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Article by David Lund

Hospitality Financial Leadership The Next Big Thing

The Hotel Financial Coach 12 March 2019
For almost 10 years our industry has been a rocket ship of top-line growth driven almost exclusively by big gains in RevPAR driven by solid increases in occupancy and rate. You also can't go too far inside the online world without finding articles that speak to when and if this growth will stop. We all know it will and it's never been a question of if it will stop, the question is when it will stop. Knowing this growth inevitably will stop and being cognizant that when it does stop it will go backwards, what can you do? History always repeats itself.When the growth stops and revenues year over year shrink what will hotels do to minimize losses and maximize profit retention? For most of us we remember the major negative historical economic events of the past 25+ years and the results to the hotel business that followed. For me my memory going backwards is this: the 2007- 2009 debt crisis, SARS (I'm Canadian), 9-11 and the Gulf War. All of these had a major impact on the hotels I worked in and we scrambled to throw anything and everything off the sinking ship.I painfully remember: hiring and wage freezes, layoffs, mandatory vacations, amenity reductions, outlet closures, corporate training program suspensions, mandatory productivity targets and FF&E contribution freezes.I also remember preemptive contingency plans that targeted a 10-15% decrease in revenues that dictated reductions in: fixed staffing, linen pars, china glass and silver pars, fresh flowers, service audits, uniform purchases, suspension of conferences, relocation freezes, VIP gift eliminations, departmental restructurings, management incentive plan cuts, live music expenses curtailment, aggressive food and beverage cost targets, elimination of administrative assistants, employee opinion survey cancellations, health and safety program reductions, moratoriums on seasonal parties and sports teams, a halt to the company newsletter and travel bans.I took part in planning and communicating: in house meal and entertainment stoppage, the temporary addition of energy surcharges, elimination of hotel executive auto leases, combining like positions, grandfathering personal device purchases, curtailing of cell phone reimbursement, direct in dial telephone line termination, fax number consolidations, pool attendant layoffs, security department day/time/hour reductions, crisis and communications training moratoriums, sales incentive plan restructuring, FAM trip reductions, guest floor shutdowns, and the elimination of supervisors on the front desk and in housekeeping.I vividly recall how painful it was when we: eliminated turn down service; mandated business center staffing cutbacks; eliminated one-time seasonal decoration expenses; trimmed dry cleaning privileges; downsized duty meals; we combined stores and receiving positions; we outsourced payroll services; we made cutbacks to in-house IT staff; we completed sales coordinator right sizing; we exercised reservation department closures; attempted Sunday lounge service moderation; delivered on banquet captain consolidations; completed valet parking outsourcing; started charging for parking; then the up-sell program pruning; and worst of all for me was the requirement to show all of these changes and adjustments in the subsequent detailed forecast for the balance of the year.This is where the rubber hit the road. I recall how impossible it was to execute the reductions, in many cases, because the departmental managers did not know what was really in their budget/forecasts to begin with. Sure, they had dollars for their expenses and hours and dollars for their payroll, but it was not defined in detail. There were no zero-based expenses where we could really look at the current shopping list and eliminate or adjust real things. The same with payroll, there was no fixed staffing guide and no formula for variable payroll. We just took our expenses from last year and added 5% when doing the budget and the same with payroll; wages were forecast to increase 3% so we added 3%. We did cost per cover and cost per room occupied so we would simply extrapolate that and create the budget. Things would come together because they always do until they didn't any longer.We didn't know what was in the middle of our statement so when someone said reduce something it's like, OK we will make that change but it's not a defined result because we were starting without a list, without a real starting point. Here is a domestic example of what I mean. If I send you to the grocery store with $200 and tell you to go buy some groceries you will come back with $200 worth of stuff. On the other hand, if I send you to the store with a list and the corresponding costs for each item you will come back with exactly what was on the list. Now this is where it gets good. I now send you to the store with the same list, but I only give you $175 to spend. I inform you that we must make some reductions this month. I now tell you to eliminate, reduce or forgo what you can to equal the new cash I gave you. This way you know what you're starting with and what your changes result in.The same applies to payroll. You need a concrete fixed staffing list that's approved annually with your budget and meticulously maintained through the year and a detailed staffing formula for every variable payroll category in your entire hotel - not a guide of payroll cost percentage by department or an hour per room or covers formula. These are useless when it comes time to trim, reduce and curtail. They do not work when reductions are necessary. They just confuse the executives and frustrate the department managers.The next big thing as I see it is we learn form our past mistakes. We take the appropriate actions to ensure our operating department managers all know what's in the middle of their statements, down to how many of each item and at what cost that makes up every line of their expenses. We also need to go down to a monthly payroll forecast that is detailed by position and contains the exact number of hours wage rate. This way when it's time once again to cut costs we will have a real starting point. Or, we can just hold our breath like I did and hope that it will all get better soon.Once upon a time...
Article by David Lund

