From Revenue to Profit: A Shift in Hotel Commercial Strategy

We all know the backstory: After COVID forced many hotels to close their doors for months on end, travel came roaring back, and for a few years the industry benefitted from “revenge travel” that paved the way for record-breaking rate growth. 

But with the end of rising inflation nowhere in sight, travelers are tightening their wallets. Industry averages show slight declines in demand month over month, and rate growth is minimal. On the flipside, operating costs, particularly labor and amenities, continue to rise significantly. 

In many cases, rising operating costs are outpacing revenue growth, and the result is declining profit margins. Given these conditions, for hotel owners and operators, focusing on profitability over the near term is critical. 

To thrive in this challenging environment, hotels need to shift their culture from a revenue-centric approach to a profit-centric one.  

Shifting Focus: From Revenue to Profit 

This involves: 

1. Incentivizing Profit Over Revenue: Encourage all employees across the organization to consider how strategies to drive revenue impact the bottom line.
2. Labor Cost Management: Focus on reallocating resources, cross-training, and making employees more efficient through better resources.
3. Total Profit Optimization: Broaden commercial strategies to include all revenue-generating areas and measure flow-through to understand the most “profitable revenue.” 

Strategies for Optimizing Profitability in the Commercial Department 

Because Implementing a shift towards profit management requires a deep understanding of the correlation between demand, revenue and profit. This culture shift should start with the commercial team and can then extend to all departments, powered by data and insights that will help teams make decisions that drive revenue and improve the bottom line.  

Consider a strategy called Total Profit Optimization, which involves broadening the revenue team’s focus to include all revenue-generating areas of the hotel, and optimizing the profitability of each. Take the revenue management learnings from the rooms department and apply it to other revenue-generating areas across your hotels. This will allow you focus on shifting resources to areas of the company that are most profitable and build strategies to increase margins in areas that aren’t. 

"Standard revenue management won’t be enough. Hotels need to focus on a cross-disciplinary approach to generate demand and methodically measure each strategy,” says Miri Vasilevsky-Pinto, VP of global hotel asset management for CBRE, in a HOTELS report. 

Start benchmarking your department’s performance by Key Performance Indicators that measure profit over revenue, such as Net Revenue, Net ADR, GOPPAR, and EBITDA PAR.  

One example is optimizing your channel distribution mix to drive demand through your most cost-effective channels. By measuring the cost of acquisition for each channel, including OTA commission costs and the fees associated with your own website and marketing efforts, you can ensure that you drive demand to the channels that are most profitable for the business. 

Similarly, you can use data to align marketing and sales efforts to profit metrics like Net Revenue to ensure that marketing activities provide a good return on investment. 

Advanced Analytics for Capturing the Most Profitable Business 

Other analytics available to ensure you are capturing the most profitable business: 

• Expense Forecasting: Regularly align and refine expense projections based on dynamic demand and revenue forecasting, considering labor and amenity costs. 

• Upsell Opportunities: Identify and act on upsell opportunities – in the rooms department, F&B, retail, spa and clubhouse – to enhance revenue without significant additional costs. 

• Sales Analytics: Assess the value of corporate accounts by looking at their booking patterns, cancellation rates and additional spending. 

• Event Space Utilization: Analyze the demand for event spaces by size and time of day to understand displacement value and optimize the profitability of each event. 

A Hotel Commercial Strategy Culture Shift  

With increased pricing pressure, skyrocketing operating costs are no longer sustainable, and smart hotel leaders are laser-focused on driving profitability across the organization. This culture shift should start with the commercial team and extend to all departments, empowering department heads with data-driven insights to make informed decisions that drive profitability.  

 By shifting from revenue management to profit management, hoteliers can ensure sustainable growth and improved financial health.  

 Don’t have access to the profit analysis you need? Ask Otelier how we can help.