Why spas should be added to the revenue management department of hotels?

Many directors of development/feasibility consultants for business hotels, conference hotels, resorts and upscale boutique are adding a spa to their property/projects:

Why?
because by adding a spa to their hotel/project they will:

* Create a competitive advantage,
* Increase the guest experience,
* Performs better ADR, Revenue and also profitability,
* Generate additional revenues (retail...),
* Stand in a better way within the direct market competitors,
* Raise the value of the property,

But unfortunately, I noticed that most of the time, the spa is underutilized or even empty. Looking at the previous post on that subject, spas in hotels often represent an high cost factor (Spa Receptionist + Spa Therapists x 2 + cleaning costs + retail products + investment), instead of an incremental revenue. Probably the reason why some large hotels outsource the spa, to create a lease revenue, rather than exploring possibilities of managing it effectively.

The spa product needs to be managed more strategically! it does not only require to have 25% occupancy per day or cut deals with Groupon and Cobone, but it's need to be thought as a perishable structure. A AED 199.00 (USD 55.00) for a 90 minutes massage with manicure / pedicure does not always drive return clients, because the experience is not performed by real professionals, and the time allocated is not suitable.

Hotel spas just like the rooms, the restaurants, the banquet rooms, experience periods of high and low demands. At the stage of high demand, you will often see a more profitable treatment has to be turn away to guests, because the treatment room is booked for a low profitable treatment. Lack of profitability planning!

As demand fluctuates by days of the week (Sunday-Saturday), and time of the day (10am-10pm), busy demand can be identified quite fast. Automatically there is large opportunity for hoteliers to generate incremental income and profit by implementing revenue management solutions to their spa product, just as to optimize the revenues of their hotel rooms. If you manage well your weekdays (85% occupancy) vs. your weekend (45% occupancy), you may fluctuate your offers according to demand. If you are full on the weekends, manage your treatment offers in a different way.

Even if majority of hoteliers are using tactical techniques (25% off credit card, spa packages, the entertainment book discount, two for one treatment, group deals...) to try to sell during the low demand periods, very few have developed a strategy that allows grouping these techniques with their market segments to apply revenue management principles.

Most spas sell their treatment rooms on a "first come, first serve" basis. Revenue Management will help spa hotels to attract extra clients during low demand periods by offering attractive treatment deals, growing revenues or yielding during the high season with optimization strategies. It requires an analytical person, because most spa managers do not have the time to do it and do not feel very comfortable of creating excel spreadsheets. The best way to team up is the revenue manager along with the spa manager, because they may end up analyzing lots of information. Both understand the spa profit margin concept, however they will have different functional skills. One will have to go through lots of data, cross with market segments and pricing, and the other one will have to share his operational constraints.

For our spa managers/assistant readers, i know that you may say, this is a great way to increase my revenues, but what shall I start with?

In brainstorming sessions with Spa professionals in Dubai, on the subject of spa revenue management opportunities, we came out with the following points in applying revenue management lies in:

1) Contribution analysis: Where are your income coming from? Which treatments are more profitable for your spa? How did you calculate the duration time of your 30-60-90 spa treatment?

2) Productivity Management: What are the periods where revenues are the highest? Which is the least treatment sold? What day of the week has more demand? What time of the day is the most demanding?

3) Cost Management: How to better control your costs? Do you have a detailed standards of operations for your treatment? Who is managing the availability booking? How effective is my spa menu?

4) Retail Selling: When was the last time you trained your team on selling techniques? What types of product information your team has to sell the retails products? How many brands product do you sell?

5) Guest History: Do you have an email database? How far do you update your guest profile in your spa software? Where are your clients from? Do you use specific market segments?

6) Marketing Strategy: how do I communicate with my clients? Does Social Media help to convert Likes into Effective clients?

Revenue Management will help you manage these six elements and will allow you to increase the income generated by the spa.

So like room revenue management, you will need to start building effective historical data reports analyzing your transaction through your software or manually, to provide you with data to analyze to help you to make better decisions on your spa pricing strategy and packages availability.

Get more revenue management tips and advice from RSVP Hospitality.

Bring back the Revenue Manager

Have you noticed the revenue manager are short in supply these days? these are the executives who run analytical reviews, control the leverage of demand vs. pricing, drive the strategy and perform forecast accuracy within their business units.

But in many independent companies in the Gulf, the only true revenue driver is the General Manager. Everyone else, whether the 65 hours a week executive, the credit manager with his 25 calls a day for cash recovery, the night auditor processing 60 reports or the sales team with its 8 sales calls each, runs a piece of business to support their functions.

As a result, a limited number of people have full, end-to-end accountability for business success and there are few opportunities for revenue managers to learn all aspects of a business. This may be one of the reasons why many organization struggle to perform.

In large hotel chains organization, the revenue manager is at the center of action. He is regularly trained by his regional managers, he can create best practices to be shared with his peers or he attends business management courses (Time management, effective leadership, communication skills, project management). In small independent group of hotels, or independent structure (100-250 rooms), the revenue manager seems to be just noted as a "title position" to remain trendy with the hotel market development; however many of them are an extension from the reservation manager position... so the title does not really reflect the functional role. There are no added value when it comes to developing a new BAR pricing vs. competitors analysis, evaluating a piece of business, displacing calculation, seeing their market within a 90 booking window, changing his benchmark competitive set, analysis of historical data, day-to-day forecast, confronting a director of sales on the strategy, constructive feedback to General Managers...

