News for the Hospitality Executive
Planning for Next Years Hotel Budget?
Take the Ego Out of It.
by Jil Larson, October 18, 2010
It’s the least wonderful time of the year, time to prepare next year’s hotel budget with a dash of industry predictions, a sprinkle of historical performance, and a healthy dose of guesswork. But it doesn’t have to be that way.
The experts have all come out with industry projections, but for every
article projecting double digit RevPAR growth there’s a contrasting article
advising caution. ADR is going to be up somewhere between 2% and
20% depending on whom you choose to believe. Occupancy performance
is going to depend heavily on which market segments provide the foundation
of your business.
None of the hotel industry predictions apply to your property.
Allowing an industry forecast to influence your hotel’s 2011 budget projection is like using your country’s GDP to forecast your receptionist’s productivity. The figure is far too general to be of use at the unit level. Unfortunately, these guidelines tend to bring out the ego in everyone. As soon as industry projected growth is mentioned, we become obsessed with outperforming the industry, regardless of our hotel’s individual circumstances.
Fortunately there is an algorithm that can assist each hotel in determining where its greatest opportunity lies to increase share, at least for the transient segments. This in turn can set the table for an optimal strategic plan and an accurate budget. The formula is a combination of two measurements and requires the following:
Step 1: Divide the overall Transient ADR by the Retail ADR. Research across a wide variety of property types has consistently indicated an optimal result is around 85%, give or take a few points. This figure has different names in different organizations, for the sake of this article it is called the Transient Rate Ratio (TRR).A total of four combinations can result, with a separate optimal strategy for each combination.
There will still be plenty of mystery and surprises in the year ahead,
but using your property’s specific performance within the comp set to determine
transient strategy takes both the guesswork and the ego out of planning
Jil Larson is a twenty-five year veteran of the hotel industry with revenue management leadership experience within the Starwood, Marriott, Intercontinental, and Fairmont organizations as well as that of several independent hotels.
|Also See:||True Concessions - Determining the Costs of Those Subversive Clauses in any Group Contract Such as Comp Room Allocations and F&B Discounts / Jill Larson / September 2010|
|Revenue Management or Urban Myth? The Fun Part of Hotel Revenue Management / Jill Larson /August 2010|
|OTA Issues - Not All OTAs Are Created Equal, But One of Them Is Due for a Comeuppance by the Hotel Industry / Jil Larson / July 2010|
|Uncommon Common Sense: Transient Rate Strategies to Take to the Bank / Jil Larson / July 2010|