Are you leveraging these profit triggers in city and resort hotels?

Do you think all hotel types are the same?

Are you missing opportunities to leverage profitability triggers in a particular type of hotel?

Being financially savvy is one of the most sought after skill sets that is required of hotel operations managers.

In other words, acquiring financial skills is critical.

Are you on board with this?

Understanding relationships and triggers in the hotel profit and loss statement is key for leveraging profit triggers.

Knowing which hotel type is equally important.

In this blog post, I will share with you 5 profit triggers in city and resort hotels. 

The 5 profit triggers are in the following areas: 

Profit Triggers in Hotel Investment

The first (not surprisingly) profit trigger is hotel investment.

What do stakeholders look for in a hotel investment?

What pre-requisites are critical when a hotel investment is planned? 

And when the hotel becomes operative?

Eventually, developers and stakeholders of both city and resort hotels want one and only one thing.

To ensure that the investment is able to produce a good return.

In other words, Return on Investment.

Or ROI as it is commonly known.

Three factors play a part in any hotel investment

• Size of Property
• Location of Property
• Cost of Property

Is it a small boutique hotel located in the central district of a city?

Is it a medium sized hotel located away from downtown?

Is it a medium sized resort located on a beach, or on an island?

And so on...

Size of the property is critical.

It impacts both location and cost.

A 150 room boutique hotel located downtown will carry a hefty price tag.

That same boutique hotel located further away from downtown will obviously cost less. 

So, size is inextricable from location and cost.

On the other hand, resort hotel sizes are linked to location and cost too.

However, they have other considerations which we will discuss shortly.

After size, location is critical to both city and resort hotels but for different reasons.

In fact, location is often more important than size.

In the real estate landscape, the mantra or philosophy that rules is: Location. Location. Location.

The hotel industry which is squarely sitting (pun intended) on real estate space is no different.

Location is paramount here too.

Cost of a property is again linked firmly to location and size.

Land prices per square foot will vary depending on how prime the land space is.

For example, in New York city, Manhattan is an area which commands some of the highest land prices in the world. 

Obviously, a hotel project planned there will need to take that into account.

Land prices could be exorbitantly high negating economic feasibility of the project itself.

Nothing is more discouraging for an investor than a hotel project investment ill conceived in size and cost.

And not being able to deliver revenue and profit.

I will now lay out a case for this obsession with location and how it specifically affects the bottom line.

How do these three elements:

• size,
• location and
• cost

become profit triggers?

Let us take size first.

Rooms department business in general drives hotel revenue as well as profit. 

The number of rooms available is therefore a major criterion to deliver profit.

I would like to lay out a caveat here.

Large size hotels say, with more than 400 or 500 rooms are able to deliver higher revenue and profit (other things being equal) than a hotel with 200 or 300 rooms.

Other things being equal could include strong, sustainable demand, good average rates etc.

However, bigger sized hotels also suffer from what may be called “problem with plenty.”

It is much more difficult to fill up a hotel on a consistent basis with 500 rooms than a 200 room hotel.

This is due to the seasonal nature of the hotel business. 

Low, shoulder and high business volumes prevail in different months of a year.

A 500 room during a low period of occupancy might well struggle to increase its occupancy on a daily basis for a sustained period than a 200 room one.

When new hotel investment projections are made, the project cost, annual revenue and profit estimates will tell the story of the return on investment.

Size, location and cost considerations are also different for a resort hotel.

A resort hotel tends to be spread out over a larger area than a downtown city hotel which is housed in a vertically oriented building. 

This building is often on a handkerchief sized plot of land (known as lot size often).

The larger area in a resort may balance out the more expensive real estate in a downtown hotel.

So, size, location and cost as part of the investment indeed are profit triggers.

These must be carefully weighed up if the investment is to be economically successful.

Profit Triggers in Hotel Operation

A city hotel operates differently from a resort hotel. 

This is despite both basically checking in and out guests and providing similar services .

Three factors play a part in any hotel operation

1. Logistics
2. Maintenance
3. Security

Logistics broadly refers to movement of people, equipment (assets) and supplies.

In a downtown hotel which is vertically oriented, elevators play a huge part in logistics.

The number of elevators servicing the building (both guest and service) need to be thought through. 

Often they turn out to be inadequate.

And it becomes a nightmare to move guests, employees, equipment and supplies up and down the building.

Nothing irks a hotel guest more than simply waiting for an elevator which takes ages to arrive. 

It could result in guests not returning. 

This has revenue and profit implications.

In a resort, the main building is rarely a high rise and so they do not have an elevator problem.

But a resort has another issue which is area and distance.

Often, guest rooms in beach resorts are spread out.

And so it takes a while just to walk from your room at one end of the resort to the lobby for breakfast or any other services. 

This is not a defect though. 

It is the just the nature of space in a resort.

More importantly, it has something to do with the target audience and their purpose of stay.

Resort guests are often on leisure.

So, they do not mind the long walk from room to the lobby or breakfast place.