Hospitality Financial Leadership Roger Penske & The Hotel PMS

The Hotel Financial Coach 18 February 2019
I had a chance meeting with Roger Penske in the parking lot behind the paddock in October 1994 at the Indy Car Grand Prix of Monterey in Laguna Seca, California. It was the end of qualifying on Saturday and his pilot and fellow Canadian, Paul Tracy had just won the pole position. For you hoteliers who are not motorsports fans, pole means he was the quickest in qualifying and that means he starts in the first position on Sunday. This is a story about hospitality financial leadership in the face of a challenge and adversity.Before I get into the hotel story and the connection to Roger, a bit more about him and the race. The race at Laguna that weekend was the 16th and final race of the 1994 season and it was the first time I attended a major motorsports event. Paul Tracy led from flag to flag in the 84-lap event that lasted exactly 2 hours. Fellow Canadians Scott Goodyear and Jacques Villeneuve were also racing. Jacques was 3rd in the race which was a bit of foreshadowing as he would go on in 1995 to win the Indianapolis 500 and the Indy Car series championship. It was also a notable race because it was the final race for Mario Andretti's incredible career and the last CART race for Nigel Mansell.A bit about Roger Penske aka "The Captain." He has been a juggernaut of the auto racing world for over 50 years as a driver in his young career and as a team owner. His teams have won the Indianapolis 500 - 17 times. He has won numerous championships in both CART and NASCAR. There is no other team owner on the world stage that has had more success than "the captain." He is also no slouch when it comes to business. His Penske Corporation is very successful and his own net worth is estimated at $2 billion, that's B. But he also failed along the way and big time.My story starts nearly a year earlier when I accepted a transfer from the mother ship hotel in my region to a "managed property." In those days inside my company, you avoided managed properties in favor of the security of the "owned hotels." Our company was almost exclusively an owner-operator only having a small and largely unhealthy stable of managed hotels. Little did I know at the time just how much things would change over the next couple of decades relating to owner-operator vs management companies in our industry. Nevertheless, I followed my boss's advice when I was given the opportunity to take my first job as the department head, the controller. He said, "Why wouldn't you grab it?" I remember thinking he would not steer me wrong and I was hungry for the opportunity to get out of the comfort so to speak of the owned hotel and spread my wings.When I got there, it didn't take too long to find out just how screwed up things were. The balance sheet was a disaster, accounts had not been reconciled or properly balanced in many months. The office was upside down and everyone was complaining about everyone else. There were few controls in place and even fewer people following them. The other thing that became very apparent was the computer system they were using - the property management system was a complete DOG. Not to mention the back office general ledger was just as bad. Both systems were on an IBM System 36 mainframe running Logistics which was better used as a boat anchor than a system to help run the hotel. You could not get any data in or out of either system. It was like I went backward 10 years. The other thing I quickly learned was the hotel had no money. It was a limited partnership of timeshare owners and they were all under water on their investments and not putting any money into the business.I got to know the general partner quite well in a short amount of time. He was an interesting guy - an insurance executive who had created a relationship with one of the principles of the development company. That's how he secured his gig as the general partner. Kind of the same as a modern-day version of the asset manager. We would meet with him monthly and review the financial results and the forecasts. Right away I saw how eager he was to help us get out of the money hole we were in. We needed money for operating equipment and there was none. We needed money for minor operating capital and there was none to be had. Some months in the first winter I had a drawer full of accounts payable checks and a system to use so I knew which vendor had called 1, 2 and 3 times before we would mail the payment. Some weeks making payroll was a real nail-biter.We desperately needed to replace the property operating system and the back office GL, AP, and AR system. A solution was close by for the back office. My food and beverage controller was a bit of a geek and he told me with a small expense he could buy the "cards" and convert a 486 PC into a file server. He and a friend did the wiring one weekend and we now had a LAN. I purchased some ACC/PAC software and we had our own PC based network system and man did that speed things up in my accounting office! I was feeling good about the progress, but the real rhinoceros on the table for our business was the property management system.We had no interface to anything to take reservations or manage any inventory. Everything was manual; even the room attendants had to phone their room status updates to the housekeeping office. The end of day would take 2-4 hours and crapped out so often we would spend more than two days a week on the same day. Checking someone in let alone changing a room was a time consuming task. Interfaces to the point of sale system and telephone system were chaotic at best. All of this was costing us money every day in lost business and productivity. It became the number one challenge our executive team faced -how to run the hotel with this albatross of a system. The "owned hotels" all had much newer systems and had moved away several years earlier from the mainframe environment. If we were back at an owned hotel we could pick up the phone and the capital for such a critical element would be found. But not here, there was no knight in shining armor to call. No parachute.I remember one meeting with the general partner in late spring when business was actually looking strong for the approaching summer months. We presented our YTD numbers and the forecast for the end of the year and he was pleased. We then presented an ROI for a new property management system. I remember getting very creative with the math in regard to the lost revenues and additional labor costs because of the archaic PMS. We easily justified the $75k investment needed for the new file server, software and the PCs. We also presented our needs for operating equipment and some other minor operating capital items that we desperately needed for the coming season. I vividly remember the general partner telling us he had our backs with the money we needed for capital and it was our decision how the limited amount would be spent. It was clear what was the most pressing and what our priorities would be. We can't operate a hotel without glassware, sheets and towels. On the flip side, as ugly as the prospects were, we could limp along with our PMS boat anchor.After the meeting my GM, a few other managers and I met for some drinks in the hotel bar to lick our wounds so to speak. It was clear we were getting better but it was also evident we would not get a replacement PMS anytime soon - especially given the other needs we had. I especially remember my GM telling me to forget about a new PMS and focus instead on making what we had work. I said to him that living in the past was not something I was fond of and as a one up I said to him out of the blue and maybe the beer, "I bet I can get the owner to approve the purchase of a new PMS." "How?" he said. "I don't know, but if I can get the money will you send my systems manager and me on a trip?" What trip? I thought for a split second and said, "The Indy Car race in Monterey in October." Why did this pop onto my radar? We had just watched the Indy 500 the weekend before and I had remembered the segment that spoke about Mario Andretti's last season and what would be his final race at Laguna Seca. He smiled and looked around the table and said, "Absolutely, I will do that if you can find the money and get the owner to approve it and get it here before October." "Deal!" I said.Waking up the next day I felt kind of foolish for having put myself into such a corner with my GM and the other members of our team. Who was I to say I can get the money and on top of that the owner's approval and have the system installed before October; it was already the first week of June!Working in this hotel was challenging for many reasons and one was that I lived in a town about 40 miles away. Commuting to work with my wife at home with 3 young children meant I had to be creative with my rides. Car sharing mid 90's style. One of my most popular ride share buddies was the director of sales. Both she and her husband commuted to the same resort, only he worked at the golf course which was a separate business. The following day on our way home he was telling us about the new golf carts that the course had obtained for summer. Interesting I thought, "So how did you guys buy them I asked?" He replied, "We never buy anything, the owners always lease." "Lease?" I asked. "Yes," he said. With that my little brain went into overdrive.The following day my friend obtained the name of the leasing company and a phone number. I called them and inquired about a lease for some computer equipment. I had a call back the same day and a request for our financial statements. With this, I needed the owner's approval, so I called him. I told him a bit about the leasing idea and he was OK with my sharing of the resort's financials. He also wished me luck. The next day I sent the statements via fax and before I went home I had a call and a commitment for a piece of the financing. The lady on the phone explained that our financial situation was not stellar, but she would be willing to finance $12k of the $75k I needed. So, I asked her where she thought I might be able to get the rest. Why not, I thought. She replied that there were several other finance companies she competed with and sometimes did consortia deals with. With that, she faxed me a one-page list of finance companies in the nearby city. I may need to remind you that this is the mid 90's and there is the internet but nothing resembling Google or the search capabilities we have today.In less than a week I had 6 companies that would provide the financing and contracts to sign. My GM was just a little bit uneasy with the new-found responsibility we would have. I told him as long as the general partner approves we're good to go. With that behind me, I made an appointment to go see the general partner and have him sign the leasing documents. We could have signed them on behalf of the resort, but this was uncharted territory for us. Obtaining financing was unheard of in my company in those days. He was more than happy to sign the contracts and I remember driving home that night feeling just a little proud of my deal making.In the following weeks, we had additional challenges from corporate systems and their "schedule" for the resources we would need to build out the system to properly tie it into the central reservations system. I had to twist more than a few arms to get everyone to come together but the last week of August we were live with our new system. We missed most of the summer, but the deed was done.In those days our company had a hotel in Monterey and I booked one room for my systems manager and me to share. We booked airline and race tickets and flew to San Francisco. Rented a car and there we were on Friday morning of race weekend. Being in Monterey was magical. "Arrivederci Mario" was in full swing - the town, the restaurants and bars were crazy busy with the race weekend festivities. I ran into the late Carl Hass in the hotel elevator. He was partners with Paul Newman and their team had Mario and Nigel as drivers. The whole weekend was a huge deal and running into Roger was the highlight. My friend the systems manager was just a little surprised at how many people I knew.I recognized Roger immediately, tall and distinguished wearing his white Hugo Boss Penske polo shirt, a white cap and black pants. The Captain - unbelievable. He was with one other man; I believe he was a race engineer. He made eye contact and smiled as we met walking through the parking lot. I said, "Congratulations on the pole and having a Canadian driver," as he approached. He stopped and said, "Where are you guys from?" I told him and he thought it was quite a distance to travel for just a race. He told us to have fun and wished us safe travels. I wished him good luck in tomorrow's race. The whole thing lasted but a few seconds. My friend asked me, "Who was that". I said, "That my friend is the most important person in the entire racing universe." "Who is he?" "That's The Captain," I said. "Who?" he said.The moral of this story is twofold. Keep your eyes open at the racetrack because you never know who you're going to meet. Number two - Taking on a challenge is good for your growth and another great way to help propel your career forward. Don't be shy - step up
Article by David Lund

