averaged $377.98 throughout the entirety of 2022, rates at U.S. luxury hotels classified as “resorts” clocked in at $420.66 over the same time period.
But even when they’re able to charge top dollar, luxury hotel operators face their own sets of challenges.
First and foremost, the staffing issues felt across the entire hospitality industry – scarcity of workers and rising wages – are often exacerbated at the luxury level. This is because high-end guests expect high-end service, and when they don’t receive it, they’re quick to leave poor satisfaction scores or vow to never return.
Due to these rising operating costs, luxury operators must ensure rate increases are strong enough to drive profitability. This is where profit-and-loss data becomes critical, affording business leaders the insights they need to see exactly how much of those room revenue increases are flowing through to the bottom line.
Measuring profit – with new metrics like Gross Operating Profit Per Available Room (GOPPAR) – allows luxury resort operators to understand the true financial health of their business and make informed decisions about pricing, operations and investments. Profitability ratios such as gross profit margin, operating profit margin and net profit margin provide insights into the efficiency and profitability of a hotel’s operations.
In addition, improved access to ancillary profit data from other departments – food and beverage, spa, conference and event centers, etc., can be used to measure how pricing can offset costs to drive profitability. By taking a holistic approach to profit management, hoteliers can make informed decisions about pricing, marketing and distribution strategies that optimize revenue to drive profit.
Driving Ancillary Revenue with Flexibility
By Priya Rajamani
VP of Implementation & Support
Stayntouch
Hotels must adopt a more comprehensive and flexible approach to revenue generation to thrive in the modern hospitality market. Travelers now expect hotels to offer more than just a place to sleep, and hoteliers should take advantage of this shift in perception. Hotel owners and operators should adopt a revenue strategy that maximizes their property or brand’s total profitability, where every aspect of the guest journey and the physical space is viewed as an opportunity to earn revenue and add value to the guest experience.
In the past, hotels have not fully capitalized on ancillary revenues and underestimated their potential to increase their profits. When compared to the airline industry, hotels have not kept up with the pace of growth in ancillary revenue, with some airlines generating up to 40% of their overall revenue from ancillary products.
Traditionally, hotels have attempted to increase revenue by offering room upgrades during check-in. However, this approach can feel like a nuisance to guests and may not effectively communicate the value of upgrades. Furthermore, guests may not realize the full range of available upgrade options. A contactless, mobile welcome experience can address these challenges and provide a critical touchpoint for hotels to increase ancillary revenue.
Mobile technology presents a unique opportunity to monetize every aspect of the guest journey, expanding a hotel’s revenue strategy beyond occupancy and room revenue. Through new innovations, guests can customize their stay through their own devices. Open-API systems with webhook enhancements have created a seamless integration of tech ecosystems, leading to a highly personalized and unified guest experience.
Through a mobile platform, hotels can offer targeted automated offers for room upgrades, amenities, and early check-in or late check-out directly to a guest’s mobile device or guest-facing kiosk. Available data suggests that mobile upselling can be highly effective, with conversion rates as high as 18% for room upgrades and 10% for add-ons. This can lead to significant quarterly returns on investment (ROIs) for hotels based solely on ancillary revenue, with some reaching as high as 240%. Therefore, a mobile welcome experience not only delivers a convenient and safe check-in process but also presents a valuable opportunity for hotels to increase their bottom line.
Great hotels strive to provide more than just another place to stay; they aim to deliver an experience that will delight their guests and keep them coming back. By leveraging a mobile PMS with the ability to manage day-use or hourly bookings, hotels can break free from the limited “one room for one night” offerings of traditional brands and monetize almost every aspect of their property and guest journey.
On the most basic level, hotels can utilize hourly bookings to take spa, golf, and activity reservations, but the potential of this expanded asset class goes even further than that. Airport hotels can use hourly room rates to offer business travelers a quiet place to work or relax during an extended layover or flight delay. Day-use bookings can also provide remote workers with a peaceful and productive space to break the monotony of home telework while allowing hotels to monetize unused rooms during the day or create a dedicated co-working environment in their lobby.
Allowances and packages are a great way to add value to hotel guests while generating additional revenue for hotels. Hotel allowances include various amenities such as food and beverage credits, spa treatments, parking, or complimentary access to local attractions. These allowances can be tailored to specific guest preferences or room types, making them more attractive to potential guests and increasing the likelihood of booking. Hotels can create packages that bundle various amenities such as a romantic getaway package that includes a room upgrade, champagne, and chocolates.
