Magnuson Hotels CEO on Increasing Revenue, Reducing Costs

The desire to run a successful, sustainable business is the driving force behind the actions of any hotelier or hospitality industry professional. My job as CEO of Magnuson Hotels is to make sure that the 1,000 hotel owners that affiliate themselves with our Magnuson name make more money today than they did this time last year. To put it into perspective; that’s a combined total of around 100,000 rooms for sale every night.

In the hotel business, we’ve come to realize that there is a very slim line between simply getting by and making a profit—and it’s usually just past the 50 percent occupancy zone. While there are few ways in which we can increase the basic usage of hotels and travel, there are some fundamental and highly practical ways in which a hotelier can add another 20 percent to their net income.

What we’ve found through working with hotels over a period of many years, is that the success of a hotel’s performance relies the most on improving upon and perfecting two basic principles—increasing revenue and reducing costs. Both can be mastered through several simple and easy to implement fundamental changes.

How am I able to increase revenue?
Never underestimate the importance of simply being welcoming, professional, and pleasant. Focus on generating and retaining positive reviews on trusted and influential consumer travel websites such as TripAdvisor. Expect to see, at the very least, a 10-15 percent booking rate increase with just a change from a 50 percent to 65 percent approval rating. In addition, offer your staff a team bonus for hitting those positive TripAdvisor scores. Go for 5 percent a month until you hit a 100 percent approval rating. Not only will this encourage your staff and colleagues to fulfill their potential, it will also create much needed momentum—which is crucial to the success of any business.

Use specialty distribution networks such as a GDS (Global Distribution Service) to drive corporate bookings to your hotel. Around 90 percent of all non-leisure bookings come through via a GDS, yet it remains one of the most underutilized sources of business there is.

Remember that you don’t have to be in a major city to be in demand and successful. Just about any hotel is located near an airport, a highway, or a corporate, governmental or educational establishment. Make the most of where you’re located: Identify your natural customer, and the most unique quality that sets your hotel apart from the others. Are you able to target a niche market, and build it from there?

What are the most effective ways to reduce costs?
Perhaps one of the simplest ways to reduce your overall costs is to focus on reducing your basic operating costs, through greater efficiencies in usage of technology and energy.

Do you and your staff turn off the lights, air conditioning, and heating in non-occupied rooms? Room attendants will often leave the television set on, and need air conditioning to be comfortable during working hours—but make sure that window shades are pulled down and all utilities are turned off when a room is unoccupied.

When I was just an 8-year-old kid, working for my father and grandfather at our 44-room cinder block Stardust Motel in Wallace, Idaho, there was one man who often made the difference between profit and loss.

Carl Starchman
Carl Starchman was a very kind and quiet man in his late 70s, and drove a shuttle van for many of our guests, who were long-haul truck drivers. As Wallace was halfway between Seattle and Billings, Mont., it was a required sleepover place for truckers before they had sleeper cabs.

When Carl and I would take a doughnut and coffee break, he would often play an old B.B. King ‘Lucille’ type black electric guitar and tell big stories about the good old days.

I remember one day when energy costs started to escalate, my dad told Carl that he now had the most important job at the Stardust, which was to become the energy czar of the motel. And from that day on, Carl made sure that all heat and air conditioning was turned off in unoccupied rooms. He also made sure that the curtains and blinds were drawn, which controlled temperatures and energy more efficiently.

All before the days of digital and the internet of everything, Carl’s energy management efforts saved the motel thousands of dollars a year, often the difference between being in the red or the black.
Another way to significantly reduce your expenses is to repackage your debt at a longer term to increase cash flow, especially as interest rates are at an all-time low. Make the most of the current economic and financial climate.

And finally; always be wary of succumbing to big brand franchising that offers big promises at massive costs to an independent business. Franchise costs usually run 15-20 percent of your gross revenue, and corporate driven PIPs can add another $100,000 in expense per year to a small business while stripping your individuality with industrial-level standardization policies. If you do wish to brand your hotel, explore all franchise alternatives to find one that will support your individuality and celebrate independence.

Every day when you go your hotel or motel, evaluate every potential action with this question and you will be fine: “How will my decision either increase revenue or decrease costs?”