Resorts therefore normally offer room service.

Thus service times will need to be watched.

From a maintenance and security perspective, resorts can become nightmares if a clear strategy is not in place.

Maintenance and landscaping costs in a resort can become high and this might depress the bottom line.

Security needs to be tight in a resort which is spread out.

This is for two key purposes:

• to guard against intruders getting into the resort 
• as well as to protect resort assets and guest belongings. 

Outsourced professional security agencies are often hired by resorts.

This of course means another dent on the bottom line.

On the other hand, in a city or downtown hotel, it is easily achieved.

With electronic sensor and access card controlled areas within the building.

Thus, the type of operation whether a city or resort hotel is another of the profit triggers.

Profit Triggers of Target Market

The third profit trigger in city and resort hotels is about the customer.

What is the target market?

Three factors play a part in a hotel target market:

• Business Vs Leisure
• Individual or Group
• Convention or meeting events

From a market segment type perspective, a downtown city hotel located in the business district will attract a different set of customers compared to a resort hotel.

The bread and butter of downtown city hotels is from corporate business.

They will not only target neighborhood offices but will focus strongly on companies and business enterprises. 

So, broadly the type of the target market is business.

Resort hotels broadly target the leisure market.

This market consists in a major way families and individuals on vacation.

In recent times, apart from business and leisure types, a hybrid third type has emerged. 

This is the Bleisure type.

Bleisure is a market segment that targets customers who come for business but stay on for leisure.

More and more companies are allowing their managers to combine a leisure stay (at their own cost!), at the end of a business trip.

A resort property is perfectly suited for a Bleisure market segment with its extensive vacation focused activities, events and services.

In the past decade, Bleisure has also taken the form of convention business.

A good sized resort, say above 300 rooms can house a convention of 500 or more participants.

The icing on the cake is for resorts which have a wellness or spa facility.

Say, guests have gone through two or three days of intensive brainstorming at the convention.

They can then head out to detoxify at the spa. 

It is a win win trigger.

And in the process a revenue and profit earner.

Similarly, but to a lesser extent, city hotels may also target the leisure segment.

This is when guests stay at the hotel to sightsee and move around the city.

This depends on where the hotel is located within the city.

Proximity to a landmark or place of tourist or historical significance is critical.

How is a target market a profit trigger?

Business based city or downtown hotels have a different average daily rate range compared to a resort hotel. 

Of course, it depends on a number of factors like size, type, location etc.

One factor of a target market affecting profit is for example the number of occupants in a guest room.

Business based rooms are mainly single occupancy driven unless two colleagues are sharing a hotel guest room. 

Single occupancy rooms generally command a lower average daily rate.

Resorts on the other hand targeting families have more occupants in the room. 

They may thus be able to command better rates compared to a business based city hotel.

Often, the single occupancy factor of the city hotel is balanced by a high end, premium hotel type raising rates above a comparable resort.

WATCH this video on the 5 Profit Triggers in city and resort hotels

Profit Triggers for Hotel Revenue

Ultimately, the investment, operation and target market elements dictate the revenue potential of a city or resort hotel.

Three Key Performance Indicators (KPIs) play a part in revenue potential

1. RevPAR
2. Average Length of Stay
3. Repeat Guest Ratio

RevPAR

RevPAR levels of city and resort hotels will be dictated to specifically by three elements:

• target market, 
• size and
• location elements.

Broadly, a city hotel positioned at the same property level (economy, mid scale or luxury, up scale etc.) as a resort will tend to have a higher RevPAR than the latter.

However, exceptions do prevail.

RevPAR as a KPI, is one of the most significant profit triggers for city hotels and to a lesser extent in resort hotels.

It is to a lesser extent in resort hotels because room revenue as a % of total revenue may be much less than the 70% prevailing in city hotels.

Nevertheless, Resort hotel RevPARs in recent times have equaled and in many instances overtaken city hotel RevPARs.

Two other KPIs are starkly different between a city and resort hotel.

Average Length of Stay (ALOS)

Average Length of Stay between city and resort hotels is a product of mainly the target market.

City hotels which broadly cater to business customers tend to have lower average length of stay than resorts. 

This is because a resort customer is there for leisure and hence tends to stay longer.

Business customers stay for less days because of specific appointments they come for.

They leave immediately thereafter.

As mentioned earlier, a Bleisure customer would be a hybrid in average length of stay.

Another factor which impacts average length of stay is that business customers in city hotels are traveling on company business.

The company foots the bill.

Resort customers on leisure pay for their trip and stay longer.

Average Length of Stay is a powerful budgeting and forecasting tool as a KPI.

Calculation

Average Length of Stay = Total Occupied Room Nights / Total Bookings

Average Length of Stay tends to be:

• higher during weekdays and 
• lower during weekends in a city hotel.

In a resort it is just the reverse.

As said earlier, the major cause is the target market.

Repeat Guest Ratio

Repeat Guest Ratio is another KPI which is different between city and resort hotels.

