Hospitality Financial Leadership - Recording Average Length of Stay
By David Lund, The Hotel Financial Coach
The one thing I see time and time again with clients is just how poorly their financial statements are set up. The statements almost always lack basic information that is readily available and is critical information for maximizing profitability: poor design and missing features. If they were a car, I would want to call them a Lada. My apologies to any Russian readers.
The flip side of this challenge is all the information that is needed to fix this reporting problem is at your fingertips. No new software is required. No real investment. Your team just needs to use what they already have and put it to work.
Imagine if you drove a car without a speedometer, and you kept getting speeding tickets…. The financial statement at your hotel is exactly the same.
If it is not hooked up and working properly you have no idea how fast you are really going. Or better still, how fast you could be going.
Back to the two stumbling blocks
The hotel business is more like the art world than real hardcore business. At least that is my take on it over the last 35 years. What I mean by that is most of our senior operational leaders are not financial people.
- They typically come from sales or operations and they have little formal training on the financial piece. This is not a slight to their experience or impact—it is just a fact.
- They are not programmed or predisposed to getting in the middle of the financial engine and ripping it apart, let alone asking or mandating reporting changes.
- Their modus operandi is the glitz, the spit and polish, the fun stuff, the art.They love this part and they dig in and put on the show. The show is what they get paid for, or at least that is what most leaders believe. So, they do not usually have any ideas or designs of the financial reporting piece.
- They take what is given and hope no one asks too many in-depth, detailed questions about the numbers.
- They are typically handicapped on the financials and they rely on a strong financial manager to make up for their lack of knowledge and experience with the presentation and breadth of the financial statement. This is a big mistake because getting comfy with the financials is not difficult. Once we are comfortable with what we have, we almost always see a way to get more.
The second stumbling block is the somewhat typical financial leader who is not really interested in making their day or their job any more elongated or complicated: The fewer interruptions the better.
- They are already busy enough. Doesn't anyone know how busy I am?
- They want fewer questions—not more—and they certainly do not want people asking them to add more information to their financial statements.
Why? Why is this the case more often than not? Again, I am not trying to paint the entire field of hotel financial leaders with the same brush. I am trying to make the point that most will not take it upon themselves to add financial statement features, or reporting statistics with an eye to having the best financial statements.
Why is this the case? Well, I think it comes down to two elements: One, they usually have the attitude that operations people do not know what they need when it comes to the financials. Two, it is in their mind that it is just way too much work to stop the machine, pull out the gears, insert the new gizmo feature, re-boot and see what comes out the other end in the form of a change to the financials.
In most hotels, it takes an act of Congress to make changes to the financial statements. Paramount to parting the Black Sea, it seems. But it does not need to be this way and it is certainly not complicated or expensive to make this happen. It is what I call evolution. We never really stand still. We are either hopefully moving ahead or we find ourselves silently moving backward.
Back to the title of this piece: Recording average length of stay
Why would you want to have this in your financial statements? What purpose would it serve and exactly how do you calculate this statistic?
The reason why you want to know the average length of stay for your hotel as a whole—and let's take it one step further, by major market segment—is to understand your different customers, their stay behavior and to ultimately maximize the average length of stay. Fewer arrivals and longer stays equal lots of good things for your hotel operation and profit.
- Fewer arrivals and a longer length of stay "usually" equal
- Less wear and tear in your lobby, hallways and room product
- Lower labor costs at the front, in housekeeping and with your room attendants
- Lower amenity costs
- Lower laundry costs
- Lower linen replacement costs
- Lower guest supplies cost
- Lower energy costs
- Fewer guest requests
- Better capture ratios in your restaurants and bars
- Less congestion at peak times in your lobby
- A better opportunity to capture a return guest
- Lower online travel agency fees
- More time to make a lasting positive relationship with every customer
Don't forget for a moment that the hotel business is a game of inches. There is no holy grail waiting to be discovered that will save your way to prosperity. We are a high-volume transaction-based retail business. If your hotel has 250 rooms and you run 75 percent occupancy, you sell 69,000 rooms each year. How can you save just a little on each item on my list times 69,000? That is a nice number. Flip it around and ask how much inefficiency you can create and multiply that by the same number. That is kinda scary.
Calculating the average length of stay could not be much more straightforward. You only need two numbers: room nights and arrivals. In this example last month, the hotel had 8,900 room nights (rooms sold) and 5,500 arrivals. Both numbers are readily available from your property management system or, heaven forbid, your daily reports. Just dig a little and you will find it.
(8900/5500) = 1.62 nights as the average length of stay for the entire hotel last month.
If understanding and maximizing the average length of stay is important to you then you will want to take it one step further and measure it by major market segment. In this example, we will use just three major segments. In your hotel, it might look different: tours, crew, sports teams, etc. If it does just pull the numbers apart so you can isolate the activity in the segment you want to measure.
- Transient, 2300 rooms sold and 1600 arrivals (2300/1600) = 1.44 nights – average length of stay
- Corporate, 3200 rooms sold and 2700 arrivals (3200/2700) = 1.19 nights
- Group, 3400 rooms sold and 1200 arrivals (3400/1200) = 2.83 nights
Including these statistics on financial statements is rather straightforward. You create a stat account in each department of your general ledger and an overall stat plug to zero out the P&L effect. If you do not know what this means, ask your financial leader. If they do not know or say they do not know, then get some help. Having these numbers magically appear on your financials requires a mildly skilled person to go under the hood and add the formula to your reporting application.
Again, ask your finance person to just get it done!
You will also want these stats in your daily reporting, so you can see in the month how things are developing. Another key aspect is including this information with your rooms forecast. This provides your operations people valuable information for their expense and labor forecasting.
The last and equally important aspect of capturing the average length of stay by customer segment is how it should affect your marketing and sales plan.
- How can you design your M&S efforts to go after the most profitable business from an operations angle as well as wear and tear on your asset?
- What's the right balance between the different segments mid-week and on the weekends?
- How does seasonality play into this?
- How does demand in these segments affect this?
These questions lack a definitive black and white answer. However, your ability to answer the questions better will be greatly enhanced with reporting on the average length of stay by segment in your hotel.
What are you waiting for?
Unlocking this information in your hotel is this simple. Go on, and get on with it already!
If you would like a copy of any of the following send me an email at email@example.com
- EFTE and Productivity Exercise
- Hotel Financial Policy Manual – Inventory of "Sections"
- Hotel Financial Coach "Services Sheet"
- F&B Productivity Spreadsheet
- Rooms Productivity Spreadsheet
- Financial Leadership Recipe F TAR W
- Hotel Financial Coach – "Speaking Sheet"
- Flow Thru Cheat Sheet – Enhanced
Visit my website today for a copy of my FREE guidebook
The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel
The Hotel Financial Coach