I was rejected yesterday.
The reply to the email I had sent, offering our small hotel revenue management services, was intriguing. They weren’t declining due to budget constraints or concerns about COVID-19’s impact on travel. On the contrary, they declined as the hotel was already doing so well. Yes, in the midst of a global pandemic, this independent boutique hotel was performing better than ever. I was immediately inspired.
The hotel is located just outside a US ski town and well-suited for American travelers seeking a domestic getaway. It appeals to outdoor enthusiasts, and the owners’ commitment to wellness and sustainability is apparent throughout. As each of these attributes appears in various articles about 2021 travel trends, it is easy to see the potential. And given the hotel’s performance in an otherwise difficult year, the manager’s response to our ‘let’s grow your revenue’ pitch is understandable.
It is also a perfect example of how easy it is to inadvertently leave money on the table.
THE ICING ON THE CAKE
Strong occupancy, consistently sold-out room categories, and long lead times – where rooms sell out months in advance – are all calls to action. They each represent a unique opportunity to maximize hotel revenue across the board. As a client once told me: “every additional dollar you generate above (x threshold) is pure profit; it’s the icing on a cake.”
This client used to pride himself on occupancies of 80% year-round. At the time, I was contracted as the hotel’s Sales Rep; I hadn’t yet started my boutique revenue management company. But I had noted opportunities to increase revenue, and he encouraged me to experiment with – and study – revenue management. We implemented new pricing, distribution, and inventory strategies; tweaked our systems to better manage our rooms and sales channels; and challenged our sales partners to trust our instincts on pricing.
In the first year, the average daily rate (ADR) increased by 12%. At the same time, the hotel added two suites, and total room nights sold increased by 346. To appreciate the impact of ADR, consider selling these additional room nights at the prior year’s ADR. Gross revenue would have increased by just 5%. Together with our 12% growth in ADR though, gross revenue grew by 17%. The equivalent dollar value of the increase in ADR, alone, was just over 807,000 USD. We continued to learn and adapt, and the following year, ADR and gross revenue increased by 14% and 6% respectively. By year 3, we had added three more suites. Occupancy remained flat while ADR and gross revenue grew by 2% and 4% respectively. We had established our value and were hitting our target ADR; it was now time to hone in on our niche markets.
This happened because we struck while the iron was hot. We had been doing well without a revenue management strategy, but we didn’t want to settle for ‘well enough’. Which brings me back to the potential of the property I reached out to. At the very least, their demand is signaling that there’s an opportunity to push up the nightly rate.
THE SIGNIFICANT POTENTIAL OF 1%
The book Atomic Habits explores the effects of doing ‘just 1% better’ every day. The author posits that by increasing your efforts by 1% each day, you can achieve results that are nearly 37 times better after one year. Though he focuses on improving habits on a compounded basis over time, I was inspired to simplify the concept and apply it to a hotel’s daily rate.
Consider that a 1% increase on a 100 USD room rate adds just 1 USD to a guest’s pre-tax bill. Now, multiply that dollar by 365 days, 40 rooms, and a ‘full house’; it adds up to 14,400 USD. The market will barely notice the 1 dollar difference, but the extra 14,400 USD will go a long way. And that’s just one example of doing 1% better. Imagine what you could do with a 21% increase; 21% was our clients’ average annual gross revenue growth in 2019.
Are you ready to see what our small hotel revenue management services can do for you?