Recently the world panel of revenue management experts were asked a very important question: how to transform revenue management into profit leadership?.
Today's revenue leader must be as fluent in cost, efficiency, and flow-through as in pricing. The best are shifting from revenue optimizers to profit strategists, aligning decisions across departments to protect and grow the bottom line.
The question is not how to drive more revenue but rather how do we transform revenue management into profit leadership?
Here is my take:
I believe the industry should adopt a bottom line benchmark: Profit per Available Room (ProPAR), in addition to the traditional topline benchmarks ADR, RevPAR and occupancy, in order to gauge the profitability of revenue sources.
To introduce ProPAR, the hotel should start accounting for Cost of Acquisition (CoA) of OTA and direct bookings in exact same manner in the property P&L.
Right now, how does the industry account for CoA of OTA bookings?
- Merchant OTA Bookings: Since the hotel receives net payments from the OTAs (guest-paid revenue minus OTA markups), these are not even accounted in the hotel P&L.
- Agency OTA Commissions: These are accounted for in the property"s P&L as COGS (Cost of Goods Sold). COGS are automatically deducted from guest-paid revenue, are rarely scrutinized by owners and managers, and are accepted as a cost of doing business.
- Costs of acquisition of direct online bookings come from the Sales & Marketing line item in the General and Administrative Expenses (G&A), the most scrutinized part of the property P&L and budget.
The irony? The more OTA markups/commissions are deducted from guest-paid revenue, the less money is left for G&A expenses and direct online bookings.
Max Starkov
Hospitality & Online Travel Tech Consultant & Strategist
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