Dawn of Commercial
Commercial Strategy

The Dawn of Commercial Strategy: Profit Contribution for a Post-COVID World

The time has come for hotel revenue teams to shift from the siloed traditional roles of sales, revenue management, digital and marketing to a focus on commercial strategy driven by profit contribution. 

Kalibri Labs is excited to expand our relationship with IDeaS. Our organizations will collaborate to deliver holistic data insights and actionable advice to the hospitality industry during this critical time of disruption and transformation. I had a great discussion with Klaus Kohlmayr on IDeaS’ Unconstrained Conversations podcast last December, and today I am eager to continue exploring the future of hotel commercial strategy on the IDeaS blog. 

As we reflect on the challenge that was 2020 and proceed into 2021 with a guarded sense of optimism, we can’t help but admire the sheer strength of those in the hospitality industry. Widespread vaccination efforts are now underway, and the prospect of impending travel corridors starting to open up are giving a shot of much needed positivity to an industry that has demonstrated immense resilience amidst the continued pummeling circumstances of this extended pandemic. 

Upon reflection, and in anticipation for a brighter future, the sobering situation has taught us an incredibly valuable lesson that should be layered into the DNA of a successful hotel operation: the importance of breaking down operational silos to focus on a connected commercial organization. Doing so will enable you to quickly understand how to better manage the cash flow to your bottom line, ensuring you are driving the most critical metric in your hotel: PROFIT CONTRIBUTION.

Much has been written and claimed over the years on “breaking down silos;” however, if anything positive has come of 2020, the speed at which organizations pivoted their focus to gain efficiencies through collaboration across departments and force focus on the quality of revenue was incredible. 

The move to commercial strategy puts a spotlight on deploying limited resources on the highest value activities by surgically targeting opportunities with a bullseye on the highest profit contribution. After all, you can only manage what you measure and the teams will engage in efforts to deliver against the metrics for which they are held responsible. 

Hotels cannot operate without funding for staff payroll and to cover their debt service. Flow-through and profit contribution rise quickly to the top of the list in order to meet the most essential demands of a hotel operation. While hotels will continue to track top-line RevPAR, it is the composition of RevPAR and the cost of generating it that are taking center stage as we move toward a post-COVID world to support the reality of limited resources for staffing and other key sales and marketing expenses.

The “New” Guest Profile

With the continued rise of customer acquisition costs over the past decade, it is imperative that hotel commercial leaders understand their mix of business better than ever. For example, each property will want to create a benchmark for their direct versus indirect business as the profit profile for a leisure traveler booking direct through brand.com could incur half the cost when compared to a third-party booking.  

In the near-term, adjustments to your business mix could improve your ability to meet a hotel’s debt-servicing requirements. Add on the ability to convert that guest to a loyalty member, and the lifetime value of that customer to not just the brand, but the property, is immense. 

Comp Set Revamp

Traditionally, hotels have had one or two comp sets and generally aggregated a group of nearby hotels they assume to have some overlap in a few primary market segments. However, this approach can make it challenging for a hotel to surgically target specific business. Ideally, if a hotel wants to identify high potential demand coming into its market currently going to competitors, it would be far more accurate if they identified competitors by rate category. Further, they would want to know what the business is worth, and some details about arrival/departure patterns, ADRs and lead times. This intel would enable a hotel to successfully target the business and attempt to win it for their own hotel. 

This calls for a view of comp sets by rate category and weekpart, rather than an aggregated view that would muddy the water by assuming the hotels in a traditional comp set receive most of the demand worth pursuing. If a hotel has limited resources for sales, digital and other marketing, it should be as rigorous as possible in what they pursue and they would want to know the value of the demand so they can spend appropriately to the value of the opportunity. Now is the time to be proactive in how you address those behaviors that will stick.

Creating clarity around which rate categories and which competitors to target is critical. By focusing on profit contribution and flow-through, you will get the team in the same mindset as your hotel owners and can move from supporting payment of debt service to enhancing profit once the travel market starts to show recovery. As we proceed with cautious optimism, here are a some key first steps toward building a singular, unified focus on profit contribution:

  1. Identify realistic opportunities
  2. Quantify those opportunities and rank them
  3. Define a pool of funds for all commercial activity
  4. Align those funds with your opportunities

Related Resources

Hungry for more?

At IDeaS, we’ve always got an ear to the ground and our fingers on the keyboard, ever-ready to share our latest learnings, data, trends, and happenings with you, dear reader.

See all blogs