Don't just chase revenue: focus on driving profit
“It takes a village to raise a child.” Now, this is a phrase I as a parent, understand all too well. The saying emphasizes that a child’s upbringing is a communal effort involving many different people and groups, from parents to grandparents to teachers and neighbors. The whole idea underscores the belief that the collective involvement of a community is essential in achieving a certain goal or completing a task, like raising a kid.
But let’s take a few minutes to learn about the deeper meaning of the phrase and see how to apply it at work, particular where every person and every department across the entire hotel has a role to play in maximising profit. In the business world, it takes a village to make any company successful, from trainees to managers and CEOs.
There are several hotels that might be hemorrhaging profits without them even realizing it. Yours could well be one. These profit leaks occur every day through high online travel agents (OTA) commissions, unproductive marketing campaigns, several offerings, which despite been popular, have low margins and many other back-of-the house leaks that eat into profit.
How do you plug these leaks? Hotels can first look at what’s within their control. Let your staff know that all revenue is not equal. Enable your staff to understand the marginal contribution of each product or service so that your team can prioritise selling these offerings – without being pushy. Like the front desk agent who upsells a 2-bedroom suite to a family that has booked two rooms or makes additional sales during check-out, such as a takeaway breakfast or lunch box or by arranging a hotel taxi to the airport.
Other examples include the proactive revenue manager who spots soft weekends early and makes timely adjustments to rates to boost traffic. The maintenance guy who repairs a leaky water line before it becomes a huge water damage. The housekeeper who takes pride in her staff in attention to details others don’t see – leading to a five-star guest review on social media.
How much more valuable is a direct booking than an OTA booking?
Another significant cost that can be managed is the Customer Acquisition Cost (CAC) which is the total cost to acquire a customer, including sales and marketing expenses. Hotels often overlook the full cost of acquiring guests. Surprisingly, these hidden customer acquisition costs can reach 15–25% of revenue. Yet, while hoteliers often dissect every other cost in the P&L very closely CAC expenses are hardly looked at. Some hotels rely on OTA’s for as much as 70% of their room bookings. Imagine been able to progressively reduce that high OTA reliance factor? Say from 70% to 60%. Do the math’s, that a hefty saving that goes direct to the bottom-line. When your growth relies too heavily on someone else’s platform, you’re not scaling - you’re renting your lifeline.
How can a hotel get more direct reservations? By making it easier and compelling for the potential customer to click “book now” on the hotel’s website instead of someone else’s platform. When I find a hotel I like, my first impulse is to book directly because by doing so, the hotel gets my personal details and special requests right away. Unfortunately taking that direct path is when I often encounter booking problems. Some hotel websites take too long to load, make it hard to find the room type or rate I'm looking for, or show me a confusing booking engine. Even worse, sometimes the price is higher than what I saw on the OTA. If that happens, I give up on direct booking and return to the OTA. End of story. Sadly, my actions highlights one of the biggest barriers to direct bookings: an underperforming website with outdated design structure, a complex booking flow and a rate that is higher than what the OTA’s offer.
Sales and Marketing people must remember that today’s traveller demands a seamless user-friendly experience and a room rate that is not out of line – both of which are non-negotiables. Hence, to directly attract profitable bookings and to avoid extra fees to lower CAC make the hotel website dynamic with a well-organised menu and a clear layout that ensures users to quickly access room options, pricing, availability and policies without been frustrating.
Small, practical steps like these can have an outsized impact on margins. Opportunities for profit can be unearthed everywhere, which is why it’s now everyone’s job to track it.
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Motivational Speaker, Mystery Guest Auditor, Ex-Hotelier
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