Hoteliers: do we want white bread….or baguettes, bagels, and croissants?
What do we want in hotel analytics and financial reporting?
Can we live with the standard metrics of yesteryear when so much has lost its veracity due to advances in computer capability & indirectly, internet technology?
Or should we embrace intuitive metrics that take things like channel mix, the merchant model effect, potential revenues, and/or Key Performance Indicator driven channels into consideration?
Is the status quo in metrics and financial reporting fulfilling the needs of today's hotelier? Or should new insights that previously went undetected be used to better address our revenue undertakings?
The age old questions relating to analytics and financial reporting have and always will be the same:
"Why do we use metrics / ratios?"
"Why do we use financial statements?"
The answers to these questions also will always be the same.
- We use metrics to take a photo in time of how well we've performed. We compare ourselves to historic and competitive set results to track advances and /or declines in our revenues and operations.
- We use financials to take a photo in time of our financial position & performance. Through metric study of the financials we can assess the health of our "hotels" and the "hotel function".
- Through each, we determine whether we are a going concern or a faltering one.
What can change, however, is the methodology and reporting by which we reach conclusions. They must evolve along with advances mentioned above.
With the new capabilities of this current "big data era" we can collect vast amounts of information and see things we could never see before in our reservation-vendor relationships as well as the booking patterns and attributes (KPI's) that define them. In turn, we can use our metrics and reporting to create actionable strategies that take advantage of what this data uncovers.
With major advances in the internet coupled with a society that has become more and more comfortable in its use, we now have countless new B2B and B2C reservation-vendor entrants to the marketplace that can communicate and transmit to us at lightening speeds. We also have a society that has become comfortable in booking reservations confidently through the internet; through "vendors" or with us directly; unlike ever before!
We can look at reservation revenues in a whole new way and with new purpose. Unlike at any time in the past, we can now view the contributing factors (triggers) that occur and that bring business to our hotels and, in turn, see how these factors themselves interact with one another. How will a high performance channel react if we place more emphasis on it by devoting more marketing staff "time"? Will the channel become more profitable with higher volume? Or, how will that same channel react to added promotional investment? Needless to say, added cost in either case requires more volume.
Revenue Managers become equation solvers or "analysts" in every sense of the word and a "new mix" is born (a mix within a mix; so to speak!)!
The optimal mix of promotional cost (what we spend in each channel to enhance revenues) and the internal labor cost (executive sales and marketing time devoted to channels to enhance revenues) needs to realize optimal channel-by-channel profitability. Simply stated, how much of each can or should we devote before benefit begins to decline? On the whole, we can now scientifically project the "investment" needed in each factor, within each channel, in order to produce optimal projected results. Of course, we have to be able to measure and apply actual time devoted to each channel by or Sales and Marketing force. Our algorithm does this (sorry for the cheap plug!).
The reality check is shown through immediate increased profitability (week over week, month over month and year over year). Nothing else tells the tale as to optimized revenue channels better than higher bank deposits and bottom line results.
Finally, once actual complete channel-by-channel profitability is attained, performance can be measured with new ratios and standards. These can measure relationships to gross reservation revenues compared to (1) labor, (2) promotional investment, (3) labor & promotional investment and the return each "investment" brings itself to the revenue puzzle.They also can be compared to a competitive set.
The revenue section of our hotel financial statement also requires consideration and can also adapt to this "new era"; eventually perhaps by adding a new "Revenue Division" to the financial statement, or in the interim add a supporting schedule that highlights "Revenue" as a stand-alone, self-contained measure onto itself. This would create a statement in which all revenue and reservation related costs would be collected and, once again, provide new metric relationships that can be measures used to evaluate production. The emphasis and sophistication brought to reservation revenues these days means that this analysis should be a future consideration.
With so many advances and different ways in which we are now able to look at and assess revenues and related costs, is new reporting warranted? Does separating (a) revenues and related wages & costs from the "Rooms Division" and (b) reservation wages & costs from the "Sales & Marketing Division" make sense in bringing them all together in a "Revenue Division"? Or is it sufficient to accomplish this simply in the form of adding a supporting statement to the financial statement?
Exhibit "A" below, presents a collective statement that could lend itself to either (a) the formation of a new "Revenue Division" or (b) a "Supporting Statement to Revenue".
Exhibit "A"
Newton's first law of motion draws an interesting parallel here: "What's in motion stays in motion, unless acted upon by an unbalanced force." The "unbalanced force" would be the "new era" of computing and internet advances. Change is inevitable; it's constant and that… will never change (excuse the cheap play on words!)!! ☺
Richard B Evans
President of Revenue Report Card LLC
(954) 290 - 3567
