Renovation Cycles - Putting Money Back Into Your Asset

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | June 02, 2013

Is your asset producing the required bang for the buck?

Businesses thrive on a continuous source of Revenue streams. Revenues are the foundation for any performance measurement. If you don't have a top line, there is no bottom line to talk of either. If revenues are the foundation, then the assets that produce that foundation are even more critical to the success of the business. However, revenue streams come under strain over the years when the underlying assets get tired and wear out. Renovation programs are designed to upgrade these assets so that revenues can be sustained. It is a trade-off of a big chunk of investment now to earn revenues for the coming years. With competition fierce, it is no more a "nice to have" but mandatory for survival. Thus, renovations are part and parcel of a business' sustenance strategy.

The Asset Turnover Ratio

A key ratio that measures the relationship between revenues/profits and assets is the Asset Turnover ratio. This ratio measures how much dollar revenues/profits are earned for every dollar invested in assets. An Asset Turnover ratio measures the capacity utilization factor for a business. In hotel business parlance, the measure that is used is the RevPAR although it must be said that the RevPAR is rooms centric as in, it measures only rooms revenues. So, you could actually calculate an Asset Turnover ratio using the Gross Revenues for the entire hotel.

Asset Turnover ratio is ideally comparable over periods of time for a business. This allows the business to check whether for every dollar of asset invested whether the Turnover (revenues or sales) are falling. This is critical to make a comment about the continuous revenue streams that are the life blood of the business.

A falling Asset Turnover ratio may signal the need for a close look at the underlying asset. This is where renovation cycles come in. The expression "tired product" is often used for an asset, which is wearing out.

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Social Media: Getting Personal

There Social media platforms have revolutionized the hotel industry. Popular sites such as Facebook, Twitter, Pinterest, Instagram, Snapchat, YouTube and Tumblr now account for 2.3 billion active users, and this phenomenon has forever transformed how businesses interact with consumers. Given that social media allows for two-way communication between businesses and consumers, the emphasis of any marketing strategy must be to positively and personally engage the customer, and there are innumerable ways to accomplish that goal. One popular strategy is to encourage hotel guests to create their own personal content - typically videos and photos -which can be shared via their personal social media networks, reaching a sizeable audience. In addition, geo-locational tags and brand hashtags can be embedded in such posts which allow them to be found via metadata searches, substantially enlarging their scope. Influencer marketing is another prevalent social media strategy. Some hotels are paying popular social media stars and bloggers to endorse their brand on social media platforms. These kinds of endorsements generally elicit a strong response because the influencers are perceived as being trustworthy by their followers, and because an influencer's followers are likely to share similar psychographic and demographic traits. Travel review sites have also become vitally important in reputation management. Travelers consistently use social media to express pleasure or frustration about their guest experiences, so it is essential that every review be attended to personally. Assuming the responsibility to address and correct customer service concerns quickly is a way to mitigate complaints and to build brand loyalty. Plus, whether reviews are favorable or unfavorable, they are a vital source of information to managers about a hotel's operational performance.  The February Hotel Business Review will document what some hotels are doing to effectively incorporate social media strategies into their businesses.