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What is the return on investment of a hotel salesperson?

14 October 2021
Many hotels laid off their salespeople during the pandemic to save on cost. However, the competition for guests and customers will be fierce in the recovery phase, so hotels need to re-hire salespersons. It is an easy decision since the return on investment is high.

Most hotels have no idea about the return on investment of a salesperson. Traditionally hotels needed salespeople to negotiate contracts with corporate travel managers, travel agents, and tour operators. Most of the agreements have an estimated volume and, based on that, a negotiated rate. The buyer does not guarantee that they will deliver the contracted number of rooms, but the hotel always guarantees the rate. This way of negotiating hotel contracts is part of the game. When demand is higher than supply, the hotel has the upper hand, and when the room supply is higher than the demand, the customer has the negotiating power. The rate can be fixed or dynamic. Customers prefer fixed rates because they claim they need to budget travel expenses, while hotels prefer dynamic rates that discount the BAR. The idea with dynamic rates is to offer customers a lower price option when demand is low.

Critical to keep track of production

A critical job for the hotel salesperson is to keep track of if the customer delivers the estimated volumes in all customer contracts. Unfortunately, this job is not the favorite job for salespeople because it is about statistics, analytics, figures, and manual data collection. A lack of tracking contracted room volumes will increase the risk of loss of revenue that is too late to replace. Therefore, every hotel salesperson needs a tracking system for all contracted room nights. Produced room nights and room revenue from contracted customers is part of the evaluation of a salesperson.

Calculate the return on investment

What is a good return on investment on a salesperson? First, let's assume that the cost (labor + expenses) is USD 125 000 / year for a salesperson in a hotel. The break-even point is calculated as revenue - variable costs = 125 000. The customer acquisition cost is between 15 % and 25 %, so we use 20 % in the example. Then, the variable cost for amenities and cleaning the room is another 20 %. The contribution margin is then 60 % of revenue. The break-even is 125 000 / 60 % = USD 208 333. The salesperson has to produce at least 1700 room nights at $125 per night per year to break even, provided that these room nights do not displace higher-paying guests. If a hotel works with corporate agreements, travel agents, tour groups, and other businesses, investing in a salesperson is almost risk-free. That does not mean that a hotel should be happy if the salesperson only brings in enough to cover the costs.

How to maximize the return on a salesperson

Every hotel wants to maximize the return on each salesperson. The only way is to make life easy for salespeople to ensure that they spend time with customers or potential customers. An excellent example of making the job easy is providing customer production reports and good tools, such as a sales CRM, minimizing their time at their desks.

Sales are even more critical in this recovery phase than ever before since the competition for guests will be much harder in the next couple of years. So invest in a salesperson to win a higher market share. It seems to be an easy decision.