Industry Update
Opinion Article16 June 2021

COVID Draws New Attention to Rooms Cost Optimization & Profitability

By Simone Puorto, Founder | CEO | Futurist

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Cost-optimization has always been a central notion in revenue management. That being said, the pandemic brought renewed attention to the topic. Today, more than ever, proper cost control is crucial to navigate these difficult waters and prepare for the "new normal." Whether we like it or not, every single decision revenue managers take on a daily basis, has an impact on the bottom line, meaning that revenue management is not only about optimizing the revenue streams, but also about increasing profitability. Favoring the distribution channels with the highest profit has become imperative in our industry. But how can hotels calculate the cost-per-acquisition of each channel? What should be taken into consideration? And how can this analysis influence one's distribution decisions?

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Here are the five key findings from the 5th episode of "The RevenueManager," Cost Optimization & Profitability, organized by HospitalityNet and FunnelTV. The show is a live event, where the best revenue managers and hospitality personalities of the world discuss the famous HospitalityNet World Panels.

The event starred Meng-Mei Chen, Assistant Professor in Marketing at Ecole hôtelière de Lausanne, Olga Sommer, Director Of Revenue at Nobu Hotel London Portman Square, Raul Moronta, Chief Commercial Officer at Remington Hotels, Vassilis Syropoulos, Founder, CEO and Head of Product at Juyo Analytics, Rachel Stanley, Principal Solution Engineer at IDeaS Revenue Solutions, Andrew Broderick, Senior Account Executive at Infor, Nir Dupler, CRO at Fornova & Goldenfeeds.

This episode has been sponsored by Juyo Analytics, Ideas Revenue Solution, Infor, and Fornova, and moderated by Scott Dahl, Program Director, Master's in Hospitality Strategy and Digital Transformation at Les Roches Crans-Montana Global Hospitality, and Board Member at HSMAI Revenue Optimization Advisory Board.

  1. Distribution cost and customer acquisition cost are two different things. The first one is mainly OTAs' commissions and discounts offered to Tour Operators. The second one can be brand charges, sales & marketing-related expenses, or GDS fees. Customer acquisition costs tend to be higher than distribution costs, so they should be at the center of an accurate profitability analysis;
  2. Hotels should be careful when joining promotions. Overall, OTAs are doing a better job in marketing these promotions during the pandemic, so this can cause a disproportion between direct and indirect revenue, increasing the distribution costs for both branded and unbranded properties;
  3. It takes the average traveler 36 days and 45 touchpoints to book a room, so it's crucial to determine the contribution margin by channel, even though it can be extremely challenging to calculate it, as users are jumping from one channel to the other, not to mention cross-device navigation;
  4. "Profit-per-occupied-room" changed to "profit-per-clean-room" during the pandemic, as there is a shortage of labor in most properties, resulting in not having enough clean rooms on certain, high-requested dates (such as weekends, as the revenue is now mainly leisure-driven). Some hotels are forced to scale down their business, because they cannot always deal with the customers' demand, negatively impacting both revenue and profitability;
  5. Calculating cost-per-acquisition in high demand and low demand periods is a very different matter. How much you would be willing to pay for a reservation on a weekend, for example, is way different from what you would be willing to do for a Sunday night. You should look at every single day individually to find the best strategies to maximize revenue and profit.

You can watch the full episode here: https://youtu.be/FD4QDchO2fg

Do not miss the next episode of The Revenuemanager, titled "Benchmarking: Moving beyond traditional comp sets and year over year comparisons" on June the 24th. Register here. https://www.linkedin.com/events/6797917608403439616/

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Webinar: Episode #6 THEREVENUEMANAGER - Benchmarking, A new Concept of COMP SET

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How can hotels correctly calculate their costs per acquisition?

Cost optimization and profitability: Cost-optimization has always been a central notion in revenue management. That being said, the pandemic brought renewed attention to the topic. Today, more than ever, proper cost control is crucial to navigate these difficult waters and prepare for the "new normal.
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