Understanding Flow-Thru

The Hotel Financial Coach 6 November 2018
A good analogy to grasp the concept of flow thru is to compare it to your paycheck. Imagining I give you a $1,000 a week raise, the question then is how much will end up as your pay vs. how much got eaten up by higher taxes and other deductions?The same goes for additional revenues in your business. If revenues are $50,000 higher this month than the same month last year, how much of the $50,000 will make it through to the profit line? How much will flow?"It's great that you increased the rate and overall revenues in my hotel, but what I really want to know is how much you will keep and give me in profits." - Anonymous hotel ownerManaging flow thru in your hotel is a key attribute to understanding the profit model for your hotel. The reason it is so important to understand is the different characteristics that emerge when revenues go up or down in different departments. Measuring flow thru by department and by the key driver is the basis for understanding your hotel's real financial results and most importantly its financial potential.Here are some motherhood questions to get your flow thru imagination going.The overall revenues year-to-date are up by 1.3 million dollars. How much should flow in GOP?Occupancy is up over last year by 5% and the rate is up $15 as a result. Room revenues are up $720,000. How much should flow in room profit and GOP?Restaurant average check is up by $2 and as a result food revenues are up $10,000. How much should flow in F&B (food and beverage) profit and GOP?Liquor revenues are up over last year in my lounge by $7,000. How much should flow in F&B profit and GOP?Banquet food sales are $50,000 higher this month than the same month last year driven by higher volume and average check. How much should flow to the F&B profit and GOP?The way we calculate flow thru is straightforward:Step one - Subtract the revenues from two different periods.Step two - Subtract the profit from the same two periods.Step three - Divide the difference in revenues by the difference in the profit.All the revenue streams in your hotel have two attributes: pricing and volume. Understanding the difference and measuring the impact is the key to understanding and measuring departmental flow thru.Measuring flow thru to the prior period is normally a stronger comparison than measuring flow thru to budget or forecast. The reason being when we compare the flow thru from one real period to another real period it is more of an apples-to-apples comparison. When we compare flow thru to the budget we are comparing a real result to a projection.A word of caution, when comparing the flow from one period to another it is important to include any events that may have had an impact on the results. This is where a good memory and a great monthly property commentary come into play. Let's say that last year in the month of May we had a great group month, off the charts because of a citywide. That fact will skew the flow thru to this month. Being able to articulate the impact of past and current events is very important.Negative flow is also an important concept and calculation to master. When revenues decrease, we want to be able to mitigate the impact to the profit lines. We want to be able to retain the profit loss. If we do not act, we run the risk of losing 100 percent or even more of the lost revenue in the form of decreased profits.Rooms FlowThe rooms department is the engine in 99 percent of the hotels in the world. The greatest contributor to performance is rate and then occupancy. If my rate goes up $10 over the same month last year and I sell 18,500 rooms this month, the same amount as last year, my room revenue just went up by $185,000.The question is: How much should I be able to keep as profit?What we need to examine is what else would need to increase to compensate for the additional room revenue. This is the magic in the hotel business as very little needs to go up when my rate grows. Whether it is a transient increase or group the impact is largely the same, i.e., Very Good!Depending on my segmentation, I may need to spend some of this increased revenue on third-party commissions. I also may need to spend more on my reservation expense from my brand, depending on the mechanics of the chargeback. Other than these two cursory items no additional expense or payroll in the rooms department need be spent.Other costs that will be impacted by the increased revenues are credit card commissions, centralized fees, and management fees. A good rule of thumb is I should see 90 percent of any additional revenue flow in rooms profit and 85 percent in GOP that result from the increased room rate.Your hotel manager may take it upon himself/herself to spend a little more this month to catch up on some cleaning or other expense but it is not directly related to the increase in rate.On the other side of the equation is occupancy. Let's say my hotel this month saw an increase of six points in occupancy over the same month last year. This resulted in an additional 300 rooms sold and an additional $45,000 in room revenue. The question is how much should flow? With occupancy, it is a bit more complicated.Every time I sell a room I have both fixed and variable expenses associated with the sale. Taking the 300 extra rooms, that is an average of 10 more per day. I do not need huge amounts of additional resources at the front desk in reservations or in guest services. I will, however, need additional room attendants and housekeeping labor. I will consume more amenities, guest supplies and probably should pay higher commissions to third parties and more in reservation expenses to my brand. I will also pay higher credit card commissions, centralized fees, and management fees. So, as a rule of thumb, I should see 85 percent of any additional room revenues from increased occupancy as increased rooms profit and 80 percent in increased GOP.F&B FlowWhat is the increase or decrease in F&B revenue and where did it come from?In the food and beverage department, we need to have a much bigger calculator to see what happened and what the results should be. We want to be able to measure the increase or decrease in all the dimensions that drive our business.Profitability characteristics are very different from food sales and beverage sales. Within food sales the profitability of all the different meal periods, as well as distinguishing the relationship between outlet sales and banquets, is key.What would you rather have, dinner revenue increases or the same revenue increases from coffee breaks? Would you like to see sales increase in your outlets or in banquets - what would have a bigger impact on profit?With beverage sales, the profit margins for liquor, beer, and wine need to be understood as well as the portion of our outlets vs. banquets. When we look at the average customer price for food we also need to understand the contribution margin. It is nice to see the average cover increase but what profit do I make from the different type of sales inside my F&B operation?All of this looks complicated on the surface but it really is not. With a little analysis and some patience, we can build a model that will help us see the optimal picture for profitability in our F&B operation. With this picture, we can strive to create the optimal recipe for our food and beverage success.That is the key: Understanding what the optimal mix is and getting our sales and conference services people selling that. Getting our outlet managers and servers to understand what items have the biggest contribution to profit and have them sell accordingly. If we were selling cars, we would know the model that generates the biggest margin, and the accessories that drive profits. Our business is no different. Flow-thru and its impact is at the heart of understanding this profit model.Minor operating department flowSame principles as above: What is the difference in the top line and how much did we make in additional profits? This is valuable information for spa, golf and retail operations.The last part is sometimes the most important - in this case, it is non-operating department flow. I cannot tell you how many statements I see where there is a nice hit on the top line revenues only to have most of the potential profits chewed up in non-operating departmental creep.Administration costs, sales and marketing and maintenance flow needs to be measured and managed. If you cannot readily see this you are missing a powerful tool.Creating the flow thru measurements in your financials is relatively straightforward. Pulling out the numbers you want to see, like the change in revenue and the change in profit from the two different periods and dividing the two, is it. Display these on your financials and you will have a whole new understanding of your business and be much more effective in your ability to hold others to managing their departmental flow thru.Mastering flow thru is the key to the hotel profit maximization.Understanding where we win and pointing the team, the sellers, the operators in that direction. Creating alignment around the business model.
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RevPAR And RevPAR Index Are Different And I'm Going To Explain Them Both In This Article

