by Stephen Davis, VP of Pricing and Revenue Services
As hoteliers look to capture limited demand and maintain yields during lingering COVID-19 impacts, optimizing yield on each guest is critical. Too often hoteliers act as facilitators, ensuring a great experience but not treating amenities as potential to capture additional revenue. From bundling vacation packages during the booking process, to making it easy for guests to purchase commodities while visiting, revenue optimization strategies that stretch beyond room revenue may make the difference between profit and loss during a potentially tumultuous year. Let's look at how hoteliers can optimize revenue with post-COVID demand.
Table of Contents
1. State of the Hotel Industry
Though the recovery from COVID-19 is still ongoing, the U.S. recorded its highest monthly performance levels in May 2021 since the beginning of the pandemic, according to data from STR.
Gross operating profit for U.S. hotels reached 70% of the comparable 2019 level, according to STR‘s May 2021 monthly P&L data release. While demand, revenues and GOP continue to uptick, labor spending remained flat from the previous month at 64%.
Travel volumes are expected to be nearly fully recovered to pre-pandemic levels this Independence Day (July 1–5) as more than 47.7 million Americans plan to travel.
While the improvement is encouraging, many hotels are still experiencing financial difficulty, and even more are seeing staffing issues as evidenced by the stagnant rate of labor costs.
Hoteliers are seeing an increase in demand but need to optimize RevPAR potential by utilizing revenue generation strategies to make the most of every guest, particularly as there is an opportunity to capitalize on the pent up demand expected in the summer months.
2. Revenue Generating Strategies to Make the Most of Every Guest
The potential to drive revenue does not end once a room is booked. On-property revenue opportunities should be a focus for every hotel and resort. Not only does it improve the bottom line, it also enhances the guest experience. Opportunities include bundling, upgradable amenities, and food and beverage optimization.
Packaging and bundling provide an excellent opportunity to create a holistic experience with added value. The package can be promoted with a savings message to the guest. Packaged vacations relieve travelers of decision making once their vacation starts, which can provide a more enjoyable experience as well as capture higher revenue per room night.
An example of a bundled package message may be, “book three nights and receive complimentary transportation from the airport to the hotel for just your immediate party.” The inherent savings of not having to pay for a taxi or shared ride service is clear to the guest.
Another example may be, “book three nights and receive 25% off one dinner meal at our restaurant.” This is also a clear savings message that may result in incremental meals served in the restaurant. Tickets to local activities (for which you receive a commission) are a great addition to vacation bundles and can be customized based on consumer segment. For example, a local food and wine tour could be appealing to a couple traveling alone. A family of four with young children may spark to the local theme park or children’s museum.
Once traveling, guests are often willing to pay a little more for added perks such as late check out, a premium view, or higher-speed internet access. Review your own amenity offerings which could be considered beyond the standard expectation to identify potential candidates. Where possible, bundle upgradable amenities to avoid the perception of “nickel and diming,” and keep the number of upgrades reasonable. If half the rooms in a hotel are a premium view, and you’ve categorized them into several buckets, it quickly becomes overwhelming to guests.
When adding upgrade opportunities, be sure to assess the cost and profit potential for every sale. Offering guided running tours may sound like a great idea, but if it costs more to operate than the revenue it generates, it won’t do much good for the bottom line. Most amenity upgrades are reasonably priced, but even a $10 upsell purchased by 5% to 10% of booked rooms can have a significant impact on revenue and profitability, given that most upgradable amenities typically come at no cost to the hotelier.
For example, offer guests an “Upgrade Your Stay” package when they check in that includes higher-speed internet access, late check out, and a free non-alcoholic drink with the purchase of any snack item from the pantry, per night. The first two have little to no cost to you and the free drink could entice someone who did not have an intent to visit the pantry to actually make a purchase, or repeated purchases, resulting in some incremental revenue to offset the cost of the drink. At $10 per night, this upgrade could be an easy decision for many travelers, but make sure you can still turn the rooms with late check outs.
Food and Beverage Optimization
Almost all hotels have some form of food and beverage sales, whether a restaurant, bar, or sundries shops in lobbies. Opportunities to optimize revenue from these outlets often fall to the wayside.
To start, you can implement menu engineering principles to feature the most profitable and popular items more prominently on the menu to sell more plates that earn high contribution margins. To learn how to implement menu engineering, read our article, Menu Engineering Strategies for Restaurants to Optimize Revenue.
3. Efficient Marketing Strategies to Drive Demand
With revenue down, marketing dollars need to be hyper-efficient. These strategies have proven to drive demand efficiently, increasing profit earned per guest.
Leverage Digital Channels
Digital platforms allow the flexibility for hoteliers to adapt marketing messages as consumer sentiment fluctuates in response to COVID-19. With revenue down, marketing dollars need to be hyper efficient. Targeted, direct communication to consumers can be a powerful asset for the hotelier looking to stretch their budget.
Target Past Visitors with a Return Offer
Past guests who had a good experience are already familiar with your product and more likely to repeat an experience than risk the unfamiliar. Target past visitors with a return offer as a “thank you” for past business with messages that make them feel appreciated and welcome.
Communicate Safety Messages
When selecting a hotel, enhanced cleaning and hygiene practices are still a high priority according to the AHLA State of the Hotel Industry 2021 Report. Guests also feel more comfortable when properties communicate these enhanced cleaning practices. Nearly seven out of ten travelers report wanting to hear directly from hotels what measures properties are taking to ensure safety.
4. Sales Channel Strategies for Sustainable Growth
Third party sales channels can be a boon for business, but they also pose risks. With COVID-19 impacting demand, now is the time to assess your channel strategy and whether it is providing a net benefit.
Over time, third party agreements have the tendency to get unruly. Agreements are made year to year and often new partners are added, but many hoteliers do not perform the due diligence to optimize their distribution strategy. Below are some steps to take to ensure your strategy is working for you and not against you.
Realign Commission Structure
Tie your commission structure to volume requirements by providing the most lucrative commissions to the channels that drive the highest volume.
Review Sales Volumes
Review volumes to ensure partners are performing according to their agreement. If you don’t already, create a report for third-party sales and the respective commissions to analyze if partners are living up to their end of the agreement. For channels with low volume and high commissions, consider ending those agreements.
Explore New Channels
New travel aggregators are being created daily and there are a multitude of companies regularly looking to provide value-added perks to employees such as standing discounts. Both of these options are worth exploring further and regularly looking for new players that could expand your reach.
Sales channels are often overlooked for optimizing revenues. Taking the time to assess your third party strategy could reveal significant opportunity to increase yields and drive incremental demand.
Get Started with Revenue Optimization
Unfortunately, the lingering impact of COVID-19 could continue to make profitability a challenge. Hoteliers will need every tool in their revenue management toolbox to be successful. While there may not be a silver bullet to demand generation, optimizing product, pricing, and marketing will drive revenue and set you up for success.
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