Revenue and Profit Maximization

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Money Money Money Exercise 30 Minutes: Everyone will start with the same five room hotel. Your job is to maximize revenue. In a few minutes, reservations will appear on the screen. You can either accept or deny the reservations but you want to make sure you are filling as many rooms as you can with the highest rate. However, you won’t know how many reservations are coming so you have to be discriminating.

Revenue Optimization Exercise Let’s go ahead and take a look at an example. This is a sample of your five room hotel. You will be taking reservations and filling in the boxes to show that the room is occupied. OTA commission = 15% *This is a Holiday Inn Hotel

Reservation Request - EXAMPLE A new reservation will appear every few seconds. Just like the real world, you won’t know when they will stop! Here is a 2 night reservation request arriving Wednesday for the IBM rate of $80. If you decided to accept the reservation, you would simply fill in rate for Wednesday and Thursday.

Revenue Optimization Exercise It would look like this. Since we want to make sure everyone has the same opportunity, we have a few guidelines for our exercise: One Room per Reservation Only 5 Rooms – TOTAL Line is NOT a Room When a Room and/or a Night is Filled, You Cannot Accept the Booking Once a Reservation is Denied or Accepted, you Cannot Change OTA commission = 15% Does anyone have any questions about the rules or the exercise before we start making some money? Address questions as neededAlright—let’s get started! *This is a Holiday Inn Hotel

Reservation Request Take = Revenue = $220 Profit = $100.68

Reservation Request NO = Revenue = $160 Profit = $100.34

Reservation Request NO = Revenue = $300 Profit = $180.68

Reservation Request TAKE = Revenue = $200 Profit = $140.34

Reservation Request NO = Revenue = $160 Profit = $100.34

Reservation Request NO = Revenue = $200 Profit = $140.34

Reservation Request NO = Revenue = $240 Profit = $150.51

Reservation Request NO = Revenue = $100 Profit = $70.17

Reservation Request TAKE = Revenue = $275 Profit = $125.85

Reservation Request TAKE = Revenue = $300 Profit = $180.68

Reservation Request TAKE = Revenue = $300 Profit = $210.51

Reservation Request TAKE = net revenue = $85 Profit = $55.17

Reservation Request TAKE = Revenue = $55 Profit = $25.17

Reservation Request TAKE = Revenue = $375 Profit = $225.85

Reservation Request TAKE = net Revenue = $170 Profit = $110.34

How did you do? Add Up the total revenue for each day Then add up the total revenue for the week

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Highest possible revenue = How did you do? Highest possible revenue = $1980

Now, What about…

CPOR Who knows what CPOR is? Who can tell us what the CPOR is for their hotel? We are not leaving this break out without knowing what the CPOR is for your hotel – using 2015 Actuals.

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CPOR We know what it is, but how do you calculate it? Total Room Labor + Benefits + Other Expenses Number of Rooms Sold In order for us to know what the profit we are gaining, we have to know the cost of the occupied room. Here is the formula you use to calculate the CPOR. We are not leaving this break out without knowing what the CPOR is for your hotel – using 2015 Actuals.

Calculate the CPOR for Your Hotel Use 2015 December P&L Actuals Formula = Total Room Labor + Benefits + Other Expenses Number of Rooms Sold Give hotels their actuals from 2015 P&L – have them calculate their hotel’s CPOR. Check for accuracy.

Calculate the CPOR for Your Hotel ProfitSword Path: Site Reports, Monthly Reports, P&L Report Prism Hotel Give hotels their actuals from 2015 P&L – have them calculate their hotel’s CPOR. Check for accuracy.

Calculate the CPOR for Your Hotel Give hotels their actuals from 2015 P&L – have them calculate their hotel’s CPOR. Check for accuracy.

https://www.polleverywhere.com/free_text_polls/XNA0Sflx2Asrmmv After the actual numbers were calculated, how close were the GM’s to their original prediction of their CPOR?

Calculate the Profit of your 5 Room Hotel Find the CPOR: $25,000 in labor and benefits $15,000 in other expenses 1341 rooms sold What is the CPOR for the 5 room hotel? ($25,000+$15,000)/1341 = $29.83 Now, we are going to calculate the profit that we achieved in the 5 room hotel exercise. Give the participants a copy of the 5 room hotel showing the most revenue achieved. They will calculate the CPOR of the 5 room hotel using: $25K in labor, $15K in other, and 1341 in occupied rooms. Total is $29.83 CPOR for the 5 room hotel.

Calculate the Profit of your 5 Room Hotel Calculate the Profit – several ways: Total rooms sold X CPOR = Cost of all rooms, then subtract from the Total Revenue Net room rate – CPOR = Profit of 1 room, then add up all rooms sold Calculate the profit of each room rate, than add all together Give GM’s the correct revenues of the 5 room hotel. Using the CPOR you just calculated, now calculate the PROFIT of the 5 room hotel.

Calculate the Profit of your 5 Room Hotel What is the profit of the 5 room hotel? $1,174.61

Comparison of Highest Revenue vs. Highest Profit Reservations: Unconstrained Revenue Unconstrained Profit Explain the definition of “unconstrained” Interesting to compare the revenue from each reservation vs. the profit from each reservation. Slide #19 was govt rate @ $75 for 5 nights = most revenue, most profit – the lowest revenue/profit slides were the same However, the 2-10 slots varied based on the net, pattern, length of stay. AND most importantly, the most revenue and profit for the hotel was determined by layering in of reservations on shoulder nights – not necessarily the ADR…

Revenue vs. Profit Variables Total Revenue LOS (Length of Stay) Cost of the Room/Stay Pattern Distribution Costs Future Business Repeat or new piece of business Ancillary Spend Remember all variables that go into the decision making process of taking a piece of business or not – what drives PROFIT? Total revenue of the piece of business, length of stay, cost of the room/stay, pattern of the piece of business, distribution costs, are they providing us with future business, repeat guests, any ancillary spend?

Money Drive revenues – Optimize the PROFIT!