The Channel Mix Effect on Profitability
By Richard B. Evans, President of Revenue Report Card LLC & Author of “the Definitive Study of Vacation Rentals”
The amount of the gross reservation revenues in each channel is its contribution to overall gross reservation revenues. This is shown as a percentage in column 2 below. (I.e. the Wholesaler Receptive Operator on the chart below has contributed 32.4% of the properties gross reservation revenues.
Each channel offers units for sale at an Average Daily Rate (ADR). The ADR is shown in column 3 below. In cases where a reservation vendor, such as Wholesaler Receptive Operator, pays the hotel after commissions are deducted, the rate is GROSSED UP so to place it on an equal footing with all other channels in comparison. (I.e. the Wholesaler Receptive Operator actually paid this hotel a NET RATE of $196; this was adjusted to $269).
It's a given that each revenue channel has three cost components (1) Commissions, (2) Sales & Marketing Labor and (3) Promotion. The combined costs are divided by each channels gross reservation revenues to arrive at the COST PERCENTAGE of that channel. Each line below shows a COST.
The last column provides the "change in profitability" that results when Channel Mix, Channel Rate and Channel Cost is changed.
The left side of each column shows the actual channel mix, rate and cost tht M Hotel experienced in the first quarter ended March 31, 2016. The right side of each column shows the suggested channel mix, rate and cost goal, in order to achieve optimal profitability.
Results shown below are drastic, showing additional REVENUE PROFIT earned in the 1st quarter of $284,054.
The properties Competitive Set suggests that changes shown below are achievable and demand adequate in each revenue channel. For some properties this will not be possible to achieve in one year. Instead it should be possible to achieve over the course of two. An ambitious hotel could turn the full profit around, however, in one year.
The key here is a new Website, content and photographs combined with the analysis of traffic flow through Google Analytics. Careful keyword selection, targeted high performance geographical areas and appropriate landing pages will begin the displacement in moving revenues from more costly channels to the website channel. Carefully track your PACE because that becomes an exceptional indicator of what is to come and how channels can be used.
The area indicates that the hotel website should be easily capable of performing within a range of 18% to 28% of gross reservation revenues.
The high occupancy achieved in the first quarter was exceptional and was the result of the extremely low rates offered in all other channels. The hotel needs to bring the majority of Revenue Channels (Website, Call in, OTA, GDS and Independent Travel Agent) up to meet that which is being successfully sold by the Wholesaler / Receptive Operators. The result will be that occupancy will appropriately decline. But as is seen, the profitability will be vast and material.
What you have viewed is a SNAP SHOT of this hotels Channel Mix and, in turn, optimization for the first quarter. It can be used as a benchmark to compare future quarters too to judge effectiveness. It's a powerful tool!
Richard B Evans
President of Revenue Report Card LLC
Phone: (954) 290 - 3567