The Hotel Financial Coach 16 October 2018
Let's start with RevPARIt is the cornerstone of the hotel world and rightfully so. It is the product of occupancy and rate smashed together. The acronym stands for "revenue per available room." In a simple example: If my hotel was 60 percent occupied last night and my average rate was $100, my RevPAR would be $60 (100 x .6). The other way to calculate this would be to take the total rooms in my hotel--in this example it is 500--and divide that by the total room revenue last night. At 60 percent that means I had 300 rooms occupied and I will multiply that by $100 to get my room revenue (300 x 100 = $30,000). To calculate the RevPAR, I divide the room revenue by the rooms available. ($30,000/500 = $60). I can calculate the RevPAR for any period--week, month or year--the same way.One last thing I will say about calculating RevPAR is that it is a relatively new thing. I do not want to draw too much attention to my age here but when I went to hotel school RevPAR was not on the menu. It was only occupancy and average room rate.RevPAR index is a concept that was developed about 30 years ago as best I can tell. I remember being introduced to it at a budget review meeting and I thought it was pretty cool. In those days we would do a call around to find out what the other hotels in our city were doing each month for occupancy and rate. I am pretty sure some of the hotels fabricated their results and I think a few others thought the same.Somewhere around the mid 1990s a company started a business based on capturing and sharing the occupancy, rate and RevPAR for hotels. They sold a subscription and the hotel shared their results every day on the previous day's occupancy and rate. The company now gathers this information for your hotel and your competitors and then they share the information, so you can see how well you are doing vs. your competitors.Let's now look at how we calculate RevPAR index. The reasons why we want to calculate the index are important to know.The first reason is this calculation will allow you to see how well you are executing your sales and revenue management strategies relative to your competition. Given the current product you have, how well are you selling the hotel?The second reason is the index shows you what your variance is relative to your competitors and what the gap is worth. Let's say your index is 15 percent below the set. This means that with a potential investment in your product y ou could close or beat that gap and that translates into potential dollars of profit to justify your investment.The third reason is to continually be aware of how your hotel is positioned relative to its competitors, so you can see if your rate and occupancy strategies are working. Maybe you want to lead on rate because you feel in the long run this is the best game plan for your asset, the index will tell you the answer.Choosing a competitive set of hotels can be difficult and it needs to make sense. If you are in a busy city setting, this can be easier because there is a large available selection of hotels to choose from. If you are in a resort setting, look at hotels that are similar in product and service to yours. Once you choose your set, you are not going to want to change it unless there are very good reasons to do so--perhaps a new hotel in your market place.Having a positive index, which is an index above 100 percent, is where you wan t to be. The bigger, the better.In many HMAs (hotel management agreements) having and maintaining a positive index is an important test. In some HMAs the manager is required to maintain a positive index, or they can lose the contract to manage the hotel. This can be a costly problem for the management company because losing the flag means you just lost all the fees from that hotel. You might even find yourself in a situation where you have to make up the lost profit and pay it to the owner.Above is the chart that lays out the RevPAR index calculation. Think about the index like a dessert that your mom made. She is placing that pie on the kitchen table and you want to make sure you get your fair share. The chart shows you what your slice is really worth.Looking across the top of the chart:* We start with each hotel's Room Base, the number of rooms in each hotel.* We then multiply the number of rooms by the days in the month to get Total Rooms Available.* Next, we enter the actual Rooms Occupied for the month, followed next by the percentage of occupancy for this month for each hotel.* Following those are the potential and actual share based on occupancy. This is the first point where we see the individual performance of the properties in relative terms on only occupancy to their competitors.* This produces the net capture index.* The next step is to add the monthly average rate which produces the property room revenue in the column on the far right.* Once we have the room revenue we can calculate the individual hotel RevPAR.* Once you have the RevPAR, divide it by the overall RevPAR of the sample set to produce the RevPAR index.That's a lot of math but it's really a simple set of calculations.When I was growing up it was very important to get my fair slice of the pie at mom's dinner table, how about you?
Article by David Lund

Hospitality Financial Leadership - Why Hotel Brands and Franchisers Secretly Love the OTAs