Chapter 3
Dig deeper: Understand Profit Margin at Each Outlet Across your Property
A hotel’s revenue can be high, but the profit may be low or even negative if the costs of running the hotel are also high. Conversely, a hotel may have lower revenue but higher profit if it is able to control its costs and expenses effectively.
Measuring profit allows hoteliers to understand the true financial health of their business and make informed decisions about pricing, operations and investments. Profitability ratios such as gross profit margin, operating profit margin, and net profit margin provide insights into the efficiency and profitability of a hotel’s operations.
“The great thing about P&L (Profit and Loss) data is that it’s a true indicator of whether or not you’re making the right decisions,” says Steve Hennis, a hotel data analyst and International Society of Hospitality Consultants board member. “That’s not only true for operators, but even investors can look at P&L data to determine whether to buy, sell or renovate a property. It brings all parties to a level playing field.”
While top-line metrics like RevPAR remain widely used benchmarking measurements across the hotel industry, there has been a collective push from hoteliers over the past few years to standardize the use of bottom-line metrics like Gross Operating Profit Per Available Room (GOPPAR) that more accurately portray the health of a hospitality business.
From operators looking to compare hotels in their portfolio, to owners benchmarking against their comp set, to investors looking to truly evaluate a hotel’s potential returns, more hoteliers are looking beyond RevPAR and searching for a true indicator of a business’s profitability.
It’s important for hoteliers to take the next step of calculating costs and expenses and subtracting them from the top-line revenue numbers to arrive at more descriptive profitability metrics, which will give them a more complete understanding of a hotel’s financial performance.
To deliver profit benchmarking data, STR unpacks revenue and expenses across each department in a hotel, collecting nearly 150 data points on a monthly basis. Other benchmarking tools such as Kalibri Labs and Hotstats are also calculating expense data to give hoteliers numbers that are more reflective of “net revenues.”
For example, Kalibri Labs examines the total revenue collected by a hotel from each booking, as well as various calculations that deduct different sales and marketing costs that were required to achieve that revenue:
- Hotel Collected Revenue reflects the top-line revenue a hotel collects on a booking, which does not include transaction costs or commissions expenses.
- COPE Revenue (Contribution to Operating Profit and Expense) reflects the remaining revenue after removing all direct acquisition costs such as commissions, transaction fees and channel costs.
- Net Revenue reflects the bottom-line revenue after additionally removing Sales and Marketing expenses.
"Rooms and F&B are definitely more labor intensive and have more expenses tied to it, but golf and spa, which are more experiential, you can control the labor a little bit more and you can have larger markups on the products."
“I think hoteliers are ultimately going to want to focus on areas where you can manage expenses better,” says Raquel Ortiz, Director of Financial Performance at STR. “Rooms and F&B are definitely more labor intensive and have more expenses tied to it, but golf and spa, which are more experiential, you can control the labor a little bit more and you can have larger markups on the products.”
Ryan Smith, Product Lead at MDO, says he is working more with hoteliers who are looking to better understand how revenue from their ancillary outlets flows through to the property’s overall bottom line. “One of the hardest things to track is the channel cost on rooms – it’s much easier for hotels to track the expense lines and the cost margins for ancillary revenue than it is for their rooms,” he said. “Also, it’s a lot easier for hoteliers to prototype, test and try new things in the ancillary departments. You can offer a treatment package or a menu item that only runs for one week and see how it performs, and if it doesn’t work, you change it. You can’t necessarily do that with rooms because you’re dealing with perishable inventory.”
The real profit drivers, Ortiz suggests, are revenue streams that have very little costs or expenses attached, many of which are bucketed “miscellaneous” by STR – things like parking, resort fees and pet fees.
When ‘Per Available Room’ Isn’t the Right Measurement
As discussed throughout this report, most hotels offer many additional entertainment and revenue-generating options beyond rooms for overnight accommodations. Therefore, it can sometimes be misleading to tie ancillary revenue to a hotel’s number of rooms for measurement purposes.
Some industry leaders make the case that even TrevPAR, which measures revenue from outlets across the entire property, can be somewhat limiting.
“Decisions aren’t made off of TrevPAR,” suggests Ryan Smith, Product Lead at MDO. “Decisions are made based on the numbers underneath it.”
Sudharshan Chary, Hall of Famer at MDO, argues that dividing ancillary revenues by “per available room” can be a misleading statistic that doesn’t account for walk-in guests who don’t stay overnight. Instead, he helps hoteliers create specific metrics for those departments, such as Revenue Per Available Treatment Hour in the spa department, or what he calls RevPATH.
