Post by Michelle Davis, Director of Revenue Management, Hospitality Ventures Management Group
Revenue managers are under considerable pressure to increase ADR but as we know, there are many factors that can affect rate. For example, when occupancy starts to slip, a ‘heads in beds’ strategy can prevail. To achieve this, we typically lower rate, offer specials tied to margins on third-party sites, run promotions on Global Distribution Systems (GDS) that include commissions and booking fees, or even play in the opaque booking world.
Directors of Sales also are under pressure to increase group business market share and land those lucrative top accounts, requiring the best rate along with concessions for things like F&B, WiFi, rebates/commissions, etc.
When these strategies work, we see increases in occupancy with perhaps some decline in ADR. But overall, RevPAR has increased along with the shift in market share, and all the top-line reports we look at show improvement.
However, as Corporate Director of Revenue Management at Hospitality Ventures Management Group (HVMG), I’ve learned that revenue managers need to consider the complete picture by looking at bottom line reports to determine the impact their various RevPAR strategies have on GOPPAR or Gross Operating Profit Per Available Room.
With a GOPPAR focus, you have to keep in mind that:
Let’s explore some examples of this. If the hotel sell rate is $100, we often look first at CPOR (Cost Per Occupied Room), the hard cost of an occupied room. Most of us look solely at the cost of cleaning the room or the CPOR of the rooms department. But that’s not the complete cost. Far from it.
If the booking went through a GDS, the cost of the booking can range from under $1 (a pass-through transaction fee) to $14 for a non-brand affiliate booking transaction. Also, if the room was commissionable, that can be 10-15% of the room rate. Was that booking tied to a promotion/incentive for the agents? If so, there’s another few dollars of cost.
Every reservation that originates from your brand’s call center has a cost, too. Most are in the $2-3 per transaction range. Note that these call centers are usually a better solution compared to a GDS because your brand’s goal is high conversion selling your hotel.
Internet bookings can offer among the lowest costs for bookings, as long as it’s your own website. Third-party booking sites can charge margins from 15-30%. If you are set up on an interface that requires bookings to be processed through the GDS, it can mean additional fees. Even your own website has a cost. Analyze how reservations are delivered to your hotel and determine if there is a transaction fee. Are you using a website provider that charges a per-booking fee? Also, do you have a pay-per-click campaign in place to gain exposure on these sites?