The concept of total profit optimization has grown in significance within the hospitality industry. Not just a focus on profit margins, this approach embraces all revenue-generating areas in a hotel, including ancillary outlets. By harnessing the power of data, hoteliers measure the performance of each outlet to identify the most profitable strategies, setting a new standard for business optimization.
For many, focusing only on top-line revenue doesn’t give enough context to make business decisions that truly drive a property forward. One specific challenge is that real estate has always been market-specific, according to Joseph Yi, Chief Investment Officer of Real Hospitality Group.
“You’ll find that the urban markets have been able to sustain better GOP growth than the secondary or tertiary markets,” he said during a recent webinar hosted by the International Luxury Hotel Association (full replay here). He points to the metric RevPAR, which is generally up to pre-COVID levels across the board. However, GOP is another story because that metric is primarily driven by labor costs.
It’s a prime example that exemplifies the amount of data available to hoteliers. The question is: How can hoteliers turn all that data into a compelling story that drives profitability?
The Tech & Data Story
Technology continues to emerge to help, according to panelists speaking during the webinar.
“Investing in technology is becoming a big thing,” said Bridget Tran, CMO and Corporate VP of Revenue Planning at Club Quarter Hotels. “Not just guest experience technology, but operationally.” She pointed to robots greeting guests in lobbies and delivering room service. Then, technology like self-service check-in kiosks and mobile keys are making a comeback to help manage labor costs. Additionally, chatbot technology is also helping to free up staff time.
The great thing about implementing new technology, panelists agreed, is that it opens up a whole new world of data. And that data is actionable.
Angie Hughes, Managing Director of Revenue Management and Ecommerce at Bartell Hotels, shared a concert venue as an illustrative example of total revenue management. With 1,500 seats, her team utilizes historical data to anticipate guest preferences, from arrival times to drink choices. They evaluate performance after each event, using insights to continually enhance profitability. Each concert night of operation serves as a small-scale model of revenue management, with careful examination of the influence of various factors like the performing act or day of the week.
“It’s like a microcosm of total revenue management,” she said. “We’re really digging into the bits of data to make sure we’re continually improving profitability.”
It’s a prime example of how hoteliers can personalize the guest experience at scale thanks to the right data. Tran underscored the importance of a data platform in today’s tech-driven business landscape as the best way to personalize the guest experience. She said that bartenders and servers have always been great at remembering their regulars’ orders and offering personalized experiences. But now, data platforms such as a CRM gives that a modern, automated twist.
“Now all of a sudden you have machine learning, you have AI. … You can start making connections,” Tran said. These advanced technologies not only aid in delivering personalization and providing a 360-degree-view of the guest, they help businesses anticipate customer needs even before they’re expressed. This leads to exceptional customer experiences. Leveraging the power of data, hoteliers can make intuitive leaps, like correlating a guest’s love for banana splits to a potential liking for banana bread. “Now all of a sudden, you’re wowing them,” she said.
“If content is king, then data is queen,” Tran said. And for her and the team at Club Quarter Hotels, data is royally important for not only delivering a great guest experience, but also to optimize the business. “Data helps us reduce inefficiency and increase productivity,” Tran said. For instance, in the restaurant, the team is able to calculate revenue per seat rather than just revenue per reservation or table. Additionally, their data story tells them how to appropriately staff a property for maximum profitability.
“We know what days we should have more housekeepers and what days we shouldn’t,” Tran said. “This data not only is benefiting the guests, but it’s also benefiting business. And it’s helped us drive not only efficiency, but higher profitability.”
Shifting the Mindset
So, how can hoteliers shift the mindset to true total profit optimization? It starts with connecting the data. Simply put, everyone needs to know their data, according to Brian Goodman, Associate, Acquisitions & Development at Real Hospitality Group. “Everyone involved who touches an asset, whether it be an asset manager, general manager, a regional director of operations, or even a front desk agent, needs to know their data,” he said.
For example, do front desk agents know if they’re capturing no-show revenue or cancellation fees? And do they know there’s an incentive for them to do so?
“We found that if we incentivize our front desk personnel to capture these fees, we’re going to have a greater collection of these fees,” Goodman said. This strategy not only boosts revenue collection but enhances overall profitability. But it starts with an organization-wide understanding of key data points. For Real Hospitality, that means an inclusive approach to profit and loss calls. These meetings are not limited to top management but include various roles such as revenue managers, directors of sales and sometimes even the director of food and beverage.
“The more your team knows about data … the better flow through to GOP or to NOI your property’s going to receive,” he said.
Hughes takes the discussion a step further by introducing the idea of benchmarking across a portfolio of properties. This practice not only allows for comparison within a single property over time but also offers valuable insights when applied across a range of properties.
“So we can not only judge a specific property against themselves, but how does that apply across the portfolio?” she said. This method aids in normalizing data and costs across properties, regardless of their brand or location. By identifying the best performers for various data points, the team can gain insights into effective practices at specific hotels or departments, and subsequently apply these insights across the portfolio. The ultimate goal is to identify and enhance what’s working well while addressing areas that need improvement.
At the end of the day, technology will continue to play a big role in leading hoteliers down the path of total profit optimization. “Overall, talking about data, we’re kind of at that intersection where AI is good and it helps us. But where do we go from there?” Goodman said. “That’s going to be the future. Also, implementing machine learning to get that cost lowered. And ultimately, we’re talking about profit just flowing right down to your GOP.”