How Hoteliers Have Shifted Focus from Revenue to Profit

The Georgian Room, a Forbes Travel Guide Five-Star restaurant at Sea Island Resort

More widely available metrics like Gross Operating Profit (GOP) offer a more comprehensive view of a property’s financial health and sustainability in the long run.

The hotel industry has seen an evolving narrative when it comes to business optimization. And lately, there’s been a paradigm shift from purely focusing on revenue to a more holistic approach on profitability. Modern hoteliers are shifting their focus from top-line revenue to true profit optimization.

That means not just zeroing in on profit margins but considering all revenue-generating areas, including ancillary outlets. Hoteliers who practice total profit optimization have the ability to evaluate every outlet’s performance to discover the most profit-driven strategies.

The shift toward total profit optimization indicates a broadened perspective that goes beyond merely focusing on profit margins. Total profit optimization isn’t just about looking at the rooms. It’s about recognizing all potential revenue-generating areas within a hotel’s ecosystem. This includes not only the mainstays like rooms but also ancillary outlets, such as spas, restaurants, event spaces, and more. By considering all these sources, hoteliers are casting a wider net to capture every possible opportunity to enhance profitability.

With a large array of revenue-generating areas, the challenge arises in evaluating which of these outlets are truly profitable and which need a change in strategy. Hoteliers can use data analytics to measure the performance of each outlet meticulously. This granular analysis allows hoteliers to identify high-performing strategies, refine those that are lagging, and set a gold standard for business optimization.

Modern hoteliers have realized the need for the shift to this new model. The traditional approach of solely focusing on top-line revenue often lacks depth. For instance, as Joseph Yi, chief investment officer of Real Hospitality Group pointed out during a recent IHLA webinar, real estate in the hospitality sector has always been market-specific. Different markets, from urban to tertiary, display varied growth patterns. By embracing total profit optimization, hoteliers can delve deeper into these patterns, allowing for more contextual and informed decision-making.

The Relaxation Garden Atrium within the spa at Sea Island Resort

Previously, metrics like RevPAR were paramount in evaluating a hotel’s performance. While still essential, the scope has broadened. Factors like Gross Operating Profit (GOP), which consider variables such as labor and amenity costs, are now coming into the limelight. Such metrics offer a more comprehensive view of a property’s financial health and sustainability in the long run.

In essence, the move toward total profit optimization signifies a holistic and modern approach to business growth. It champions the cause of understanding the intricacies of every revenue source and aligning strategies to optimize each one, ensuring a sustainable future for the hotel.

 Investing in Technology

The shift to total profit optimization isn’t something that can be done manually. Technology plays a crucial role. Yes, being able to capture all relevant data is critical. But hoteliers also need to turn that data into usable formats for leadership to make the best business decisions based on data. Business Intelligence (BI) presents the ability to provide much-needed visibility and insight into performance and enables total profit optimization.

“Each leader needs to have this ability in their respective area to own the business outcome,” Billy Copelan, Director of Revenue Management at Sea Island Resort said during an interview with Hotel Operations. “They need to make sure what they’re doing is helping to get the right money to the bottom line and help our overall company performance. That’s where business intelligence has been very instrumental for us. It’s allowed us to put data at the fingertips of our leaders in a very digestible format so they can understand it – even if they’re not familiar with data analysis.”

A Business Intelligence Platform has allowed Copelan and his team to not only understand what’s happening but to also relay opportunities and trends to team members and employees working their departments so they can all work together to drive the most profit to the bottom line.

“We’ve been able to link it to our data warehouse so that people can change their view of what they’re looking at on the fly. It’s not just a static report. They can ask questions like what the last month looked like and what the last year of the same month looked like,” Copelan said.

Conclusion

As the hospitality industry continues to evolve, so does its focus. The days of only looking at revenue numbers are slowly fading, replaced by a more comprehensive view that holistically assesses and aims to optimize profit margins.

Through the lens of total profit optimization, hoteliers are comprehensively understanding their business, recognizing every avenue of revenue, and leveraging technology, like Business Intelligence, to ensure every decision adds value to the bottom line.