Hoteliers should think of profits first
04 MAY 2015 5:18 AM
It’s true that people are important to the hotel business, but owners shouldn’t be afraid to think of profits first and foremost. All good things will follow good profits.
Trick question (and potential contrarian alert): What's the most important thing you can do to maximize the success of your hotel property or company?
It's accepted wisdom in a service industry such as ours that success begins and ends with taking care of the customer. And no question, customer service is a critical factor in generating repeat business and raising room rates.
But here's the contrarian part: With all due respect to the care and feeding of the customer, a compelling case can be made that whether you run a single property or a company, making money should be the No. 1 priority. A-ha, you say: The best route to making money is to make sure your customers are happy.
Let's explore this a bit further; I'll exaggerate to make a point.
There are all sorts of things that can be done to ensure a guest's satisfaction and get him or her to keep coming back: turn-down service; fine dining options; free newspapers; concierge services; luxury bathroom amenities—the list is endless.
But does offering such “goodies” make financial sense at a midscale or select-service property? In short, can you charge a sufficiently high room rate to make a profit if you offer such things?
While your guests will be happy to accept such niceties—and will tell their friends about this great deal—would they be happy to pay a premium room rate in exchange? If not (and they probably won't), say goodbye to your profits. If you aren't making money, you're limited in what you can do to improve your property, maintain appropriate staff levels and, finally, achieve what all hotel owners are looking for: positive return on investment. The key is to provide services commensurate with hotels in your competitive average-daily-rate set.
So yes, keep the customer happy but within the expectation the guest has for a hotel in a particular rate range. Of course, there are many no-cost ways to maximize the customer's experience, such as having friendly staff and providing efficient service. If you run a midscale property, be the best midscale property in the market; don't try to outdo the luxury hotel down the street.
I fully recognize this seems like Hotel Management 101, but it helps make my point that making a profit—for a hotel owner or shareholders—is the top priority. Catering to guests, keeping employees happy and engaged, are vitally important, but are vehicles that enable a property or company to make money. It works the other way, too; the more financially successful you are as a hotelier or a company, the more things you can do to grow your business, provide opportunities to your employees and keep the customer satisfied.
It's kind of a chicken-and-egg equation, or trying to determine the single most important part of a car's engine, but it's making money that makes everything else possible and achievable.
For a public company, the need to generate profits is even more obvious. Publicly traded companies in any industry have one singular goal: to maximize value for their shareholders.
Such organizations in the hotel business generally think of owners and customers in ways that go beyond traditional definitions. Owners can be, indeed are, those franchisees or real estate investment trusts that own a company's hotel properties, and also the company's shareholders. Customers are considered not only the traveler carrying the suitcase, but franchisees as well. In any case, what all these stakeholders are focused on is realizing maximum returns.
Just as a hotel manager who fails to reliably deliver profits likely won't be the manger for long, so too will a public company that doesn't deliver adequate results see shareholders sell their stock, thereby reducing the value of the company. In this scenario, a publicly traded company that sees its stock price fall and its value diminished will have a more difficult time maintaining properties, adding units and providing good growth opportunities for employees.
Years ago, in a city that will remain unnamed, a company looking to develop and operate a hotel-casino was accused by opponents of “just wanting to make money here.” Guilty. There's no reason to be defensive about earning a profit. In the end, that's why people go into business. A happy by-product of achieving financial success is the ability to provide a good service and offer good jobs.
Keeping your eye on the financial ball will result in good things for everybody.
Marc Grossman is a senior communications executive who served as senior VP, corporate affairs, for Hilton Hotels Corporation, where he was responsible for all global corporate communications, investor/financial relations, public affairs, brand/marketing public relations, crisis communications and internal communications. He also held senior positions with three leading international communications firms. He can be reached at firstname.lastname@example.org.
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