Similarly, Smith has worked with an island resort that is able to take their time sheet data and compare it with food cost data to break out exactly how profitable the F&B department is by hour. Leadership is using that data to determine when to close the dining outlets, whether to extend lunch, whether to offer a happy hour, etc.
Through P&L data ingested from the PMS into custom dashboard and reporting solutions, MDO is helping hoteliers understand Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) from each of their ancillary departments.
STR is offering benchmarking insight into profit margins by department as well. “Which department is going to have the biggest margins overall? It’s usually not F&B because that’s a very labor-intensive department,” Ortiz says.
Ultimately, both Chary and Smith see measurements moving toward a common denominator like revenue per guest or revenue per square foot, which helps identify which revenue drivers within a property are more profitable. Another increasingly popular measurement is TrevPOG (Total Revenue Per Occupied Guest), which mainly helps resorts measure guest spend across the entire property.
“Some clients have measured rooms down to per square foot, function space down to the square foot and F&B space down to the square foot. It’s all the same space, and this way they can determine how many tables or how many rooms to put in that space,” Smith says.
CONCLUSION
Centralize the Data that Allows you to Make More Profitable Decisions
Fortunately for hoteliers looking to adopt Total Profit Optimization today, there are tools available to extract data from all the revenue systems across a hospitality enterprise and create a single, comprehensive data warehouse with deeply customizable views.
Hoteliers can connect and ingest the data they need into customizable reports and dashboards. Through comprehensive integrations with industry-leading systems, hoteliers can access a 360-degree view of data across all their properties’ or portfolio’s revenue streams, including PMS, POS, Spa, Golf, Labor, Back Office, Comp Set, Web Analytics, Guest Survey, Guest Spend Analytics and more.
With this new data at their fingertips, hotel leaders can innovate in the following areas:
- Total Revenue Management. Optimize revenue management strategies by analyzing data on booking patterns, demand, pricing trends, competitor pricing, etc.
- Operational Efficiency. Track operational performance metrics such as room occupancy, staff productivity, and customer satisfaction to enhance their operational efficiency.
- Marketing Analytics. Track the effectiveness of marketing campaigns by analyzing data on website traffic, social media engagement, and online reviews.
- Forecasting. Predict future demand to better plan staffing, inventory and pricing strategies to maximize revenue and profits.
To get started, clearly define your goals and objectives. Collect and analyze relevant data from all your various revenue sources, and continuously monitor performance, track Key Performance Indicators (KPIs), and analyze the effectiveness of your strategies.
Consider investing in revenue management systems, data analytics tools, and other technology solutions that can automate processes, provide real-time insights, and help optimize your profit optimization strategies. Remember that total profit optimization is an ongoing process that requires constant evaluation and adjustment. By implementing these steps and continuously refining strategies, hoteliers can enhance profitability and achieve their financial goals.
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About MDO
MDO centralizes and stores critical performance and financial data for hotel ownership, management groups and asset managers. Through integrated data feeds, document workflow management, and award-winning custom dashboards, hoteliers are able to reach greater levels of profitability by operating more efficiently, improving budgeting and forecasting, and reducing their environmental impact.
Learn more about using Business Intelligence to power your profitability at www.mdo.io.
About Stayntouch
Stayntouch delivers a cloud-native and guest-centric hotel property management system (PMS) with a comprehensive library of over 1,100 integrations. Stayntouch’s cloud-native PMS empowers independent hotels, hotel groups, and management companies to drive revenue, reduce costs, enhance service, and captivate their guests. In 2022, Stayntouch launched Stayntouch 2.0, a fully integrated technology suite featuring its core cloud-native PMS and guest kiosk solution, a comprehensive chain management module, a seamless booking engine (Stayntouch Booking), a robust payment processing platform (Stayntouch Pay), and a powerful channel manager. Stayntouch 2.0 enables hotels to streamline their operations, maximize and diversify their revenue streams, and deliver an even more enhanced guest experience with the innovation and support of one trusted technology partner.
Explore How Stayntouch PMS can Drive More Profitability for your Hotel or Portfolio.
About Revenue Analytics
A pioneer of Revenue Management, Revenue Analytics is an enterprise SaaS company that partners with hospitality, media, and manufacturing companies to solve their most complex pricing challenges. By leveraging powerful analytics and deep strategic experience, Revenue Analytics’ next-generation software delivers intuitive answers to help companies perfect their pricing, reclaim missed revenue, and take back their time.
Learn more about how Revenue Analytics is recreating Revenue Management at revenueanalytics.com.