City or downtown hotels do not lend themselves to a high Repeat Guest Ratio like a resort does.

This is despite corporate contracts signed by city hotels which ensure the guest on business only stays there on trips. 

Add to this, the frequent stay benefits that attract rewards.

Resorts are suited to a moderately high Repeat Guest Ratio because of the relationships forged by guests during vacation stays. 

Moreover, the strong family focus means that the family target market is more likely to go back to the resort if they have a great experience.

Personally, when I book vacation trip hotels, I first consider ones where I have stayed before and had a wonderful experience.

Millennials are changing this phenomenon on its head.

They often choose different vacation locations and thus repeat guest ratio may not be high.

Repeat Guest Ratio has another major advantage.

Marketing costs are lower for a guest who comes back since he or she had already experienced value and had been sold, so to say.

Calculation

Repeat Guest Ratio = Total Repeat Guests / Total Guest Arrivals

This KPI is another great budgeting and forecasting tool.

RevPAR, Average Length of Stay and Repeat Guest Ratio are KPIs that influence revenue in a big way.

They thus act as profit triggers.

After all, no profit increase is possible (other than an expense decrease) without first a revenue increase.

Profit Triggers in Delivering Profitability

So far, we have seen elements that act as profit triggers in a city and resort hotel.

However, there are specific phenomenon which act as profit triggers too.

What are these direct profit triggers in a city or resort hotel?

Generally in a city hotel, the percentage of room revenue to total revenue is close to 70%.

Rooms department profit margin is two or sometimes three times that of the Food and Beverage profit margin.

Toward this, Average Length of Stay and Repeat Guest Ratio are not merely primary revenue triggers.

They are vehicles for a higher level of bottom line as well.

Food and Beverage in city or downtown hotels normally accounts for about 20% to 25% of total revenue.

In recent times, more downtown hotel projects are tending to have smaller food and beverage outlet operations.

This is primarily because of the competition faced from free standing restaurants close to the hotel.

These city hotels struggle to ensure that guests take all major meals like breakfast, lunch and dinner in the hotel.

However, it is normally found that the breakfast is the only meal that the guest takes regularly in a city hotel.

Most times, being on business, lunch is outside the hotel and more often than not, with some exception, dinner too.

In the battle to keep guests within the premises, a city hotel cannot match the competition offered by free standing restaurants nearby. 

This is principally because of the price factor.

Often, the city hotel ends up bringing the price down which impacts profitability adversely.

It is a losing battle.

Conversely, the food and beverage operations are the bread and butter of a resort's revenue and profit strategies along with recreation and entertainment.

The strategy in a resort hotel food and beverage operation is to have the guests take all their meals in the premises. 

Toward this, often a room rate inclusive of breakfast is offered thereby nailing down at least one meal period.

Resort hotels are also great opportunities to have a fine dining restaurant.

Here excellent gourmet food is served with expensive wines.

These are for those occasions during, say, a holiday period when a couple may spend quiet, romantic moments together.

In almost all instances, a couple staying at the resort hotel will have at least one exclusive meal in such a fine dining restaurant.

They would thus not mind splurging on a premium wine for those special moments.

Average Checks in these outlets and mainly during dinner meal period can rise significantly.

This does enhance the outlet food and beverage profit.

City hotels tend to have a lesser variety of revenue streams compared to resort hotels. 

They have to leverage their pre-dominantly business market segments to keep their RevPARs up.

On the other hand, more and more resort hotels offer products targeting business as well as leisure needs.

In recent times, Bleisure business in resort hotels are targeted with excellent convention and banquet facilities. 

These can serve as perfect events for company wide meetings, focus groups, strategy gatherings and so forth.

These business events are often held in big ballrooms with a capacity of 500 or more.

In the food and beverage operation of a hotel, the banquet or catering department produces the highest profit. 

Thus such business events in a resort hotel enhance the bottom line.

A resort hotel has a greater variety of revenue streams, which could include a Spa, Golf Course, Entertainment area, water sports and so forth.

Having attracted guests to the property, the resort hotel seeks to optimize overall spend per room or individual or even stay.

Profitability is driven through these various revenue streams.

More and more resort hotel properties are catering to leisure as well as business segments.

In a way, they do not end up having all their eggs in one basket as city hotels tend to.

This could be a better bottom line sustenance strategy over time.

After all, stakeholders will be looking to boost their return on their investment.

One profit trigger which I talked about at the beginning of this post was during the discussion on location.

I said location is paramount in real estate space as well in the hotel industry.

It is almost an obsession. Why?

Apart from the obvious reasons, there is a profit trigger that is a hidden force.

A well located hotel property will be able to weather low periods better.

How you ask?

Well, hotels are seasonal in nature.

As such, during low periods, it is easier to push up the occupancies of a well located hotel versus another which suffers from a not so great location.

Revenue generation is better facilitated.

This delivers more profit.

What is the strategy you adopt at your hotel?

Are you leveraging profit triggers in the type of hotel that is yours?

Comment below.

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