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The Value of Segments…

Data is daunting and tracking it can be exhausting and sometimes over complicated, but honestly if you aren’t tracking your business you are potentially running blind.  And by that I mean, how on earth can  you possibly understand where your business is coming from; how much it is costing you and how each booking impacts your profitability?

Too often I see hotels looking only at the number of hotel rooms they sold last night, last week or last month and the revenue they generated.  They look only at ‘whole house’ believing that if the rooms are coming in and the revenue is good that is enough, but is it?

Worse than that, many look at the revenue in their bars and restaurants in isolation which of course encourages that ‘working in silo’s’ mentality.  Definitely content for another blog but for now I would like to demonstrate the importance of tracking Market Segmentation and the impact it could have on your business.

Market Segmentation is of course only one metric and strong revenue focused hotels will also measure by Source/Room Type/Length of Stay/Country of Origin etc but the goal in all of this is to understand the impact that our customers are having on our business and which customers actually add the most to our bottom line.  Remember of course that we can’t and shouldn’t be all-things-to-all-people, so by having an understanding of where, why and when you business is coming should impact all business decisions.

Imagine if you understood exactly how many rooms to expect from your Leisure Sector; how many days in advance they will book; which days they actually impact; the price they pay; the cost of bringing that business to your hotel and best of all, how much they will spend in your outlets. To get all of this information and to make that information useful, you need to start to track.

I hope this example gives you a starting point:

Jan Feb Mar Apr
Room Nights 200 281 322 387
Nett Rev £15,100.00 £21,988.00 £25,277.00 £31,443.00
ADR £75.50 £78.25 £78.50 £81.25
Nett of Room Cost(38.00) £37.50 £40.25 £40.50 £43.25
Nett of COMM (11.50) £26.00 £28.75 £29.00 £31.75
Nett of CPA (4.00) £22.00 £24.75 £25.00 £27.75
Nett Profitability £4,400.00 £6,954.75 £8,050.00 £10,739.25
Average Nett Spend Per Room (12.00) £2,400.00 £3,372.00 £3,864.00 £4,644.00
Nett ADJ Profitability £6,800.00 £10,326.75 £11,914.00 £15,383.25
Nett ADJADR £34.00 £36.75 £37.00 £39.75

In this example, we are looking at only one segment and over the period of 4 months.  I would urge you to break your business down and include all segments but remember that 6 or 8 major market segments should be enough to give you a high level.  For example brand website or booking.com are not segments, they are Sources.  So start by having a look at your PMS and making sure that the information you are asking your team to store is actually useful!  As an example:

1 – Leisure

2 – CorpNeg

3 – CorpNonNeg

4 – Wedding

5 – Tour

6 – FIT

7 – Event

These are just some examples and you will have to tailor to your own business but ask yourself what data is useful and only track what you are going to use.

So if we look at the example above, I am tracking:

  • room nights (by stay date and not booked date)
  • revenue which is nett of breakfast and VAT
  • this then converts to a nett ADR and a figure we are all used to tracking
  • I have then taken an average cost of £38.00 to have a room occupied and deducted that from the Nett ADR
  • I have worked out my average commission to bring those bookings to my property.  In this case I have used £11.50 and used that each month, although of course this commission figure would fluctuate in a real sceanrio
  • I have then worked out the cost of bringing each room from that segment to my hotel which is CPA or Cost Per Acquisition.  In this case I have used an average of £4.00 which would cover a PPC campaign or perhaps a social media promoted post.  You will probably find that this CPA is higher in real terms but for simple maths I have used £4.00
  • When all of those costs are deducted you will see that the nett profitability can be assessed
  • However, I have then added a nett average spend per room.  Note that this is not a gross average spend but a nett spend once all my costs for F&B are removed.
  • This figure is then added to my nett profitability so that I can guage a nett Adjusted ADR in the final row.

If you use a similar metic and plot how each of your segments behave over time, you will see exactly how each piece of business impacts your bottom line.

What I haven’t added here is lead time or length of stay but even if we started revenue and profitability as a first step, this will give you a much better idea of how your business is performing.

And don’t forget that metrics don’t lie.  This will take all the fluff of ‘we are corporate midweek and leisure at the weekend’ or ‘we are predominately a wedding based hotel’ or ‘our most profitable months are July and August’ out of the equation and give you pure facts to work with.

Whilst your PMS will probably not allow you reporting on this level, your Revenue Management system should do, so get tracking!

(and for all things revenue just ask@rightrevenue.wpengine.com)