5 Steps Toward Maximizing Hotel Profitability
It’s time for the hospitality industry to start rethinking how it measures success. That means looking beyond revenue and making hotel profitability the goal.
Consider the performance of New York hotels in Q4 2019. According to HotStats data, RevPAR dipped by 4.3% YOY, but the true financial cut went much deeper. Labor costs jumped 1.7% on a per-available-room basis and 2.1 points as a percentage of total revenue. As a result, profit took a dive. Gross operating profit per available room (GOPPAR) tumbled by 10.1% YOY.
Profitability tells the true story of a hotel’s financial health. And there are proven techniques to improve it.
Here’s how to maximize hotel profitability in five simple steps:
1. Hire Profit Managers
Revenue managers have long been a staple of hotels—tasked with generating revenue by any means necessary. This is well and good, but if only a small portion of that revenue flows down to the bottom line, then what’s the point? Hotel owners aren’t paid with revenue.
That is why it’s high time for hotel owners to task and incentivize operators on their ability to produce profit, which is why scouting and hiring profit managers is a smart, seminal idea.
Profit managers need to be innovative and well rounded. They can’t survive by merely digging up and acting on surface-level revenue metrics, but have to have a more holistic approach, which considers expense as much as revenue.
At the end of the day, revenue counts, but profit matters.
2. Manage All Revenue Streams
While room revenue is the biggest source of income for hotels, it doesn’t mean that all other revenue streams should be overlooked. Hotels can boost revenue and profit by focusing on ancillary operations within the hotel, such as:
Food and beverage
Meetings and conferences
3. Watch Cancellation Trends
Cancellations can throw a wrench into a hotelier’s strategic planning—and that hurts the bottom line. However, a tighter look at cancellation trends can illuminate opportunities for profit growth. Here’s where to focus:
Identify specific channels with especially high cancellation rates
Measure monthly trends to see how seasonality affects cancellations
Pick out the channels that have fewer cancellations
Revisit your cancellation policy
By replacing that window with a more stable channel, you can increase revenue and build out a more reliable performance strategy.
4. Create Stellar Guest Experiences
Creating and delivering a strong guest experience is at the heart of running a profitable hotel.
According to PwC’s 2018 report entitled, “Experience is everything: Here’s how to get it right,” guests are willing to pay more for better care:
It found that 42% of consumers are willing to pay more for a welcoming experience.
It also revealed that 43% of customers would pay extra for more convenience.
To capitalize on these trends, hoteliers can build internal sales strategies that boost guest spending. To see a fuller return on investment, this means giving guests the services they want. In the long run, your hotel will profit from loyalty programs, extended stays and repeat customers.
Extra tip: Invest in your team and give credit where it’s deserved. This can save money by cutting down on turnover. At the same time, the more you spread love to your team, the more they’ll carry good service on to customers.
5. Look Beyond Revenue
Hotel professionals are unfailingly hyper-focused on revenue. However, to achieve maximum profitability, they need to dive into more precise data.
Revenue only tells you part of the story: It describes how much money is coming into a property, but it ignores operational efficiency and how much money a hotel is spending to run the entire operation.
Just think: A hotel’s revenue can climb for consecutive years, but if costs such as labor rise, too, total returns could be wiped out.
If hoteliers want a fuller story about profitability, the smart move is to monitor more comprehensive metrics, such as TRevPAR and GOPPAR.
Bonus Tips for Boosting Profit
On the whole, these tips should help hoteliers maximize profit. Still, the key to higher returns is to dive into precise figures and determine what they say about the whole operation. Regardless of the path hoteliers take to better performance, every move should be informed by data. And profitability should be the guiding light.