Hotel revenue business intelligence
Hotels need knowledge and insights into four different areas to maximize profit contribution from revenue.
Every hotel needs to understand the demand at the destination. There must be a reason to travel to the destination that generates the need for overnight accommodation. The demand patterns (day of the week and seasons) are stable since the reasons to travel to the destination mostly remain the same over time. STR and Benchmarking Alliance collect and share market data so hotels understand if they capture their fair share of the market.
Guest segment analysis
To get more detailed insights into guest behavior, hotels group travelers to a destination into market segments with similar reasons to travel and similar needs for accommodation. Insights into the segment mix will help hotels boost revenue per guest to maximize total revenue. Insights into guest segmentation will also help hotel marketers to understand where marketing activities will have the highest return on marketing spend. The guest analysis is also the first step towards Customer Lifetime Value (CLV) to focus on the most profitable guests.
Looking into the future is always tricky. However, hotel business intelligence showing demand patterns, destination events, competitor pricing, and booking pace would help hotels arrive at more accurate forecasts. The forecast serves two purposes. One is to identify the demand strength for each day to make decisions about actions, such as pricing, that will bring in more revenue. Another is providing an accurate revenue forecast for more precise labor scheduling and intelligent purchasing operations.
Customer Acquisition Cost (CAC)
Part of revenue intelligence is also CAC. Primarily, the revenue manager will decide which channels the hotel uses to distribute the available rooms. CAC is, therefore, the sole responsibility of the revenue manager and should therefore be analyzed based on the revenue generated. In addition, CAC needs to be analyzed by market segment, distribution channel, feeder market, day of the week, season, length of stay, and other variables. Studying CAC is very difficult without a hotel business intelligence tool.
Hotel cost business intelligence
Hotels are much better at controlling costs than ensuring they capture their fair share of the market. The main reasons are that many costs are fixed and, therefore, easy to control and manage. Thus, the impact of using business intelligence on costs is marginal.
The fixed costs are the costs that the hotel incurs even if the hotel is closed. Every hotelier knows precisely the size of the fixed costs after the pandemic since hoteliers could not cut these costs. It is impossible to do anything with fixed costs. That is why accountants call these costs fixed.
Capacity costs are also a type of fixed cost. These are the costs that the hotel incurs if the hotel has a specific capacity open. The capacity costs increase in steps. One example is when the hotel can accommodate and serve breakfast to 100 guests. Another is when the restaurant is closed or open for lunch. The rooftop bar is closed Sunday-Wednesday but opens on Thursday-Saturday. Once the hotel has decided to increase its capacity, it is again about maximizing revenue on the available capacity. Hotels should choose to adjust the capacity based on the forecast. Get the forecast right to get the capacity right.
The only costs left are the variable costs, such as Cost of Goods Sold (COGS), which is food, beverage, linen, guest amenities, rental movies, and a few more costs directly related to what the guests consume or use during the stay. Again, it is easy to forecast the variable cost based on the expected segment mix. It will not be 100 percent accurate, but close enough.
Profit and loss
To reach a healthy profit, hotels need to focus on maximizing revenue or, even better, maximizing profit contribution (revenue - CAC), managing capacity costs (based on revenue forecasts), and managing variable costs (also based on forecasts). The key to success is managing revenue - not managing costs.
Hotel Business Intelligence System
This blog post summarizes why we at Demand Calendar focus on managing revenue and provide forecasts to manage capacity decisions and variable costs. Demand Calendar collects data from various sources, such as hotel PMS, benchmarking data, RMS (revenue management system) data, rate shopping data, and other sources so hotels will get insights into the market and all their revenue sources. We even curate the insights so hoteliers do not have to find out what they are looking for. Instead, the system visualizes the information to be easily digested to make decisions faster and more accurately. Our goal is to make information easy to understand to free up time for hoteliers to spend on acquiring more revenue or servicing guests better to increase satisfaction.