The Hotel Financial Coach 10 July 2018
I know we all hear the battle cries every day in our industry, but what's really going on with hotel brands, franchisers, the online travel agents and their war over commissions and fees? In this piece, I am going to expose an angle that I think needs some light. It gets back to a fundamental understanding of how our industry functions based on its evolved structure, with brands and owners. I also believe this is a good lesson in hotel business strategy, to understand what underpins the relationship between the warring parties and what drives the business model with hotel franchisers and brands.The first thing to know about hotel management companies and franchises is they make the lion's share of their revenues and resulting profits based on the hotels in their portfolios generating revenue. Fees based on revenues are what drive the hotel brand's business model. They also make money on reservation systems and other services, but normally these are on a cost recovery basis. The brands tell their hotels that the services they provide are on a cost-return basis and largely they are. Very little profit is generated by the brands from their other services. On the flip side--when you look at the way the fees are calculated--is a simple total revenue or total room revenue times "x" to produce the fee.What really matters most to the brands is getting their hotels to produce more revenue. The more revenue the better. Not profit, revenue.The second thing to know is that management companies and franchises make little or no money on the profits their hotel owners make. Unless the agreement with the hotel has profit sharing or an incentive fee component built in, the hotel owner does not share any profits with their brand.The third thing to know is fees paid to the brands by the owners are in no way linked to the hotel's profitability. Whether or not the hotel is profitable has zero impact on the calculation of the fees or the requirement to pay these fees every month.I don't know about you, but I see a problem here. The problem I see is the brands make hay on the backs of their hotels whether the sun is shining or not. Not unlike a stockbroker who makes fees on your entire portfolio regardless of their performance with your investments. Some might think this is OK and the way it should be, but I see it as offside.Let's look at the impact the online travel agents have had a big hand in. For almost the past 20 years the OTAs have been turning the hotel and travel world on its head. They have built systems that allow any hotel to sign up almost universally without any upfront fees and instantly market their hotel around the world to the ever-growing planet of the traveling public. This, in my opinion, is the single biggest positive development in our industry ever. Hotels always have used travel agents and what has happened in 20 years is more and more business has moved online--where today the individual hotel consumers' world is virtually all online.Shopping for a hotel room online? In general, we can thank the OTAs for this phenomenon, they created it. How does all of this online activity benefit the hotel brands with little skin in the game?Here are some revenue factsAccording to a Cushman and Wakefield report, room revenue in America has grown from $70 billion in 1998 to a whopping $150 billion in 2017. That's more than a 100 percent increase in 20 years. Here are the numbers that make this up: supply in 1998, 3.9 million rooms; 2017, 5 million rooms; RevPAR in 1998, $50 and in 2017 it was $81.Now let's look at feesThe typical hotel management fee of 3 percent of total revenue and a franchise fee of 5 percent of room revenue will be used in this exercise. I know these are estimates but bear with me. We'll be blending the two together and using a conservative 4 percent of total revenue as a gauge.The total fees charged to owners in the past 20 years has more than doubled as well. No surprise, revenue doubles and so do the fees. Fees in 1998 at $70 billion equal $2.8 billion. Same 4 percent of revenue in 2017 equals $6 billion.The first real question and my point is this: How much of the increase in room revenue in the past 20 years has been because of the platforms and systems built by the OTAs? The simple answer is lots of it.The second question: How much investment was incurred by the hotel companies to get consumers to use the OTAs and ultimately spend more and thereby generating more fees for them? The answer is quite simply - A Big Fat Zero. Someone else built the OTA monsters and the brands are the number one recipient of the benefit with no investment.Would hotel companies minus the OTAs have invested the cash necessary and revolutionized the travel industry? I think not. They are management companies and they are capital light. That's their strategy. Put their name on the hotel, and let the owner invest and drive the guest experience, brand promise and fees.I'm not saying OTAs do not have some faults and some hotels may rely on them too much, but the fact is they have had a big hand in revolutionizing the travel world and that is very good for brands and owners.No wonder hotel management companies and franchisers secretly love the OTAs. Anything that drives revenues their way is what works.When something or someone else does this for them, it's golden.
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Hospitality Financial Leadership - Fixed/Variable Costs and Room Revenue Management

The Hotel Financial Coach 1 May 2018
What I heard concerns me because it tells me some people do not understand the fixed vs. variable components of payroll and expenses in their hotels.Quite simply put, one revenue manager told me his cost to take a room in his hotel in NYC was $290."What?" I exclaimed over the telephone."Yes, that's the cost."To which I replied, "That's the total cost of all your expenses, both fixed and variable?"Silence ensued for a moment and I said, "Let's slow things down and look at the scenario."It is noon and you have 10 rooms left to sell today, the demand for today has been strong but in the last week we have been up and down around the +10 mark. My question is, "Exactly what does it cost you in variable expenses to take those last 10 rooms and how should they be priced?"This is a very different question than: "What are costs per room occupied?" Let's look at this question first because I think it will help clean up some confusion. Here are the facts of this "rooms only" operation in New York City. In the above-simplified budget for this 295 room hotel, we can see all the expenses on an annualized basis is just north of $24 million. This number is achieved by adding the rooms pay, rooms expense, overhead pay and expense, and finally the owner's expense. We only need to divide this number by the total rooms available--which is 83,488 on an annual basis. This gives us a good measure to understand what our pricing should be to generate an annualized profit using the current cost structure.However, it does not tell us the real variable cost to take those last few rooms. Let's look at the major components of the cost to take those last few rooms. What items will we need to utilize to take those last 10 rooms that are purely variable? To determine this we must first understand the nature of the fixed expenses.The fixed expenses in this hotel at this point are many. We are already running a house count of 285 rooms and occupancy of 96.6 percent. All the costs for the following under this scenario are fixed. In other words--and this is the pivot point--it will cost no additional dollars on any of the following items to take those last 10 rooms:Front desk, guest services, reservations payrollCable televisionContract servicesLinen and uniform purchasesEquipment purchaseDecorationsAll overhead expenses and payrollAll owner expensesThe truly purely variable expenses:Room attendant payroll and benefitsLinen cleaningGuest suppliesPapersCleaning suppliesTravel agent commissionsReservation feesCredit card commissionsBrand feesEnergy (some variable)That's it for our costs to take the last 10 rooms.Let's look at the chart below for a summary:The chart clearly shows the individual costs for the variable items and the incremental profit from the sale of each room. For an annual picture let's look at the impact on profits if the hotel was able to sell these 10 rooms half the days of the year:(180 days x 10 rooms x $117) = $210,600 in additional profit that goes straight to the bottom lineThis boosts the NOP closer to 10 percent. The real impact is an additional profit of the $210K, which adds an additional $2.6 million in asset value using a very modest capitalization rate of 8:(8/100 = 12.5), therefore 12.5 x 210,600 = $2,632,500When you think about your current selling policy as it relates to last-minute inventory, make sure you have a good handle on the real variable costs to sell those last-minute rooms. Don't be confused by the big fixed cost per room stickers.Know there is a balance between building the base, yielding the inventory in the largest demand period, and selling those last rooms more often.
Article by David Lund

Hospitality Financial Leadership - Free Property Management Software - More Disruption?

