Last week we reviewed the recommended segmentations for a midsized hotel. As discussed, each hotel must choose segments which are relevant and meaningful for their market.

If you missed last week’s post, please click here

When the revenue is planned for the coming year, the budgeting start with the segments; how many bookings will be produced on what ADR in each segment in each (months/days). The process is the same for forecasting. As each segment has their own unique characteristics, it is important to understand what actions need to be completed by when to achieve the budgeted figures. Some segments, like Group have long lead times, which can be 6-12 months or even more. Other segments, like Transient have a significantly shorter lead time. Budgeting/forecasting 100 room nights in the Group segment for next month will highly unlikely to be achieved without provisional bookings, whereas forecasting to pick up 100 room nights for next week in Transient is easily achievable.

Each segments’ ADR varies, which is due to their booking behaviours. Leisure guests tend to be more price conscious as the money coming from their own packet. They also book more in advance to plan for their holidays. On the other hand, Corporate clients tend to book more last minute and have higher spending limit. Transient bookers have also have short lead time and pay more than Groups.

If the hotel plans for high number of bookings through the Local Corporate segment, it is vital to have sufficient companies with signed LNR (Locally Negotiated Rate) contracts on the books. If this is not the case either more sales activity must be done or the number of rooms in this segment decreased and increase other segments to compensate.

Increased level of demand, for example, for LNR rates warrants the hotel to increase the rates offered. These extra bookings will also displace bookings from other budgeted segments. It is vital for the revenue manager to identify which segments can be reduced to accommodate these bookings, without loosing profitability.

Some examples could be to channel room nights from Third Party segments to Direct, or from National Corporate to Local Corporate. Based on this scenario the RevPAR remains the same for the hotel, but the NET Revenue and Profit increases. Why is that?

Before we can answer the question, we need to discuss what NET Revenue is. This does not refer to the revenue NET of VAT, as in business, that is a given. NET Revenue is revenue minus cost of accusation.

For examples, 100 room night on £100 ADR will lead to £10,000 Revenue. Through Third Party segment, this will be £8,400 NET Revenue due to the 16% (example) commission paid to the OTA to generate the booking. If the same 100 room nights come through Direct, there will be no commission to be paid, which means the NET revenue will remain £10,000 (for this example, we did not use any other costs).

In the case of National Corporate segment bookings, the GDS switch fee needs to be deducted from the revenue to arrive to the NET revenue, whereas the Local Corporate segment bookings are booked directly with the hotel, so no deduction in necessary, leading to higher NET Revenue.

These are just some of the examples how a hotel can increase its profitability without increasing its revenue.

Segmenting the bookings for the hotel will allow appropriate preparation of future actions and create a balanced income plan. Monitoring the production of each channel will provide the revenue manager with more in dept details for forecasting and for channelling bookings thorough more profitable segments where it is appropriate.

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