I had a wonderful discussion with a hotel sales manager last week about a new hotel reservation platform that does not include any stops at an online travel agent, OTA. The sales manager explained to me that her mid-sized hotel did a couple of million dollars in corporate IT sales and that represented just over 12,000 room nights.
She went on to explain that the room nights were generated by close to 100 corporate contracted companies. These companies ranged in volume from a dozen room nights per year to the top of the list where a handful of companies were in the 1,000 room nights per year category.
The 80/20 rule is also known as the Pareto principle. Pareto wrote a paper in university in the late 1800s Switzerland. In his paper, he stated that for many events and happenings that 80 per centÊof the effects came from 20 per centÊof the causes. He had studies the ownership of land in Italy and found that 20 per centÊof the people owned 80 per centÊof the property. He also studied the peapods in his garden and determined that 80 per centÊof his peas came from 20 per centÊof the pods. So, what does this have to do with OTA’s and hotels you might ask?
On further reflection in the hotel where she worked 80 per centÊof the $2 million in sales actually, comes fromÊnine companies. The other 90 companies combine to produce less than $500k in sales almost exactly 20 per cent. When we look closer at theseÊnineÊcompanies we can see the revenue they produce is somewhere just north of $1.5 million and almost 10,000 room nights. The other aspect that we can readily see is the cost of obtaining this business, what we would traditionally call the distribution cost or better still online travel agency commissions. In the corporate IT world, the individual travelers typically book their accommodations and better still its usually the corporate executives staff that book the room. They book it through some form of an OTA and the loaded commission costs are in the 20 per centÊrange. Using the $1.5 million in the topÊnine accounts this translates into $300k in commissions that the hotel is paying to get this business.
Her idea was to approach each top corporate customer, allÊnine of them, and offer a better deal on their room price in exchange for using a new reservation platform that connects the hotel and the corporate travel planner directly. No middle man and no commissions. This allows the hotel to offer the customer a special rate that’s not published and not under the rate parity agreement that applies to hotels and OTA’s. The customer saves on every single room they purchase and the hotel saves commission on every single room night. Win, win. Both the hotel and the corporate clients have just increased their profitability.
Back to the 80/20 scenario. In order to save the 100k the hotel only needs to talk toÊnine clients. The clients, in turn, need to re-educate their travelers and typically this is very easy to do as they are used to following the corporate travel manager’s directives. Using the basic commission of $30 per reservation her plan is to pass along $10 per room to the hotel and in turn, the hotel’s profitability increased by $20 and this means the goal is to pass 5,000 corporate room nights through the peer to peer app.
This translates directly to improve the hotel’s profit by 100k. Translate that into owner asset value and were talking about more than a million dollars. That’s how a corporate sales manager could save your hotel a cool 100k this year! www.rfpmaker.com
By David Lund
David Lund is an international expert who has been branded ÔThe Hotel Financial Coach’. Just as any great hotel is true to their brand, so is David. His client commitment is about exceptional service. And his #1 focus is to help his clients gain a fastÊReturnÊOnÊInvestment from his workshops and personalized coaching. David’s background includes over 30 years as a regional controller, corporate financial director, hotel manager and controller throughout North America.