The Hotel Financial Coach 7 February 2018
The first and largest one that comes to mind is in food and beverage operations. The disruption comes in two forms: pure outside competition and internal desire.The outside disruption--the free-standing restaurant--has been prolific and its effects are debatable, like many aspects of our business. We do not have to go too far back in our history to find hotels with multiple outlets that were busy and chock a block with patrons. I remember the 1980s and 1990s. We had the best facilities, the kitchen brigades that could cook their way into the hearts of our clients and the service staff.For a long time, the real action in the food and beverage world was largely hotels. As we all know that has run its course and what surrounds our city hotels today are a wide range of restaurants and bars that attract our hotel clients as well as other urbanites. You cannot go into a suburban market and find a hotel that has been built in the last 20 years that is not flanked by chain restaurants. They pop up like pimples on a teenager's face.So, hold the tissue box. This food and beverage restaurant and bar proliferation have a double edge and when we examine it closely it does not look so cutting. We all know that even a hotel that shows a healthy F&B profit on their statements, in reality, makes none or very little money. The way we report F&B operations in hotels are misleading and the reality is, for almost all hotel restaurants, we are trading dollars at best. For some hotel restaurants, we may as well hand out $10 bills at the door and send the customers across the street. Wages, unions, benefits are all substantially higher and we cannot compete with the small business lack of overhead and nimbleness. Not to mention that in many cases they have the products and services our customers are looking for. We are a product of our own success. Complacency and the simple truth say that outsourcing our F&B restaurant business has not all been a bad move.To the contrary. Once we have seen the impact of closing outlets, the F&B profit picture in many cases gets better. We have kept the profitable banquet and catering piece and inadvertently outsourced the less than profitable outlets. All of this happened to ultimately show us it is a good thing. Even to the point where today in many hotels we are looking to get someone to operate the outlets that are left. In some hotels, this is a no-win proposition for any operator and, yes, even some of those outlets are closing. Owners and asset managers do not buy the line that we need those outlets to support room rates. Breakfast still works in most hotels, cocktails in the lobby can still survive, but in almost every other case the profit from F&B outlets is backward. Thank you for the disruption.Now back to the title of this piece: PMS connectionIf you operate a hotel today, you know how much of a cluster your PMS system is. Getting service for the never-ending upgrades and even the smallest of changes is like trying to get into a Rolling Stones show. On top of the lack of response from vendors who think they have a monopoly, they charge an arm and two legs for their crappy products and appalling service. I better stop here.Well, shall some disruption enter to help us along? If you Google the words, "free hotel PMS app" you will find vendors who have developed products that are free! Yes, free. One that jumps out at me is called Softmogul. All they want is to provide you their free property management and restaurant software in exchange for your credit card processing business at competitive rates. Now, I know what some of you are thinking. Where is the hook? Surely they will hold us ransom for double the processing fees soon enough. I say it is high time someone sees the value we currently pay on every credit card transaction as a totally disreputable ingredient that is calling out for attention. Why didn't anyone in our industry see this opportunity? What would 2-3 percent of the $600 billion hotel industry be worth? What about 2-3 points of all the standalone restaurants? How much better service do you think someone who wants your card processing would provide compared to what you receive today?A product like this might not be ready for a 1,500-room Hilton today but think of the small hotels that struggle with a legacy system or bounce along without any current or integrated systems. Think about what the world could look like if a large credit card processor overnight developed a PMS in conjunction with a vendor. What if they made that platform so integrable that it is as simple as it is today to sign up your hotel on an OTA. Disruption can come and go in a variety of directions. Hotels are notoriously late to the game and that means others get to clear the land first, build the dream and then hotels scream it is not fair.When will we learn from the lessons of the past? When will we see disruption as part of the business and lead the charge and not follow it after the fifth inning?What else in our industry are we simply overlooking because we are still operators and not developers with a little entrepreneurial flair and why can't we be both?---If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetHow The Hotel Coach Helped MeRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel - and receive my weekly articles @
Article by David Lund

Hospitality Financial Leadership - Recording Average Length of Stay

The Hotel Financial Coach 16 January 2018
The one thing I see time and time again with clients is just how poorly their financial statements are set up. The statements almost always lack basic information that is readily available and is critical information for maximizing profitability: poor design and missing features. If they were a car, I would want to call them a Lada. My apologies to any Russian readers.The flip side of this challenge is all the information that is needed to fix this reporting problem is at your fingertips. No new software is required. No real investment. Your team just needs to use what they already have and put it to work.Typical stumbling blocks to creating better more useful reporting are twofoldBefore I get into the two areas that typically hold us back from creating better reporting, let us remind ourselves why we are interested in having good and complete financials at our hotels. The reason we want to have great financial statements is that we want to use these instruments to make better decisions today for tomorrow's financial performance. If you cannot see the results of a certain critical aspect of your business, then how are you ever going to improve it? How will that ever translate into increased efficiency and profits? It always comes down to this simple reality: What you can't see you can't measure. What you can't measure, you can't improve.Imagine if you drove a car without a speedometer, and you kept getting speeding tickets.... The financial statement at your hotel is exactly the same.If it is not hooked up and working properly you have no idea how fast you are really going. Or better still, how fast you could be going.Back to the two stumbling blocksThe hotel business is more like the art world than real hardcore business. At least that is my take on it over the last 35 years. What I mean by that is most of our senior operational leaders are not financial people.They typically come from sales or operations and they have little formal training on the financial piece. This is not a slight to their experience or impact--it is just a fact.They are not programmed or predisposed to getting in the middle of the financial engine and ripping it apart, let alone asking or mandating reporting changes.Their modus operandi is the glitz, the spit and polish, the fun stuff, the art.They love this part and they dig in and put on the show. The show is what they get paid for, or at least that is what most leaders believe. So, they do not usually have any ideas or designs of the financial reporting piece.They take what is given and hope no one asks too many in-depth, detailed questions about the numbers.They are typically handicapped on the financials and they rely on a strong financial manager to make up for their lack of knowledge and experience with the presentation and breadth of the financial statement. This is a big mistake because getting comfy with the financials is not difficult. Once we are comfortable with what we have, we almost always see a way to get more.The second stumbling block is the somewhat typical financial leader who is not really interested in making their day or their job any more elongated or complicated: The fewer interruptions the better.They are already busy enough. Doesn't anyone know how busy I am?They want fewer questions--not more--and they certainly do not want people asking them to add more information to their financial statements.Why? Why is this the case more often than not? Again, I am not trying to paint the entire field of hotel financial leaders with the same brush. I am trying to make the point that most will not take it upon themselves to add financial statement features, or reporting statistics with an eye to having the best financial statements.Why is this the case? Well, I think it comes down to two elements: One, they usually have the attitude that operations people do not know what they need when it comes to the financials. Two, it is in their mind that it is just way too much work to stop the machine, pull out the gears, insert the new gizmo feature, re-boot and see what comes out the other end in the form of a change to the financials.In most hotels, it takes an act of Congress to make changes to the financial statements. Paramount to parting the Black Sea, it seems. But it does not need to be this way and it is certainly not complicated or expensive to make this happen. It is what I call evolution. We never really stand still. We are either hopefully moving ahead or we find ourselves silently moving backward.Back to the title of this piece: Recording average length of stayWhy would you want to have this in your financial statements? What purpose would it serve and exactly how do you calculate this statistic?The reason why you want to know the average length of stay for your hotel as a whole--and let's take it one step further, by major market segment--is to understand your different customers, their stay behavior and to ultimately maximize the average length of stay. Fewer arrivals and longer stays equal lots of good things for your hotel operation and profit.Fewer arrivals and a longer length of stay "usually" equalLess wear and tear in your lobby, hallways and room productLower labor costs at the front, in housekeeping and with your room attendantsLower amenity costsLower laundry costsLower linen replacement costsLower guest supplies costLower energy costsFewer guest requestsBetter capture ratios in your restaurants and barsLess congestion at peak times in your lobbyA better opportunity to capture a return guestLower online travel agency feesMore time to make a lasting positive relationship with every customerDon't forget for a moment that the hotel business is a game of inches. There is no holy grail waiting to be discovered that will save your way to prosperity. We are a high-volume transaction-based retail business. If your hotel has 250 rooms and you run 75 percent occupancy, you sell 69,000 rooms each year. How can you save just a little on each item on my list times 69,000? That is a nice number. Flip it around and ask how much inefficiency you can create and multiply that by the same number. That is kinda scary.Calculating the average length of stay could not be much more straightforward. You only need two numbers: room nights and arrivals. In this example last month, the hotel had 8,900 room nights (rooms sold) and 5,500 arrivals. Both numbers are readily available from your property management system or, heaven forbid, your daily reports. Just dig a little and you will find it.(8900/5500) = 1.62 nights as the average length of stay for the entire hotel last month.If understanding and maximizing the average length of stay is important to you then you will want to take it one step further and measure it by major market segment. In this example, we will use just three major segments. In your hotel, it might look different: tours, crew, sports teams, etc. If it does just pull the numbers apart so you can isolate the activity in the segment you want to measure.Transient, 2300 rooms sold and 1600 arrivals (2300/1600) = 1.44 nights - average length of stayCorporate, 3200 rooms sold and 2700 arrivals (3200/2700) = 1.19 nightsGroup, 3400 rooms sold and 1200 arrivals (3400/1200) = 2.83 nightsIncluding these statistics on financial statements is rather straightforward. You create a stat account in each department of your general ledger and an overall stat plug to zero out the P&L effect. If you do not know what this means, ask your financial leader. If they do not know or say they do not know, then get some help. Having these numbers magically appear on your financials requires a mildly skilled person to go under the hood and add the formula to your reporting application.Again, ask your finance person to just get it done!You will also want these stats in your daily reporting, so you can see in the month how things are developing. Another key aspect is including this information with your rooms forecast. This provides your operations people valuable information for their expense and labor forecasting.The last and equally important aspect of capturing the average length of stay by customer segment is how it should affect your marketing and sales plan.How can you design your M&S efforts to go after the most profitable business from an operations angle as well as wear and tear on your asset?What's the right balance between the different segments mid-week and on the weekends?How does seasonality play into this?How does demand in these segments affect this?These questions lack a definitive black and white answer. However, your ability to answer the questions better will be greatly enhanced with reporting on the average length of stay by segment in your hotel.What are you waiting for?Unlocking this information in your hotel is this simple. Go on, and get on with it already!If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on howyou can create more profit in your hotel.
Article by David Lund

