How To Use Data To Make Better Group Revenue Choices Resulting in Optimized Profits
By Kristi White VP, Product Management, Knowland | March 08, 2020
The father of modern quality management, W. Edwards Deming's quote ' In God we trust, all others must bring data" rings even more true in the age of Big Data. This observation does not mean data replaces experience but rather it informs the best choices among competing options.
In the hospitality industry, hotels allocate guest room inventory across multiple channels to optimize guest room revenue. As an industry, we typically do this very well for transient business. However, when it comes to group revenue the discipline is not always the same. Too often hotels get lost in chasing the bird in the hand (inbound, third-party leads) they forget about the birds in the bush.
Third-party leads seem easy. It's available revenue but it doesn't always mean it should be preferred revenue. The close rate on third-party leads is vastly lower than directly sourced business and these repeat unreliably. Additionally, there are often hidden costs in acquiring the business which is rarely taken into account. Directly sourced business typically comes with fewer hidden costs and a strong sales team can turn it into sustainable business across the long haul making it preferential for building a base of business.
Just to level set, not all revenue is equally profitable. There is a cost to acquire the revenue, which will vary from group to group. Typically, we think of costs in terms of what it takes to service the business (cleaning rooms, staffing, etc.). In the past five years, there has been a focus on the acquisition cost (GDS fees, travel agent commissions, etc.). However, with groups we need to account for all of these costs plus additional third-party costs that come from the planner.
The goal is not to seek and grow revenue at the expense of profit. However, too often our internal goals do not set us up to achieve this. Today where hotel sales teams have goals related to how quickly they respond to third party leads, we reduce our sales process to price vs. value.
This ultimately leads to a leap before you look mentality which means, sometimes, we accept business via a third-party lead that wasn't the most profitable for our hotel. But, hey, we closed the business so that's good, right?
Are We Our Own Worst Enemy?
An important consideration in optimizing which business you pursue is to align and understand your sales team goals. Are they aligned towards profit or just sheer volume? Vanity goals related to speed of response inherently undermine revenue goals. Let's unpack that a bit.
If your team has a goal to respond to all third-party leads within a four-hour window (or often less), do they really have the chance to perform the necessary due diligence to put together a thoughtful and, more importantly, profitable proposal? Chances are they don't. So, what are they left to do to meet this goal? The only option is the old standby of rates, dates, and space which often means many hotels unnecessarily give away concessions to win the RFP. Our own vanity metric is leading to the commoditization of group business.
Inbound Leads by the Numbers
To better understand this, let's look at the numbers. Industry experts estimate approximately 15 million inbound leads are processed annually. If you assume there are around 10,000 hotels who participate in this process and there are 260 business days a year, that's 5.77 leads per hotel per day. Realistically, we know that's an average but let's play the averages and think about our hotels.
In the United States, the average hotel size is 114 rooms. A hotel that size might have 1 salesperson and perhaps a part-time person who does some admin work (maybe). Can 1.5 people meaningfully realistically respond to 5.77 leads per day?
Now, let's triple the size to a 342-room hotel with 4.5 salespeople. Perhaps the 5.77 is a bit more manageable. But, honestly, those leads are all in one or two segments. So, we are back to one or two people processing the leads. If speed is the metric, once again, this becomes a rates, dates, and space play. Your salesperson is responding with the lowest rate but possibly not the most profitable one.
Now let's add another component to this. If our salespeople are spending time responding to leads, when are they actively selling? When are they proactively looking for business they sourced directly? Business they might be able to nurture and turn into long-term committed customers? The answer is probably never.
Not All Inbound Leads Are Bound For Your Hotel
If we continue in the vein of our 5.77 leads per day, how many of those are truly qualified? Technology has made it easy for meeting planners to spam hotels. Twenty years ago, a planner would call or email hotels to get what they needed. Because of this, they were vastly more selective about who received RFPs. Now, in the matter of minutes, they can send the same RFP to 20 hotels, maybe more. Which begs the question are they doing this to broaden their shopping for the ideal hotel or do they know competition brings better pricing? The true answer probably lies somewhere in the middle. But just because technology changed the game doesn't mean you should change your rules.
With inbound leads, your team should focus efforts on sorting out which business to let go and which to pursue. There is no benefit to responding to RFPs that are a bad fit or have a low likelihood of booking, just to respond. That time is better spent crafting thoughtful responses using data for lead evaluation, to prioritize RFPs not just the leads you want but those you are likely to win.
But to make that change, you will need tools. Data can help you quiet the noise and find the pieces of business you really should be going after. The right data can help you understand the past buying behavior of the group. How much more effective could your sales team be if they knew what types of hotels the group used in the past at a granular level:
- Chain scale – Do they pay luxury rates or are they strictly middle of the road?
- Location type – Does the group prefer an urban location or an airport property?
- Brand – Is the group loyal to a specific brand or even a specific chain within a brand?
- Market – Has the group moved from market to market or are they tied to a specific one?
Knowing this can help your sales team understand if the group is a fit for your hotel, thus allowing them to focus on those leads with a greater chance to close and to politely decline those that are not a good fit. Imagine how much more energy they can put into RFPs when they focus solely on those leads with potential. Additionally, the RFPs can be more tailored to the group knowing this information which means they are more likely to stand out to the meeting planner.
The overall win rate for most RFPs is around 5%. Don't waste time on leads with limited potential. Use data and past buy behavior to separate the wheat from the chaff and amp up your sales efforts.
Amp Up Your Sales Efforts
Now that we've saved your team time in the RFP process, we can answer that earlier question. When are they proactively looking for business they sourced directly?
Outbound sales (hunting) is where your team should be spending its time. Data can help your efforts here, too. Good business intelligence tools can help you understand what groups are meeting at your competitors. Combine that with ranking the buying behavior of groups and your sales team is now armed with a target list.
Another thing to think about when prospecting is going beyond your competitive set. A competitive set can be useful, but it can also create blinders. Our customers don't know who our competitors are so we shouldn't limit our selling only to a pre-defined list. Use your data tools to help you look at other hotels (even if you don't think they are a competitor). Beyond that, look outside your market.
Groups often move around. Data can help you understand what markets they prefer, how often they shift around, even the pattern of their moves. Great salespeople can use this to their advantage in selling.
Data to Manage Demand Periods
Highs, lows, and all points in between should be the focus. Often, we focus on low demand periods assuming the other demand periods will take care of themselves. A true proactive sales process eliminates the need to focus on specific demand periods. When your sales team is focused on winning accounts versus capturing a single transaction, they are better able to shift business to meet the needs of your hotel irrespective of the demand period.
Group revenue for many hotels is an integral part of their business plan. However, all group revenue should not be treated equally. Smart hoteliers know how to discern between available revenue and preferred revenue and how to leverage data to know the difference. At the end of the day, not all revenue is good revenue. The cost of group business must be considered and evaluated. With the help of strong group and meetings dataset, hotels can leverage these insights to improve sales productivity, make smart revenue choices, and ultimately optimize profitability.
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