Global is a big word and now that we have your attention I want to define global in a hotel setting. Global refers to all sources of revenue and their corresponding profit picture. A global perspective on revenue management yields the highest possible profit because we understand and apply a BIGGER view to our business.
I think the title and buzz word that has our industry locked on “revenue management” is entirely the wrong way to look at it. It is not revenue we are after, it is profit. Revenue is where we start but it is always profit that we end up with. Understanding what happens to the room revenue and resulting profit from different segments is the starting point to a much more effective outcome.
We essentially have three types of customers in hotels: leisure, contracted individual and groups. Let’s have a look at the profitability profile of each major segment of the rooms business.
Understanding this lesson and applying it to your hotels “global revenue management” strategy in turn helps you understand your hotel’s DNA. Knowing the DNA and how we can affect it is the highest and best use of the profit maximization strategy.
Leisure, on the surface, is the most desirable customer in most people’s eyes. They normally pay the highest rate and we like to think they spend lots in F&B, parking and the spa. But not so fast on this one. What we need to examine is the cost to get the leisure customer.
First, they book through an OTA (online-travel-agent) or the company website and both are very expensive sources of distribution. Typically, 15-20 percent of the rate comes back to the operation as a commission or reservation expense.
Second, most leisure customers will use the hotel’s facilities, but they also are busy seeing local attractions, including restaurants and bars. Long gone are the days when leisure guests stay put.
Third, it is hit and miss with leisure guests and how they treat their room. If it is a multi-occupancy family stay, the housekeeping department better have lots of supplies and staff for service. This segment as a whole is the hardest to service. We do not know when they will arrive but it is often early. We do not know when they will leave but frequently it is a late checkout and they always pay with a credit card that attracts a nice two-plus points of total spend.
The last aspect of leisure we need to be aware of is they are predominantly weekend or seasonal customers. I say the leisure guest is at best tied for second place in my preferred customer profit profile.