Hospitality Financial Leadership - Continually upgrade your system

The Hotel Financial Coach 16 October 2017
The flip side of this is: Don't change or make the people wrong--it is the system that's wrong and the system needs to be changed. Then we will get another result. Keep working the system five percent at a time. Always be re-programming your system, i.e., what version of Windows are we on?We tend to look at the chaos at work and in our own lives and we want to blame someone or something for it. It is the victim crying out that we have been unjustly punished and sentenced to suffer in the mess we are in. We need to rise above this and look at the system we use; see the system that exists and change it.Unlock the systemWhat is the next thing in the system that needs to be re-programmed, what is the next thing that needs upgrading and strengthening? Do not play the fool's game and expect a wholesale complete re-vamp of your system. Constant incremental improvements win the race.In the following situation I will use the example of the monthly commentary:As it stands now, department managers are providing useless information on what happened last month and the upcoming month's information is the same. It seems they write in a different language that I can't understand. I am held hostage by their lack of commitment to this and they do not care. Do you hear the victim? Let him out of his cage.Back to owning it:The system I have is one where the department managers are made wrong on a regular basis because they are not living up to my expectations. Really, this is the case. What have I done to strengthen my monthly commentary system? What new software releases have I made to "our" commentary system? I own this mess and I am going to straighten it out and strengthen it. Make changes every month to make the commentary better.Owning it:My new system release this month entails a 1-1 with three of my biggest commentary customers (department managers) where we review the basics of a good commentary, one that does not regurgitate the numbers. A commentary that explains the variances based on a review of the assumptions for the month and what actually happened. Ah - a little light.... We agree to the format. The managers are actually relieved to have a blueprint to use. Why didn't anyone tell me about this before? Next month I will do three more customers.My system just got 5 percent better. What will my next system upgrade be? Maybe I will co-host a 20-minute workshop on creative writing. I know my public relations manager is a keener and this is something he would love to do. I just need to ask him to help me....Systems are everythingDo not ever stop releasing new versions of your system. Every month we get to upgrade and strengthen our systems. The window opens every month.What upgrade will we release this month?What! A month goes by and no new software release. Come on! Be Microsoft, release an upgrade!If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WEnhanced Flow Thru Cheat SheetVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on howyou can create a financially engaged leadership team in your hotel.Contact David at (415) 696-9593.Email: david@hotelfinancialcoach.comwww.hotelfinancialcoach.com
Article by David Lund

