The goal of any business is to make money. But it’s not all about revenue. Think about it this way: If you increase revenue, but costs rise as well, your profit remains the same (or declines), and your business can’t grow. While it’s important to monitor top-line indicators like total revenue and RevPAR, focus on your bottom line to boost what really matters: net profit.
NB: This is an article from WebRezPro
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The key to raising that bottom line is to generate profitable revenue—in other words, revenue that doesn’t cost too much to earn. Here’s how.
Understand your costs
Growing profit requires a good understanding of your operating expenses. How much does it cost to run your business and generate revenue? Obviously, the goal is to make more than you spend!
As part of your operating expenses, get familiar with your COGS (cost of goods sold) and CAC (customer acquisition costs) as both directly affect profit potential.
Let’s start with COGS. Cost of goods sold includes the direct costs of providing goods (rooms and ancillary products and services) to your guests. These expenses include the likes of room supplies (linen, towels, etc.), room cleaning and maintenance costs, F&B costs, spa supplies, and labor. COGS does not include indirect expenses like overheads and sales and marketing costs.
The lower your COGS, the higher your profit. Calculating COGS for each revenue source (rooms, restaurant, spa, conference facilities, etc.) helps identify your most profitable products and services. With this information, you can tweak your revenue mix to optimize profit by promoting your most lucrative services and upsells, for example. (You can also pinpoint areas where you can reduce costs by automating processes, switching suppliers, saving energy, and cutting waste.)
Your CAC (customer acquisition costs) are also a critical part of the equation. These encompass the costs involved in bringing in a new guest, including OTA commissions, advertising, and sales and marketing salaries. CAC directly affects profit and informs revenue and marketing strategies. Measure your CAC for each guest segment (e.g., business vs. leisure guests) and channel (different OTAs, GDS, direct, partnership referrals, etc.) to optimize your distribution and marketing mix to reduce CAC and increase profit.
Identify your most profitable revenue sources
Measuring your COGS and CAC is a key step in identifying your most profitable revenue sources. Next, you need to use that information to work out the net revenue for each source.
Employ the data in your property management system to get a granular view of revenues – by room type and ancillary product or service – and subtract the associated COGS for each. Work out room revenues by distribution channel and customer segment and subtract corresponding CACs. Customizable booking and sales reports make breaking down revenue easy.