Surviving Budgeting Season
Well, it is that time of the year again and although many of us are old enough to have gone through several recessions, times of conflict and serious economic challenges, I doubt any of us have seen these three challenges rolled into one perfect storm. Add to that, a staffing crisis that is affecting every single one of us and it could look like everything is ‘all doom and gloom’. But neither I or STR believe that is the case…
Let’s focus on the good news for a moment… Many of us were clever over lockdown and banked reserves when we could. We have had two strong Staycation years and whether the press want us to believe it or not, there is still a strong desire by our customers to travel, to have experiences and to spend their well-earned cash. Add that to the fact that many locations have multiple hotels full of humanitarian guests, we often see cities with over 40% of total bedroom stock removed from sale, pushing rates and demand higher than any of us expected. This week, the fabulous Sarah Duignan from STR reported to a group of hoteliers that unlike any other recession they have seen in the past, this time we are holding strong on ADR and most of the key global cities are actually also experiencing occupancy growth as well. But the big question for all of us is ‘what will 2023 bring?’.
My advice… budgets need to be considered… carefully:
Your ADR may change. Business is better done face to face (we all know that) so as companies struggle to stand-out, you will see clever businesses re-focusing on face-to-face meetings. Corporate business will come back, although not quite yet to the levels that we saw in 2019. Tourists are also willing to travel (especially American visitors, as with the exchange rate, we are almost paying them to come here!!!). But beware… if you are a hotel that is forecasting either a large corporate or tour segment, segments that probably need to contract at a lower rate, then this will impact your ADR. If you have been used to more lucrative leisure business during Staycation and are now prepared to take a base of negotiated business, then your ADR will change, and this of course will impact RevPar. In short, if this is your business mix, occupancy may remain steady but be prepared to rein-in your financial forecast.
Be aware of your costs. Your cost base has changed significantly over the past few years, months or even days!!! And before you can start to sell rates, you need to understand how much your business is actually costing you to bring in. Work out your Cost of Occupied Room. Be very realistic as this will mean that you need to push your transient rates (or as we like to call them at Right Revenue – your ‘Diamond Dust’). If you are a hotel which is heavily reliant on leisure business, then make sure your rates reflect your higher cost base.
Understand profitability. Are you a ‘busy fool’??? Your wonderful sales and marketing team and even your digital marketing team will be pushing for packages and rates to help fill need dates (which they absolutely should be doing) but are those rates actually profitable? Make sure you are not only considering your selling rate but remove your costs and check your bottom line.
Dropping rates does not stimulate demand. You just get the same demand at a lower price point! Make sure you understand the impact of rate changes and how much business you actually need to gain, to make the same profit. And remember, any changes you consider will impact your budget. If the world is holding rate, then please consider very carefully before any making any significant change.
Invest in tech. Never, ever, ever has there been a better time to invest in technology. You have fewer team members, sharing more roles and the only way to not only support them but to enable them to do their job better is to invest in technology. I promise this will save you more than you know.
Forecasted demand matters. Make great decisions based on forecasted demand and not Business on the Books. Your sales strategy needs to be clever and that means understanding your future pace and setting rates on where you know you will get to, and not where you are now.
However, my strongest piece of advice is to solve a problem that is right in front of you… reduce the commission you pay to OTA’s. While everyone is looking at costs increasing, only the most strategic hoteliers are actually looking at the costs draining right out of their business. I can take an educated guess that one of the biggest costs in Rooms Division are the commission cheques you write to the OTA’s.
There are hundreds of articles out there on how to improve your Book Direct campaign (some of which you will find on our website). Please read them… There are well-documented and proven strategies that will actually work and if you want to make a huge impact to your bottom line, then this will be it.
And leaving the best to last… our gift to you….
During budgeting season we would like to offer access to Calculate Hub completely free of charge (hoteliers only please). The Calculate hub is a suite of tools designed to help hotels calculate costs and profitability (no PMS integration required)
Just register below and we will send you details for free access.
