Understanding your guests is the key to success in the ever-evolving hospitality industry.
NB: This is an article from Demand Calendar
It’s not always about filling every room every night; it’s about attracting and retaining guests who bring the most value to your hotel. These guests spend more during their stay and return time and again, becoming ambassadors for your brand and spreading the word to their networks.
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But how do you identify these “VIP guests” within your clientele? Is it as simple as looking at who pays the highest room rate, or is there more to the story? This blog post will guide you through finding your most profitable guests. We’ll explore crucial metrics and effective strategies and provide actionable insights to help you enhance your guest strategy. From understanding the importance of guest segmentation to learning about guest lifetime value, we will delve into various aspects that will help you identify and nurture your most profitable guests. By the end of this post, you’ll have the knowledge and tools you need to increase your profitability, one guest at a time.
Defining Profitability in the Hotel Industry
In the hotel industry, understanding profitability goes beyond just total revenue—it’s crucial to consider the costs associated with acquiring and serving each guest. In this context, when we refer to a ‘profitable’ guest, we mean a guest whose value to the hotel, throughout their relationship, exceeds the total costs of acquiring them and providing their services.
Let’s break down the three key components to understand this concept better.
- Revenue: This is the total income your hotel earns from a guest. It includes the room charges and any additional spending the guest does during their stay, like dining at the hotel restaurant, using the spa services, minibar purchases, etc.
- Customer Acquisition Cost (CAC): This is the total cost of attracting a guest to your hotel. It includes all marketing and advertising expenses, sales team efforts, and other costs of bringing in new guests.
- Cost of Goods Sold (COGS): In the hotel industry, this refers to the variable costs directly associated with serving a guest. These costs increase with each additional guest and can include housekeeping, laundry, utilities, and any other services the guest uses during their stay.
Given these components, we can define the marginal profit from a guest as their total revenue minus the CAC and COGS. This profit metric gives you a more nuanced understanding of your profitability, as it considers the income generated by a guest and the specific costs associated with serving them.
By grasping this concept of profitability, you’re on the right track to optimizing your operations and marketing efforts. The goal is to focus on attracting and retaining more of your most profitable guests—those who provide the highest marginal profit.
