Revenue managers should take a closer look at metrics such as Net RevPAR to get a better handle on bottom-line performance.
As we come off the heels of the 2019 ALIS conference, the annual event which invariably sets the tone of hotel investment and operations for the year ahead, hotel owners are likely sharpening pencils even more than usual, looking at all possibilities for strengthening revenue generation and reducing costs. As an owner myself, and someone who has been charged over the years with honing revenue management skills on behalf of other operators too, my tendency is to continually analyze and assess the most profitable revenue—to identify the instances when optimized dollars flow through to the bottom line.
Customer acquisition costs for lodging continue to rise. And as revenue strategists, we need to take into account the various channels and sources of room revenue: all areas where commissions apply; the investment in brand or other loyalty programs; costs of the growing number of distribution channels; and all sales and marketing expenses, including the ever-changing and often enigmatic digital marketing platforms. Whether the booking costs are transaction-specific as in commissionable OTAs or GDS, or there are cross-channel costs via social media, franchise fees and even labor for sales and marketing, the total costs for acquiring our guests are increasing over time.
Revenue booked directly through brand channels such as brand.com, the brand app or brand reservations call centers provides a hotel with a 10% to 25% rate premium as compared to revenues booked through OTAs or the GDS. The ADR premium helps to build our bottom line.
As mentioned in Kalibri Labs’ 2018 “The Costs and Benefits of Loyalty” report, the ADR for member rate/loyalty bookings “reflects a solid premium compared to OTA bookings” (after acquisition costs are removed), and grew to 9% in 2018, up from 8.6% in 2016. According to the same study, loyalty member campaigns in the last few years have strengthened or stabilized the increase of reservations via brand.com. While it clarifies that “both online channels are growing, brand.com generates 50% more bookings on average to U.S. hotels than the OTA channels.”
What does this tell us? Directors of revenue management must continue the successful push of “book direct” to obtain optimum flowthrough and a desireable business mix.
To achieve the highest Net RevPAR figures, owners (and their revenue management experts) must perpetually monitor the total of these acquisition costs and subtract that from guest paid revenues. When divided by the number of available rooms, one can set goals for achieving Net RevPAR. The mission is to strive for gaining our fair share among our competitive set. This Net Revenue Generation Index (Net RGI) is actually a truer measure of the hotel penetration. Of course, from an owner’s point of view, the increased bottom line equals increased value—the prize in this game of asset proprietorship.
And what does all this mean for the years ahead? Consideration of channel shifting can have a greater impact on the bottom line. Comprehension of Net RevPAR and a willingness to modify distribution channels along the way in order to reduce the acquisition costs and yield more revenue is the plan for 2019 as we push to remain stable in what may actually be the year the demand cycle plateaus.
Kurt Furlong, 2019 Chair of the IHG Owners Association, is Chief Revenue Officer and Partner with Genuine Hospitality, LLC. He specializes in hotel asset management, bottom-line enhancement, revenue generation and revenue management. He previously served with management companies in vice president roles overseeing sales and marketing and and revenue strategies. With more than 30 years of industry experience, Kurt has worked in all phases of hotel and restaurant operations.
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