Revenue Management: Take back control of your inventory
PART 2 OF 3 – CORPORATE ACCOUNTS CONTRACTING
NB: This is an article by Pontus Berner, Co-Founder and Managing Partner at berner+becker revenue management.
Time flies and with 2017 around the corner there aren’t many months left before the corporate request for proposal (RFP) process starts once again. We hope you have had a successful RFP season in 2016 and that your results in 2017 will prosper as a result of your strategical contracting decisions. In this piece, which is the second article in a series of 3 about taking control of your inventory, we will share our advice for an even more successful RFP season in 2017. Hopefully you can apply this to the late incoming RFPs in 2016 as well.
The RFP process
It is an important process that hotels must take seriously since it is the one and only chance per year that they have to optimise the prices and inventory sold in the corporate segment. So, think it through carefully and analyse your corporate accounts. What do they bring you? Do they displace more than the incremental revenue that they bring? What is the incremental impact ratio? Should you keep the account or not and what price should you offer? The questions are many.
Obviously if you are a hotel in need of volume, contract as much as possible. Still it is important to contract the right prices and make sure no money is left on the table. So, check each account and assess the possibilities.
If you however operate in a market with a lot of incremental demand, remember that selling a room to a full paying guest instead of a contracted company rate can yield much bigger rate increases compared to increasing your public rates a couple of euro. In other words, optimising your corporate segmentation mix is an easy and great way to reach success.
Non last room availability (NLRA) Vs last room availability (LRA): This is a crucial part to consider to make sure you have control of your inventory. Given that your hotel has many days with incremental demand, always strive for having your contracts on NLRA as it will give you the flexibility to close out the account when you know that you can sell the remainder of your inventory to higher priced business. It is not always easy to get this through with the clients and sales must put in a big effort and risks must be taken. In general, a great strategy is to rather go for a higher volume of smaller accounts that accept NLRA and higher prices and less of the big accounts that demand LRA and often pay quite low rates.
Room type contracting: As mentioned big companies often have a strict LRA policy and it can be tricky to get them to accept NLRA. However, a way around can be to contract them on just one room category, so when that room category is sold out, you don’t have to accept further bookings. Nevertheless, for all NLRA accounts you should contract all room types and offer the same room category supplement as you do on your public rates. Let’s face it, if you have your NLRA accounts bookable, it doesn’t matter if your corporate or full paying guest is paying the 50eur extra for a superior room.
Calculate displacements for each account: Do this especially for your LRA accounts. Establish incremental revenue impact ratios by taking *generated revenue divided by displaced revenue. Example: A company generates 50.000eur and displace 30.000eur, leading to an incremental revenue impact ratio of 1,67. As it is above 1, it is good and brings more than it displaces. If you have let’s say 30 accounts, do this for all of them, and you might have ratios all above 1 ranging from 1,1 to 5. But even if all accounts are still in producing more than they displace in this case, try to replace the bottom performers with new accounts that can perform better. And of course, for the accounts displacing more than they bring a more drastic change is needed; increase price, shift from LRA to NLRA, or simply do not prolong the contract. In your calculations, if you want to be even more thorough, make sure to weigh in **total revenue spend and variable cost per occupied room.
*Generated revenue / Displaced revenue = incremental revenue impact ratio
** Generated profit / Displaced profit = incremental profit impact ratio
Apply close outs: This is only necessary for your LRA accounts. Make sure you carefully analyse your past performance and the market performance to big events and fairs. Define your close outs and make it rule that all LRA accounts must accept all close outs. If companies resist to accept them all, look into the following work-arounds: Offer fair rates instead of complete close outs or offer only a dynamic rate contract, both will ensure a high incoming ADR and hence no close outs are necessary. If you are using a RFP software program like Lanyon, many times it can also help just to call the company and ask them to open the RFP for more close outs as they simply enter a certain amount of close outs accepted but in reality do accept different amounts in different markets. If an RFP is coming in the middle of the calendar year, you can obviously also exclude close outs that were in the past.
Set your price right: Do your research well and realise your standpoint in the negotiation process. Are you the only hotel close to the headquarter or are there many other hotels to choose from? How do you compare in quality and value for money versus the competition? Also, find out the rates the client is paying at your competition. Do that via cold calling or if you have access to a program like Travelclick’s agency 360 you can see the average rate that they pay at your competition.
Dynamic rates: This ensures a good ADR all year around being based as a discount on your best available rate (BAR). Be careful however as many companies don’t like this and you are risking to get lower volume productions and be ranked lower in their internal reservation listings. Companies prefer to be able to budget and foresee their travel costs, and hence a fixed rate is much easier for them. So only contract dynamic if all parties are fine with it and otherwise be flexible and offer fixed rates. If you have done your displacements right, you will be fine.
Summarize it all in a wish and walk sheet:
Using all the tactics described above, do a wish and walk sheet for all your accounts before the RFP season starts. This should include the new wish price, the walk price, room category supplements, information on LRA vs NLRA etc. When having this done the sales team can work much more efficient with shorter response times. The wish and walk rates also empower them by giving a negotiation space to play within. As a result, unnecessary communication during the year between the sales and revenue department is also minimized. The sheet should further include wish and walk rate for new clients based on production targets and the needs of your hotel which will make the RFP process even more effective.
With this we at berner+becker wish you a happy and successful contracting season coming up in 2017!