Hotel Budget Planning: Use BI to Create a More Profitable 2020
By Kevin Duncan, Senior Director, Strategic Commercial Initiatives at The Rainmaker Group, a Cendyn company
Brilliant autumn leaves and that slight nip in the air signal the start of the fall season, and right along with it comes the start of hotel budget season. After 10 consecutive years of occupancy expansion, CBRE Hotels Research is projecting that hotel owners will experience a slight decline in 2020 due to the combination of limited demand growth and modest supply increases. To effectively ride out the slowdown and plan for profitability, it's more important than ever for hoteliers to concentrate on total revenue management when planning their budgets for the coming year.
Evaluate 2019 Performance and Leverage YOY InsightsSuccessfully analyzing your historical data is crucial for predicting future trends. An effective BI tool aggregates not only reservation data, but ancillary revenue information, giving you a fuller picture of your 2019 performance. Through graphic visualizations, you can study pace and pickup reports by market segment, rate code, channel and room type.
BI-enabled software will allow you to perform a thorough analysis of your current customer segments, examining geographic source, lead time, and length of stay. It allows you to move beyond RevPAR towards identifying the total guest value for each customer segment - including guest spend on ancillaries such as F&B, spa services, and recreation. All this information helps you plan which higher-value customer segments you want to target in 2020.
Identify Profit-Building Opportunities for 2020Once you've examined past production patterns to identify trends and spot holes where opportunities may exist, it's time to establish your goals and priorities for the coming year. Previous CBRE research found that 75 to 80 percent of a hotel's performance is dictated by local economic and market factors.A strong BI-optimized solution helps you make budget projections using the most up-to-date and relevant market data, allowing you to become more agile in capitalizing on growth opportunities within your property.
The analysis of your 2019 customer segments will also guide you in developing your ideal business mix. BI software will capture data such as your mix of business, the source/channel that your business is coming from, where your travelers are coming from, what their booking patterns may be and what their total spend is while on property. This data can be useful in determining what your key strategies should be during specific times of the year. In other words, when should you market to leisure guests versus business guests and how should you market to them in order to generate greater guest satisfaction and a higher ROI.
With acquisition costs taking up to 25 percent of guest paid revenue you'll also want to develop an optimal channel mix as part of your 2020 budget plan. A BI tool identifies which channels are bringing in your most profitable business, and lets you compare that information with the associated costs. By digging deep into your data, you may discover that different channels produce better results depending on the day of week or season. Analyze different combinations and consistently monitor and reevaluate your channel strategy to generate the optimal conversions and the highest profitable transactions.
Get More Granular with Forecasting & PricingThe powerful analytics of a revenue management system (RMS) enhanced with BI enable you to get granular with setting your budget, getting specific with regard to bookings and allocations. You can also closely examine unconstrained demand, stay patterns, and booking trends - revealing your booking highs and lows as they unfolded throughout 2019 and forecasted trends for 2020. You can also utilize your RMS to forecast revenue that will be generated from non-room sources, such as F&B, spa, golf, or other data that you are incorporating into your PMS - all of which impact your bottom line. And while these same patterns may not hold true for 2020, understanding when and why they occurred will help you appropriately adapt your budget.
Group business is a big niche for many hotels and resorts, creating valuable compression that drives transient rates. Ensuring you are accurately forecasting your group demand alongside transient is crucial for budget accuracy. A group-focused RMS that's integrated with BI will allow you to examine where you are YTD with your definite groups for 2020 as opposed to the same time last year. You'll be able to identify opportunities and need periods and create a more complete forecast for your budget that accurately calculates the total value of group business vs. transient business.
Establishing your pricing plan is one of the most crucial parts of your annual budgeting strategy. Set pricing too low, and you cut into margins, too high, and you risk lower occupancy. A BI tool lets you compare historic data with forecasted demand, folding in competitor data, customer values, upcoming trends, and real-time market information, so that you can create a dynamic pricing strategy designed to optimize revenue throughout the coming year. With BI, you can also identify market segments that are underperforming all the way down to the rate code level. And spot upcoming issues that may affect pace, so you can take corrective action before they occur.
Reduce Operational Expenses & Boost Buy-InDeveloping a budget for profit means you must also analyze your operational costs in relation to revenues. This data, used in conjunction with occupancy forecasts, helps you more appropriately plan for labor and supply costs, eliminating unnecessary spending and making the most of your hotel resources. For instance, when your projections show lower occupancy for a certain time period, you can budget for reduced food and supply purchases, and less staff in housekeeping and F&B services.
Through dashboards and graphic visualizations, BI reports are easily interpreted by every team in your hotel. And because BI-enabled solutions are often cloud based, they can be accessed at any time, by any user. You can customize reporting to your specific property, leading to deeper data comprehension and better interdepartmental collaboration. You'll achieve better goal alignment and buy-in of your budget when everyone is dealing with the same data sets.
ConclusionA well-planned budget is a strategic asset that can help your hotel remain profitable throughout the year. Budget planning needs to be a continuous and proactive process,rather than a reactive exercise that relies on memory, and simply transferring line items from one year to the next. Hotel BI analytics play a vital role in optimizing your entire budget process, without sacrificing valuable time by attempting to manually build reports using fragmented data. A strong BI-optimized solution provides you with broad and deeply granular views of your business data, helping you improve your entire budget process and enjoy a more profitable 2020.
Kevin Duncan is an energetic leader who has been an innovator of total revenue management principles for the entire hospitality industry. His strategic guidance at every hotel he has interacted with has helped increase profitability and overall service levels. He brings over 20 years of hotel experience and has achieved tremendous success through his hands-on approach of leadership creating a positive working atmosphere.More from Kevin Duncan
The Rainmaker Group, a Cendyn company, is the premier provider of revenue and profit optimization solutions to the hospitality industry. Rainmaker's intelligent profit platform helps hotels, resorts and casinos optimize revenue, drive increased profitability, save valuable time & outperform competitors. As part of Cendyn, Rainmaker offers a complete set of software services for the industry, aligning marketing, sales and revenue teams to optimize their strategies and drive performance and loyalty across their business units. To learn more about Cendyn and its suite of hotel revenue management and profit optimization solutions, visit LetItRain.com or www.cendyn.com.
Cendyn is the leading innovative cloud software and services provider for the hospitality industry. With a focus on integrated hotel CRM, hotel sales, and revenue strategy technology platforms, Cendyn drives sales, marketing and revenue performance for tens of thousands of hotels across the globe. The Cendyn Hospitality Cloud offers a complete set of software services for the industry, aligning marketing, sales and revenue teams to optimize their strategies and drive performance and loyalty across their business units. With offices in Boca Raton, Atlanta, Boston, San Diego, London, Munich, Singapore, Sydney, Bangkok and Tokyo, Cendyn proudly serves clients in 143 countries, delivering over 1.5 billion data-driven, personalized communications on behalf of their customers every year. For more information on Cendyn, visit www.cendyn.com.