Hospitality Financial Leadership - Global Hotel Revenue Management

The Hotel Financial Coach 12 September 2017
Global is a big word and now that we have your attention I want to define global in a hotel setting. Global refers to all sources of revenue and their corresponding profit picture. A global perspective on revenue management yields the highest possible profit because we understand and apply a BIGGER view to our business.I think the title and buzz word that has our industry locked on "revenue management" is entirely the wrong way to look at it. It is not revenue we are after, it is profit. Revenue is where we start but it is always profit that we end up with. Understanding what happens to the room revenue and resulting profit from different segments is the starting point to a much more effective outcome.We essentially have three types of customers in hotels: leisure, contracted individual and groups. Let's have a look at the profitability profile of each major segment of the rooms business.DO NOT PUT ALL YOUR EGGS IN ONE BASKET. Warren BuffettUnderstanding this lesson and applying it to your hotels "global revenue management" strategy in turn helps you understand your hotel's DNA. Knowing the DNA and how we can affect it is the highest and best use of the profit maximization strategy.Leisure, on the surface, is the most desirable customer in most people's eyes. They normally pay the highest rate and we like to think they spend lots in F&B, parking and the spa. But not so fast on this one. What we need to examine is the cost to get the leisure customer. First, they book through an OTA (online-travel-agent) or the company website and both are very expensive sources of distribution. Typically, 15-20 percent of the rate comes back to the operation as a commission or reservation expense. Second, most leisure customers will use the hotel's facilities, but they also are busy seeing local attractions, including restaurants and bars. Long gone are the days when leisure guests stay put.Third, it is hit and miss with leisure guests and how they treat their room. If it is a multi-occupancy family stay, the housekeeping department better have lots of supplies and staff for service. This segment as a whole is the hardest to service. We do not know when they will arrive but it is often early. We do not know when they will leave but frequently it is a late checkout and they always pay with a credit card that attracts a nice two-plus points of total spend. The last aspect of leisure we need to be aware of is they are predominantly weekend or seasonal customers. I say the leisure guest is at best tied for second place in my preferred customer profit profile.Next up is the contracted individual or, as some hotels describe it, corporate individual traveler. In many hotels, the contracted traveler serves as a base for the rooms business. Hotels pop up all over the place and in many instances, they want to plant themselves close to other businesses and offices. This location effect attracts business travelers to the hotel. Business travelers are a desirable element for hotels to nurture as they have several positive attributes. Generally, they use the hotel throughout the year, less holidays. They typically arrive late, after 6 p.m., and leave early, before 9 a.m.Housekeepers love the corporate guest because usually it is just one customer and he or she uses the room very lightly. The use of the room cannot be overlooked. With renovations needed as early as 5-6 years in some properties, a good mix of corporate business can push the renovation out a year or more.On the distribution side, there are costs but almost always fewer than leisure because there is ability to negotiate the distribution. Corporate customers are normally hotel breakfast customers and quite often you will see them in the hotel bar having a beverage after the business day is over.Another very positive aspect of the corporate customer is he or she has the potential to bring other corporate customers, as well as small to bigger meetings, to your hotel. So, nurture your relationship with these repeat customers. Let's just say the corporate customers are easy. Overall the preferred customer rating I would assign the corporate individual traveler is tied for second. In this case, like baseball, the tie goes to the runner and the runner is the corporate individual traveler.The big cohune in most hotels is groupsAt first glance at your rates, you might conclude that the group average rate is low. Do not stop looking there. When you look at the sheer economics, groups often win the top prize.First, take the distribution costs. If the hotel is well run the group is booked through a rooming list or another low-cost reservation method. No OTAs or central reservations need be used. In effect, this adds 15-20 percent to the group rate. The group may come with a commission from a third party, but many do not, especially if you have your own sales team.Second, consider the group movement. The group arrives, moves in-house and they leave together. This is very desirable from a labor and efficiency perspective. On third base is F&B. Groups meet, eat and drink together at the same time. This effect is the most powerful profit combination. A good group with breakfast, coffee breaks, cocktail receptions and dinner are the perfect profit combination. In demand situations, hotels can place groups perfectly in their need periods. In addition to the room and F&B revenue, groups almost always need AV, display space, drayage and best of all meeting room rental.Third, the cherry on top of the group cake is they almost always pay their invoice with a check. Groups business is the number one desired customer in my book.How does a hotel measure these different sources of business and decide which way to go? The easy answer is you need all of them to be uber successful. Like Warren said, "Do not put all of your eggs in one basket." Having a diversified customer segmentation means you can better manage when one or more segments faces headwinds. If you were running a hotel in the last financial crisis, you know what I mean by customer segment diversification.Knowing what each piece of business is likely to spend and where is key. Most hotels have tools to analyze the spending and the profit to come from that revenue. Global hotel revenue managers are looking at the profitability of each piece of business, weighing the operational challenges with the economic benefits.Hotels are a pure example of the supply and demand principle.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity Spreadsheet Rooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.com
Article by David Lund

Hospitality Financial Leadership - Leadership vs. Technology

The Hotel Financial Coach 29 August 2017
One incredibly challenging aspect of hospitality is the ever-changing technology. In a modern full-service 500-plus room hotel you have more than 50 different systems and apps to manage, integrate and upgrade. Most people do not see the massive amount of technology being used in hospitality and this article is about leadership in the face of that ever-changing landscape.I remember when we upgraded from Micros 4700 posting machines in the front office of my hotel to an IBM System 36. Back in the late 1980s, the PC was just coming into widespread use in hotels but networks and programs were almost nonexistent. The System 36 was the size of a bathtub.In those days, we did not have email; we had Merlin. Merlin was an email type of system but only for people within our company. I still remember my Merlin code, LUN0007. We had just installed a back-office GL and AP system that was PC-based and not on a network. All the GL files and data were on the one PC in the accountant's office and the AP data was on another PC. At month-end, we needed to take the AP data on a disc from one machine to the other. Accounts receivable was an out service. We input data and when we were done the data disc came out of the machine, the courier picked it up and a day later we reviewed the paperwork to see if our fingers made all the right moves.Payroll was the "one write" system where you used a peg board and carbon paper paychecks. We hand wrote each check and simultaneously recorded the details - en masse - via the carbon paper. When we finished we totaled each column of pay and deductions to balance the payroll sheet. Completing approximately 30 of these sheets equaled the hotel bi-weekly payroll. Adding them all up was a pay period journal entry. Talk about complicated and tedious.I also remember every time we upgraded systems just how stressful it was for most people. I vividly remember our accountant Walter keeping a complete manual general ledger while the "system" ran parallel books. He was not asked to keep the manual books but he did so because he did not trust the PC. He is also the same guy who welcomed hockey legend Jean Beliveau in his office for a friendly visit on a regular basis. He was an incredible individual with great knowledge and a wonderful sense of humor.I remember asking him why he kept the paper ledgers and he smiled, took a big puff of his cigarette and said, "One day it will all stop working and I'll still have the score." I have often thought about his comment in that moment. He was near retirement and the thought of change was so frightening he was willing to double his work to try and compensate. Not only did he double his work but, by not trusting the technology, he did not see that it would allow him to do other things.That is always the driver or the road block. It is the driver if we believe our lives and our personal well being are going to improve. It is the road block if we are afraid of our own redundancy and self-worth. He really believed the GL and the PC were against him. Why could it not have waited another three years until he was retired before it had to be installed?Where is the lesson in all of this?I believe Walter suffered in this situation because of a lack of leadership. His leadership, yes, but much greater leadership was missing. It is always what is missing when it comes to change, with technology and the way we embrace the human aspect of change management. What did Walter need in that scenario to successfully navigate the PC's GL system and go from paper to automation?People need to think that change is at least partly their idea. Who asked Walter what he thought and what he would like to do, or what he needed? Quite literally the box arrived, a few days later a technician, and the following week the PC was alive and blinking on a desk in his office. Nobody asked Walter for his thoughts. The decision was made to automate the GL and he was going to change how he worked. It was that simple. But wait a minute; he had over four decades of knowledge and skills.Why didn't anyone stop to make sure he was part of the technology change? He could have liked the idea if it was his idea to start with. How can we get people to like the things we need to change? Answer: Get them to think it is their idea to start with.How do you do that? You can accomplish this most of the time by putting more effort up front before the box arrives. What would Walter have had to experience to get him excited about the new system? What would it have cost and where is the ROI on that?A few years later I experienced a similar event in a completely different way. We were replacing System 36 and moving to a PC-based network (LAN) system with new modules for the GL, AP, AR and income. To get us ready for the change we were sent to Florida for a week of training and I must tell you I was scared before I spent that week in Tampa. I was scared because I did not know what this new system was all about. I could navigate the old system and - as mechanical as it was - I knew each piece and how it all came together.By the end of the week in Tampa I could:See there was something emerging that I could work with.See that some thought had been put into this.Ask lots of questions and do much of the setup of the new system.Be part of the process.Bingo! for change management and technology upgrades.Get your people involved from the get-go."People don't resist change. They resist being changed!" -- Peter SengeIn hotels with so many systems and upgrades to be managed, the act of getting your staff involved is not only necessary it is the silver lining. Many hands make light work, my mother would say.That is the battle cry when embracing technology change in hospitality.If you would like a copy of any of the following, send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebook - The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel www.hotelfinancialcoach.com

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