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It’s not about the room, it’s not even about the guest

Analytics /

23rd October 2020

Hotels need to track performance against key criteria but focusing on the wrong metrics can be costly. Too much emphasis on occupancy, average daily rate (ADR) and RevPar can limit growth and leave hotels paying over the odds for bookings because they are too focused on the room. So what should hotels be focusing on instead?

It's not about the room Photo credit Anna Maria Swiatek Unsplash

Hotels need to track performance against key criteria but focusing on the wrong metrics can be costly. Too much emphasis on occupancy, average daily rate (ADR) and revenue per available room (RevPAR) can limit growth and leave hotels paying over the odds for bookings because they are too focused on the room. So what should hotels be focusing on instead?

What business are hoteliers really in?

From a hotelier’s perspective, which is better – a full hotel or one that isn’t? It’s such an obvious answer…or is it?

The question itself is at the heart of a debate more of us in the industry should be having about what hotels actually do. At one level, hotels rent out rooms. Each has a price and the hotel wants to fill as many as possible. That’s why measures such as occupancy, average daily rate (ADR) and revenue per available room (RevPAR) are so widely used. They are helpful measures that reveal whether you are maximising the number of rooms you sell.

However, focusing too much on occupancy, ADR and RevPAR helps explain why so many hotels are over reliant on OTAs to acquire bookings. It is an efficient way to fill a hotel even if it is expensive. Lots of hotels generate the majority of their bookings this way. Indirect bookings look as good as any other booking if you are only looking at these three metrics. When hoteliers start to look at the cost of getting bookings, using a metric like net revenue per available room (NetRevPAR), which includes the commission paid to 3rd Parties, relying on OTAs doesn’t look so rosy. Even NetRevPAR is a room-based measure, it doesn’t take into account that some bookings cost a lot more than others. A better measure to focus on is revenue per booker or lifetime value as it is usually referred to. 

Hotels are only property managers in the basic sense that they need to acquire a certain number of bookings to pay the bills. Beyond this, thinking of yourself as a property manager is not at all helpful if you want to efficiently grow a profitable business because not all bookings have the same value or potential value over time. Some customers will only book once, others will become high value repeat customers if they experience good service at your hotel.

In fact, hotels are really in the customer service business. The rooms themselves are only part of what they deliver. It’s the customer that is key to success, not the room. It’s helpful for hotels to recognise that not all bookers are guests, they may never even set foot in your hotel if they are booking on behalf of someone else which is common practice for most business bookings. Some bookers may be higher value customers than the average guest, for example an events manager responsible for booking rooms for all their staff and delegates has the potential for huge lifetime value.  

OTAs should only be used for acquiring first-time bookings

If a booker only needs to book once and has no future requirement you’ll probably be happy to get that one-time-only booking from an OTA. However, if a booker has an ongoing requirement, you are missing a huge opportunity if you simply take that person’s booking the second, third, fourth time, via the OTA just because it is easy to do so.

Each repeat booking you acquire through an OTA costs you the same high commission as the initial booking and it robs you of valuable insight into your customer’s buying behaviour as well as opportunities to deepen your relationship with them. 

You also risk losing repeat business if the OTA decides to promote another local hotel when a customer searches for you. OTAs actively discourage repeat bookings at the same hotels because they want the brand loyalty the customer is building attached to their brand rather than yours.

Remember guests keep coming back because of the experience you provided. It’s not something the OTA is offering them. Repeat business can be motivated by location, or friendliness, a good restaurant or any number of things, but it isn’t any added value from the OTA. Customers book via an OTA in the first place, simply because they do more advertising than individual hotels do. 

OTAs should only be used to deliver first-time bookings from guests who otherwise would not have found your hotel in the first place.

Hotels need to recognise the true value of migrating repeat business to direct channels

Getting customers to migrate from OTA websites to rebook directly with your hotel yields huge cost savings. A guest who comes back five times in a year is worth much more than just the five lots of additional revenue they bring in because when they rebook directly you avoid all the commission you would have paid for five new customers. Once a customer is a regular it is also easier to cross sell additional services to increase the value of their stay. Importantly, you are also creating a habit in them, to come straight back to your site, building up your brand presence in their mind. 

How to work out the value of repeat business to your hotel

The following questions are a helpful starting point to analyse your guest data so you can calculate how much value (£) your repeat-booking guests represent. This will enable you to quantify the potential benefits of getting repeat booking through direct booking channels.

Do you know what % of your guests book repeatedly with you and how much of all your revenue comes from these groups?

If you don’t know your repeat-booking rate and how much of your business it represents, you’re not even in the game. Collectively, your repeat guests are often where most of your profit comes from. But if you don’t know who they are, how can you focus on making their experience good enough for them to want to come back next time?

Do you know how much of next year’s revenue is predicted to come from these best-guests (compared to one-time-only bookings) and how profitable these bookings could be?

Work out how much of your forward revenue is likely to come from guests who are likely to come back. This will help you to identify how much new business you need to acquire and how much you need to budget for direct acquisition, Google Hotel Ads and OTA spend.

Do you know the relative cost difference for servicing repeat bookers?

Repeat guests who book directly don’t have commission costs attached to them. What you spend to support their repeat business is invariably a small fraction of the ongoing OTA cost because CRM programmes are typically very inexpensive, £ for £ cost vs. revenue generated and also because the direct advertising will be overwhelmingly brand-focused, which is almost always less expensive than generic terms.

And the killer question (which shocks almost every stakeholder we share the answer with whenever we do a first-look at their guest data):

Do you know how much you are paying the OTAs each time a repeat booker books—that you would not need to pay—if you managed that relationship directly?

Hotels need to appreciate that all bookings are not the same because the people making those bookings are not the same. 

Some guests only make one booking, some make many and for these repeat-booking guests, paying the OTA commission is usually ‘optional’.  

So, let’s return to the question I asked at the top of the article:

Which is better a hotel that is full or a hotel that isn’t? 

Hopefully, you can see that it’s the wrong question. A better question is: 

which is better a hotel full of ‘whoever you can get, wherever you can get them’ or a hotel with lots of repeat-purchasing bookers, who come to you directly?

It’s not about the room, it’s about the value (over time) of the booker. Once hotels appreciate the money they could be saving if they acquired repeat business directly they would be much more motivated to use the contact they have with guests during their first stay to migrate them to direct channels for any repeat booking. 

Written by: Stephen Barr, Chief Insight Officer and Co-Founder

What next?

If you would like to know more about how our technology and approach can help you to migrate all your repeat business to direct channels contact us

You might also be interested in reading 7 things your agency should be doing to get you more direct bookings

 

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