Achieving that elusive Diamond Dust… growth and manageable growth
So 2017 budgets are creeping up on us and we are all interested in growing our business aren’t we? Whatever our focus is: occupancy or rate, growth is what we are all desperate to achieve. But we can’t blindly take instruction from a financial team looking for 5% uplift on last year without understanding the impact on our business in real terms and how we can actually influence that impact.
First of all we need to measure where we are and where we have come from and one of the most important measurements is Market Segmentation. This will not only help us identify the purpose of a guests stay (e.g. corporate or leisure) but more importantly will help us identify trends. For example:
- Average Daily Rate (ADR) per segment
- Contribution to Revenue Per Available Room (RevPar) per segment
- Average Booking Value (ABV) per segment – (possibly the most important financial measurement you can track and the subject for another blog)
- Length of Stay
- Lead Time
- Day of Stay (midweek or weekend)
- Cancellation percentage
- No-show percentage or early departure
Often due to the very nature of how our guests book, it is difficult to ascertain their reason for stay but as a general rule, I recommend that all single occupancy stays, Sunday – Thursday are segmented as Corporate and all double occupancy as Leisure. Not fool proof I know but at least lets us put a stake in the ground. Whatever you decide, segmenting even at this high level should be a first step.
The most important question for a Revenue Manager or Sales Manager is how much business can I actually impact? How much is yieldable versus how much is contracted and therefore non-yieldable?
- I would recommend reviewing what is Non-Yieldable, Semi-Yieldable and Yieldable business. How much of your business is Non-Yieldable, contracted or even Last Room Availability (LRA)? Perhaps valuable corporates or tour business.
- How much is Semi-Yieldable? A good example of this might be your wedding business i.e. a certain amount of rooms may receive a discounted wedding rate but additional rooms then move to BAR.
- And then finally there is the Diamond Dust – the business we can yield and really the only remaining segment of revenue gaining business, we as Revenue Manager or Sales Mangers can influence. This is where those precious revenue gains can be felt most.
But before we can gauge the potential growth we have on that segment, we need to understand the impact our Non or Semi-Yieldable business has overall. Are we for example, displacing higher rated business on nights when we have too much contracted business? Should we be accepting that tour / wedding or contracted corporate?
It is important to understand your LRV – Last Room Value or put more simply your selling rate of the day and you should be measuring how many times contracted business demands you honour a rate below this augmented LRV.
Of course there are further considerations to be made, such as overall value to your business (such as a valuable corporate) but tracking this will allow you to review if you should be considering moving your segmentation in a different and more profitable direction
Right Revenue Tips
- Review your current segmentation and keep it simple! Make segments easy for your team to understand and to differentiate
- Remember that a segment is not a source. Your brandhotel.com or booking.com business is not a segment but a source – very different!
- Identity all non-yieldable business and understand its true value
- If you can afford a Revenue Management System or tracking system then use it. Data is invaluable
- Make sure that you are tracking everything you can (Fig 1) to ensure you have a clear understanding of every part of your business
- Measure how many times you are under-selling your LRV
- Review your top clients and the total impact they have on your business
With all of this data, you should be able to assess how much business is actually Yieldable.
Once you have that information, now comes the fun part – how on earth do you use it? Can you realistically add that 5% to your bottom line? How do you go about achieving that elusive increase.. the diamond dust…? Stay tuned…