How Consulting Data Can Help Build Your Profit Back
By David Eisen, Director of Hotel Intelligence and Customer Solutions for HotStats
The punches thrown by COVID-19 onto the hotel industry have been incessant. First, it landed a blow to public and employee health. Next came a punishing economic swing that knocked out nearly 200 million jobs globally.
Make no mistake, the damage from COVID-19 will keep coming. But hoteliers can use data to soften the impact of future blows and emerge from the COVID-19 era in better shape. Here's how:
Establish a Financial Baseline
Before moving forward, hoteliers need to get to their feet back on the ground. In the U.S. alone, the American Hotel & Lodging Association (AHLA) has reported more than $36 billion in room revenue losses since February.
For hoteliers, the first step in recovering losses is determining their hotel's break-even occupancy figures. These occupancy numbers lay out how full the hotel or resort needs to be to avoid losses.
Different hotel models will have different break-even occupancy points. For instance, luxury hotels tend to have a lower break-even occupancy than other models because they rely heavily beyond room revenue to generate profit. They tend to use spa, golf, multiple food and beverage (F&B) outlets, conference space and other operations to bring in money.
Alternatively, simpler hotel models, such as those used by select-service or economy hotels, often rely on rooms alone for profitability. In these cases, break-even occupancy is typically lower than luxury and full-service, since they have a lower cost structure..
In either case, data can help hoteliers set an occupancy baseline that they can later build off of. By digging into the most telling data points, such as occupancy, total revenue per available room (TRevPAR), gross operating profit per available Room (GOPPAR) and flow-through and flex, hoteliers can pin down their hotel's break-even point. From there, they'll be able to stabilize in a turbulent market and start planning for growth.
Locate Areas to Cut back
No one precisely knows when hotel demand will stabilize. But hoteliers can use data to cushion the blow — even if economic damage continues for a prolonged period.
First and foremost, hoteliers need to understand where money is flowing. That requires measuring GOPPAR and examining the full scope of a hotel's costs. Here are some costs to consider:
- Operational Supplies
When hoteliers understand the operation's costs inside and out, they can use data to decide which operations are worth reducing or revamping.
Let Data Dictate a Recovery Strategy
Even during a revenue dry spell, hotels don't have to cut costs across the board. In fact, they can use data to get a higher return on investment (ROI). Here's how:
Examine Ancillary Revenue
It will be a long time before anyone knows how quickly demand for face-to-face services, such as spas and sit-down restaurants, will return whole. Or if demand will come back at all. That uncertainty makes it difficult to set strategies... unless you have data.
To be successful, hoteliers need to dive into departmental numbers. Key figures reveal which hotel services are worth investing in and which aren't.
Not sure where to start?
One solid jumping-off point is to start breaking down revenue by department. That means examining revenue contributions from each department. Here are some examples:
- F&B revenue as a % of total revenue
- Spa revenue as a % of total revenue
- Golf revenue as a % of total revenue
Examine how much ancillary revenue came in prior to the pandemic versus now. More importantly, stack those revenue numbers up against costs to find profitability. By using data to drive decisions, hoteliers remove the guesswork from the equation and will know which programs are worth investing in.
Use Numbers to Uncover New Opportunities
When hoteliers locate weak spots and opportunities, they can use data to push the operation forward. That means examining broader strategic spending and scrutinizing every penny spent.
- Dig into property and maintenance costs and how often areas are vacant
- Dissect payroll to discover its impact on profit
- Examine marketing spend and decide its ROI
By understanding how expenses influence the bottom line, hoteliers can fuel profit-focused initiatives. For instance, it may make sense to drop a lease or repurpose a rarely trafficked area. Or, a hotel may see that its marketing efforts are paying off, but notice it's underfunded. It then might be wise to funnel more money into marketing strategies. In all cases, it's hard to go wrong when data is informing decisions.
Fight Back with Hotel Benchmarking Data
The future is still fuzzy for hoteliers, but they don't have to sit back and take punches from COVID-19. By digging into hotel benchmarking data, hoteliers can roll with the punches and fight their way to higher long-term profit.
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