Starting in 2005-2007, many GCC hotel base companies evolved to "functional" structures to cut costs and reduce duplication. Revenue management being the favorite buzz in the General Managers round tables, the main question remain at who will perform the RevPAR growth. Is it a G.M responsibility? Is it a team responsibility? In my mind, the hotel better have the right structure in place to perform. And this comes from a thorough review of the organization functional aspect.

When will the hotel understand that reservation department is an extension to sales department (clients relationships, selling what is on the Property Management Screen,  entering rooming list, managing extranets distribution channels and many more functions...) and therefore cannot be performing at Reservation and Revenue Management. It can be a short term solution to evolve a reservation / revenue manager, but the organization needs to go deeper in defining the roles and responsibilities of each. The reservation executive answers the phone and sell, while the revenue executive review hundreds of data every day, perform reports, and follow the guidelines of the hotel revenue management policies to extract data that will support the strategy.

I meet dozens of revenue managers in the market, who are great in their roles, however unable to perform great numbers, because their position is a result of a mix functional roles between a reservation role, a extranet/e-commerce role, a yield manager role even in some cases a sales manager role....This become very complex for their understanding and development, they feel there are doing a bit of everything, but not to the expert level; so when an opportunity comes for another position within the market, they switch for it....

As a result of this shift, career paths today are less geared towards filling the few revenue manager position, and instead focus on functional specification.

Obviously we cannot reverse the structural trends of the past 5 years in the region. However, companies can take steps to give their people more management, business skills and accounting/finance experience, which may help them avoid the narrowness of functional specialization.

Given the difficult nature of business today, having people with broader perspective may be critical to developing successful independent hotel establishments. So it just might be time to bring back the Revenue Manager.

To what extent does your independent hotel company have opportunities for true revenue managers?

Romain Saada @ RSVP Hospitality
Visit us at http://www.rsvp-hospitality.com 

Evaluate the Distribution Costs for your Hotel

When it comes to making channel mix decisions for your hotel, it requires much more than choosing between direct channels or third party channels, since each category carry costs.

Since we are in the budget season, it is highly important that this comparison need to be establish.

The cost to deliver a reservation to a hotel has grown dramatically in the last 10 years. Besides reservation transaction costs, it is also necessary to consider the cost to trigger the reservation.

Since many hotels maintain a budget for operational expenses (reservation delivery) separate from a budget for operational expenses (triggering the reservation), it can be problematic to determine actual distribution costs because these fees are often combined when charged to a hotel.

Are Search Engine costs treated as a marketing fee or as one to facilitate the booking of a direct reservations? Does the online travel agency (OTA) commission get charged as a reservation or a marketing expense on the P&L (Profit and Loss Statement)?

There are many factors to consider when evaluating costs and benefits by channel such as direct and indirect reservations and marketing costs. Each hotel would have to conduct those analyses using its own data to determine the best management action that applies to its own situation.

COMMISSION COSTS ON THE P&L (MERCHANT AND OPAQUE MODEL)
In order to conduct a cost comparison by channel, the reservation expense has to be clearly identified. Connectivity fees from reservation vendors (Travelclick - I-Hotelier, Synxis, Travel Tripper, Fast Booking...), switch fees, retail travel agency commissions or marketing fees, are all booked under an expense that apply against the revenue they deliver.

The cost of business delivered through 3rd parties, being merchant model or opaque model, through the OTAs may prove to be difficult to track because it does not appear on the P&L.

When a room is sold through this model, the hotel provides a Net Rate and never pays a commission after the guest checks out. It is a prepaid room with a rate that comes in only as a revenue.

In order to establish a comparison, the cost of all channels should be identified to enable a comparison.

Apply this to a RSVP Hotel:
- 100 Rooms
- 75% Occupancy
- ADR: AED 500.00
Monthly Revenue (31 Days): AED 1,162,500

Let's take an example that a mixture of OTA commission costs of 20% room only, 25% package and 40% opaque, this may give you a 25% blended commission.

The RSVP Hotel Market Share for OTA is 40%. In revenues, this represents AED 465,000.

Since the commission is deducted on the website for (Expedia, Lastminute....), the amount of deducted commission is equivalent to: AED 116,250. This amount is pre deducted so it does not appear on the P&L.

You need to compare the level of the above commission with your other OTA channels such as Booking.com, HRS, Venere...This task should be carry out by your E-Commerce Executive, Online Distribution Executive or Revenue Manager. This also need to be compared with your brand booking meaning www.rsvpxyzhotels.com, because you have to drive your direct booking strategies.

VARIABLE MARKETING AND RESERVATION FEES

A typical cost for a AED 500 rate at a one night length of stay may range from AED 30.00 to AED 130.00. Those fees comes from Voice-Direct, Voice-Third Party, Voice Travel agent, GDS Fees, Transaction fees, Hotel CRS Fees.

The results of your comparison will have a very large impact on your profitability for 2013 strategies. If you need assistance, contact us.

Romain @ RSVP Hospitality