1. Revenue and Profit Maximization

3. 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.

4. 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

5. 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.

6. 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

25. Now, What about…

26. 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.

28. 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.

29. 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.

30. 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.

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

32.
After the actual numbers were calculated, how close were the GM’s to their original prediction of their CPOR?

33. 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.

34. 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.

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

36. 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 $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…

37. 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?

38. Money
Drive revenues – Optimize the PROFIT!