These days, you have a number of tools at your fingertips to track the success of your property. It’s now easier to check in on the health of your hotel, inn, or B&B, but it’s also more time-consuming. Even worse, you run the risk of focusing on the wrong metrics and ignoring the areas where you can truly impact your profitability.
A trend I’ve noticed as a fellow hotelier is that too many independent lodging owners and managers focus solely on occupancy. Instead, they could be making strides to grow top-line revenue and improve profitability in different ways.
That’s what this article is all about. I’ll share the hotel metrics that can get too much attention and other areas that deserve more of your energy. Let’s dive in.
The wrong way to think about hotel metrics
- Aiming for 100% occupancy all the time (AKA getting heads in beds).
Hotel occupancy rate can tell you how many rooms are booked out of your total rooms available in a percentage. This KPI is a valuable metric to track for independent lodging. Maybe it’s even the first one you look at in the morning. However, if you’re only focused on reaching 100% occupancy, or what some like to call “getting heads in beds,” you might negatively impact your profitability in the process.
Industry research suggests there’s a sweet spot for occupancy, and it’s not always being completely full.
According to Hotel Tech Report, “For many hotels, an ideal occupancy rate is between 70% and 95% — though the sweet spot depends on the number of rooms, location, type of hotel, target guests, and more.”
That’s because every room booked brings additional expenses: housekeeping, maintenance, restocking, properly staffing your front desk, responding to guest requests, and more. The more bookings you secure, the more your expenses add up, too.
The other factor to consider when looking at occupancy is market demand. Changes in travel trends can impact bookings, so if you’re still aiming for 100% occupancy when travel is down, you might discount room rates to a detrimental point. At certain rates, your expenses can outweigh your income and decrease net profits as a result.
And even with heavy discounts, you still might not reach full occupancy if the demand isn’t there.
- Discounting to the point of devaluing your brand.
Speaking of discounting, this is another tool that can end up hurting your boutique hotel or inn long-term.
It’s common to lower room rates as needed to secure the bookings you need. However, there’s a lot of science and strategy that goes into hotel revenue management and pricing strategies. If you discount rates just to be the lowest option amongst your competitors, your potential guests might start to see you as the low-budget choice.
Chances are, if you run a boutique hotel, inn, or B&B, there aren’t many properties like yours. Your uniqueness becomes undervalued (or overlooked) when you try to compete just by having the lowest room rates.
Similar to what was discussed above, you can also risk profitability by discounting too much.
While tracking occupancy and average daily rate (ADR) is important to get a snapshot of the health of your hotel or inn, it shouldn’t be your only focus. Similarly, discounting rates to draw in guests and feed these metrics shouldn’t be your best pricing strategy.
These are parts of the puzzle and tools to use wisely, but there are other places to spend your valuable time.
Where to focus your time and energy instead
So, where can you look to grow hotel revenue and improve profitability? Since you likely have a to-do list a mile long, we’ll recommend a couple of improvements that can make an impact without taking up all of your time or labor costs.
- Allowing technology to help grow revenue.
The most cost-effective way I’ve found to grow our revenue is with an AI-powered dynamic pricing tool.
AI-based dynamic pricing (instead of "rules-based yield management" or "price optimization strategies") yields higher revenue because there is no emotion in the pricing model. This software operates beyond a human's ability to quickly analyze all data points available and adjust based on the response in reservations. AI can adjust pricing faster and more effectively than people can, and it continues learning to optimize more as time goes on.
“TakeUp has generated an average increase of 30% in top-line room revenue on the same level of occupancy in an increasingly volatile travel market.”
AI revenue management has made more money for us than we could have made on our own. TakeUp, the platform we use, has generated an average increase of 30% in top-line room revenue on the same level of occupancy in an increasingly volatile travel market.
Further, it has allowed us to focus efforts on lowering expenses associated with that revenue, resulting in a 20% reduction in overall housekeeping labor costs. We’ve done this while also increasing housekeeping hourly rates to some of the highest in Western Washington (possibly the state).
This change has helped us lower employee churn and improve the guest experience, as demonstrated by guests who describe us as "better than the Four Seasons" in public 5-star reviews.
Once a room is undersold, you can never make up that revenue. But implementing this software can take your revenue — and profitability — to new heights. The first time you book a room at a higher rate, you’ll wonder why you didn’t start sooner.
- Adding value to further improve the guest experience.
If you’re worried about increasing rates and what guests may expect when paying a higher rate, you can look for ways to add value for each guest. When the AI pricing tool gets bookings at higher rates, evolve your experience for the guests who are willing to pay you more. These ideas don’t have to be costly or labor-intensive. In fact, it’s best if they aren’t.
To do this, focus on maximizing your staff's potential to improve the guest experience. Ask yourself:
Are there ways to better anticipate your guests’ needs?
How can you provide the experience you're known for AND reduce labor expenses at the same time?
Is a guest constantly asking for some amenity? (If so, is there a way to deliver that amenity BEFORE the guest asks in a manner that can reduce labor costs.)
Here’s an example.
At Domaine Madeleine, we have a full self-service guest amenity area in our lobby where guests can get fresh towels, extra toilet paper, mouthwash, board games, silverware, and plates — you name it.
It’s open 24/7 and free of charge. Guests can grab what they need anytime. They don’t have to call down or talk to a person just for a fresh towel.
At the same time, housekeeping staff have only one central location that needs to be cleaned, maintained, and stocked once per day. Our amenity usage actually dropped as a result because guests get what they need when they want it, instead of it being used or taken when they really don't want it. Many times, guests take something or use it simply because it's in the room.
Both labor and amenity stock expenses have dropped. At the same time, guest satisfaction increases because they have full access to everything they need on demand without waiting for staff.
How to get started today
To get started, try creating a weekly habit to make one minor improvement. Introduce one automation, one amenity improvement, one labor efficiency improvement, or one guest experience improvement. Just one per week would be the goal, though even doing that might be challenging at first.
Some initiatives will require more time and energy, but if you can take on a mindset of continual refinement, your inn will benefit.
Your guest inquiries are a great window into this process. Our rule is that if any three guests ask a similar question or provide similar feedback, we target that portion of the experience to improve.
If you’re not sure where to start, here are three steps you can take to improve your operations.
- Re-align on and track the right numbers, such as room revenue and profitability, instead of focusing solely on achieving full occupancy.
- Find ways to take the complication and emotions out of rate-setting by relying more on technology and data.
- Explore tools that can help you automate back-office functions so you can focus more on improving the guest and staff experience.
