By CG Prasad, Hospitality Technology Evangelist
Increasing the revenue is utmost important objective in any business. Hospitality business too have this as prime objective. The organisation always wishes to outperform its previous figures each and every time. Here I would like to discuss hotels and co-living as the segments for this topic though the concept would remain same in other segments of hospitality.
The important criteria remains increasing revenue since the inception of business and there are many ways to achieve the same.
The organisations take various measures to increase the top line of the hotels, lodges and co-living spaces. Those measures include reducing Room Tariffs to competitive level, providing more cashbacks to the customers/guest, removing all the cancellation charges, providing loyalty points etc.. The lists are unending. These measures are the ones that strikes into any revenue manager when the Management ask them to increase the top line figures. Interestingly these measures does not vary much in each organisations, though the figures and percentages differ.
If one has to excel in this race, he/she has to think and act differently. The same applies in the case of businesses as well. It is also proven that successful businesses are those who thought differently and executed differently. For example, Apple, DELL, Microsoft etc.. Those who bring the new concept/ideas will also get the first movers advantage in the space.
In this time of Corona-Covid -19 pandemic crisis, it’s sacrosanct for the hotels and Co-living owners to sustain/improve their top line to stay in business. These lodging houses can keep reducing the tariffs to enthuse their guest but most of the time these are done either at break-even price or at loss. But still the revenue managers are given green signal to this approach as this will keep the business alive. In a crisis situation, increase in sales is not phenomenal for any entity as the consumption of services remains always low at whatever promotion/discount level.
The best way to optimise revenue is to think differently and employ measures those are very much inherent to one entity. The keyword is instead of reducing the tariffs to attract the customers, try to reduce the bottom-line and keep the tariffs at market levels. This will not only help to increase the profits but to stay competitive as per the market standards. Practice of reduction of bottom-line is not the same in each and every establishment. It differs the way the entity is built and operating. The bottom-line for the lodging business are into two types namely fixed cost and variable cost.
Fixed cost is the cost that the business has to bear irrespective of the volume of sale/business performed. It is the cost which has to be spent to stay alive in the market even if there is no sales figures. Variable cost is the cost that varies as per the business/sale activity. The variable cost is proportional to the sales. In other words the more the sales more the variable cost, and vice versa.
So the right approach is to identify the variable cost that can be brought to the minimum without affecting the guest experience and thereby increase the profitability. Few of those are identified below for the hospitality leaders to look at include:
Electricity, HVAC, Water, Services and Electricity
As per the 2015 edition of Trends in the Hotel Industry electricity is the largest utility expense comprising 60% of total expenditures.( Trends® in the Hotel Industry is the annual survey of U.S. hotel operating statements conducted by PKF Hospitality Research (PKF-HR), a CBRE Company). So to controlling spends on Electricity, will have huge impact on the profitability on the business.
The measures mentioned here cannot be implemented at old buildings or properties, since some measures are mostly dependent on the way the electric installation is done. The quick fix for all establishment to save electricity cost is to deploy LED lightings in the whole building (It is proved that LED lighting save almost 75% of energy cost). Another one would be to use motion sensors at rooms and public areas so that the lights are switched on only when its required. These measures can be implemented in all types of buildings.
The approach is to encourage the guest to use electricity as per their requirement and charge them accordingly. This will help to optimise the usage of power without compromising the guest experience. But to achieve this the electric installations has to be deployed in such way that it can be measured/tracked at the minute level (for example at the level of charging each guest. In other words the consumption of electricity should be tracked at the room level using individual room energy meters.
Should this be required, either the electric wiring has to be done accordingly during the time of construction or modify the same for existing building with a cost involved. Once this is achieved using IoT (Internet Of Things) enabled devices and measures, the reading can be shared to individual guests and encourage them to use the power as per requirement. It will be interesting to the guest to have their electricity consumption cost displayed on their mobile app and realise the usage of power.
Once the guest realise that they will be charged only for what has been consumed, obviously there will be a tendency to have optimal consumption and which will reduce the overall spend on the room tariff from guest, hence reduction of room tariff. As establishment doesn’t gain anything from the low electricity bill but definitely from the low room rate without affecting the variable cost!! It provides the business a competitive edge on pricing.
HVAC
HVAC is the short form of ‘Heating Ventilation and Air Conditioning’. This is the other cost that affects the bottom-line of industry. In the situation of erratic weather conditions, HVAC cost are spiralling high each year.
The immediate solution to control the cost for HVAC is to replace all aging/old HVAC components with more energy efficient ones. For example instead of using window ACs use split ACs with inverter technologies. Use solar powered intelligent boilers for heating requirement. Use the heat from water circulated from AC chillers for water heating etc..
During the stage of construction, if the HVAC installations are done in modular way to track each usage at consumption level the same can be capture using IOT devices and helps to price the services at optimal manner.
This will help the guest not to waste the HVAC and not to leave it on when not in use. As mentioned in the case of electricity, if guest pays only for what they use in turn it helps the organisation to price the product competitively and maximise the profit.
Water
The cost of water is almost 10% of the utility bills for the hotels. Though water is getting scarce in our planet, people still uses it with least care. At commercial lodging establishment the wastage is highest. There are still hotels with luxurious bath tubs in hotels where people waste water at their own whims and fancies.
The easier way to limit the water usage or reduce the wastage is to educate the guest on not to use bathtubs, or replace bathtubs with shower cubicles.
At the construction stage of hotels, if the plumbing works are done in such a way to track and measure the consumption of water at the usage level (each Room) and using the right IOT devices the same can be shared with Guest. This helps the guest to understand how much they consume and what are they expected to pay for the usage. When the guest realises they are expected to pay only for what is been used, obviously the wastage of water will reduce and guest will get the cost benefit during the stay.
Services
Services at hotels and Co-living includes the housekeeping services especially for rooms, linen/supplies usage. When guest requests for additional cleaning of rooms, the management requires to provision additional housekeeping manpower for the same. This would end up more operational cost and thereby increase in cost per room rate.
By the use of intelligent method of ‘Pay per you Use method’, the guest can request for housekeeping only when it’s required. When Guest knows they are being charged only for what they use, obviously they will ensure to use the services only when it requires. This will keep the cost low for the guest and by using modern AI and ML(Artificial Intelligence and Machine Learning) techniques Management can optimise the staffing requirements.
As mentioned above, if each of the above consumption can be tracked and measured and charged to the guest based on usage, in turn the guest and the management will be benefitted.
Nowadays the concept of Co-living is getting popular and many a players are building co-work establishment across the country. This is the right time to deploy proper measures during the conception stage so that the benefits of cost saving can be reaped by both the owners and user of the facility. The benefit of defining the tariff based on consumption will help the guest to control the cost by limiting their use and truly implementing the concept of ‘Customer is King’.
Following are the component which can be charged to guest on a ‘Pay per Use’ model and get a competitiveness on pricing.
Electricity
Water
HVAC
Linen
Housekeeping of Room
Bathroom supplies
Subscription of TV content
Wi-Fi
— The author, C G Prasad is a Hospitality Technology evangelist with over 20 years of experience in Technology Infrastructure, Security and Business Systems in multiple domains ranging from Hospitality, Co-Working/Living, Travel and Consulting
Excellent insights. However we rarely see the adoption of technology in the hospitality industry at the same pace of other industries.