Can any of you translate the conversation below from the movie Moneyball. Instead of baseball, adapt it to the hotel industry. Specifically RM if possible. Email your version to email@example.com or post it on Revenue Manager Development group on Linkedin . I’ll post all the submissions below and the best 3 will receive free access to our Excel for Hotel Data Analysis course.
Peter Brand: There is an epidemic failure within the game to understand what is really happening. And this leads people who run Major League Baseball teams to misjudge their players and mismanage their teams. I apologize.
Billy Beane: Go on.
Peter Brand: Okay. People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players, your goal should be to buy wins. And in order to buy wins, you need to buy runs. You’re trying to replace Johnny Damon. The Boston Red Sox see Johnny Damon and they see a star who’s worth seven and half million dollars a year. When I see Johnny Damon, what I see is… is… an imperfect understanding of where runs come from. The guy’s got a great glove. He’s a decent leadoff hitter. He can steal bases. But is he worth the seven and half million dollars a year that the Boston Red Sox are paying him? No. No. Baseball thinking is medieval. They are asking all the wrong questions. And if I say it to anybody, I’m-I’m ostracized. I’m-I’m-I’m a leper. So that’s why I’m-I’m cagey about this with you.
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Matt Guillot, Corporate Revenue Analyst, VICEROY HOTEL GROUP, Los Angeles, CA
Peter Brand: There is an epidemic failure within the industry to understand what is really happening. And this leads people who run big brand hotels to misjudge their customers and mismanage their pricing. I apologize.
Billy Beane: Go on.
Peter Brand: Okay. People who manage hotels, they think in terms of selling rooms. Your goal shouldn’t be to sell rooms, your goal should be to maximize revenue. And in order to maximize revenue, you must optimize and drive rate. You’re trying to replace the OTAs. The Boston Red Sheets Hotel sees Expedia and they see a travel partner that’s worth seven and half million dollars a year. When I see Expedia, what I see is… is… an imperfect understanding of where revenue comes from. They provide great exposure. They’re easy to work with. They can increase production. But are they worth the X% margin that the Boston Red Sheets Hotel is paying them? No. No. Hotel thinking is medieval. They are asking all the wrong questions. And if I say it to anybody, I’m-I’m ostracized. I’m-I’m-I’m a leper. So that’s why I’m-I’m cagey about this with you.
Alex Wellinghoff, Director of Sales, HYATT PLACE BOISE, Boise, ID
Peter Brand: The hotel industry is at a crossroads in terms of its understanding of sales and revenue optimization, our thinking must change to increase profits for our hotels.
Billy Beane: Go on.
Peter Brand: Hotel executives are still thinking in terms of Top Line Revenue (OCC, ADR, RevPAR) to measure the value of a particular asset or portfolio. The goal shouldn’t be to have the best Revenue Per Available Room but rather to figure out how to improve the profit of the hotel. We want to know what we are taking home after all expenses (labor, food/beverage, commissions, etc.) to make the best sales/revenue decisions for our asset. Similar to our paychecks, we could care less what our gross pay is; we want to know our take home pay. For example, you are expecting to lose about 150 room nights next year from Account XYZ after negotiations stall based on rate (we were asking for $100). Account XYZ chooses to stay at your competition for less ($80). Your superiors might ask you to go and get another account of similar value to replace the 150 room nights. It was a good account, it was base business for our hotel, but was it really worth $80 or even $100 when we are selling BAR at $159? What if we sold 75 additional rooms at $159 over the course of the year? That comes out to 0.20 rooms per day, 1.4 rooms per week, 6 rooms per month, not impossible by any stretch. We would be selling exactly half the amount of rooms for the same amount of money while having 75 additional rooms leftover to sell during higher demand times when you can push rate even higher. Half the work for the same amount of money, a 50% increase in hotel profits. Hotel sales/revenue needs to join the 21st century, we are looking at all the wrong data. We need to look at profits and our expenses when making sales decisions, not Occupancy and ADR. Obviously this is not something a salesperson tells a General Manager or Vice President of Sales about how by selling fewer rooms we can increase hotel profits. I would not be a Director of Sales for much longer.
Rahul Guglani, Area Revenue Manager, SILVERBIRCH HOTELS & RESORTS, Vancouver, BC
Peter Brand: There is an epidemic failure in hotels in understanding the business mix and what we are actually selling on busy dates. And this leads people who manage hotels to mismanage their segments and mismanage their rates. I apologize.
Billy Beane: Go On
Peter Brand: Okay. People who manage hotels, they think in terms of maximizing the selling price (best available rate). Your goal shouldn’t be to maximize price, your goal should be to maximize ADR. And in order to maximize ADR you need to price right. You’re trying to replace XYZ account. The Boston Red Sox hotel sees XYZ account as high producing account, who’s rate is low as $$. When I see XYZ account, what I see is… is… an imperfect understanding of when the room nights are coming in. The account has a lot of room nights. They have decent booking lead time. They are easy to work with. But is it worth dropping the rate so low that the Boston Red Sox hotel is charging them? No. No. this thinking is medieval. They are asking for the wrong business mix. And if I say it to anybody, I’m-I’m ostracized. I’m-I’m-I’m a leper. So that’s why I’m-I’m cagey about this with you.
Caroline Morrison, Area Revenue Manager, SILVERBIRCH HOTELS & RESORTS, Vancouver, BC
Peter Brand: There is an epidemic failure within the hotel industry to measure their success through occupancy percentages and RPI rather than through room contribution percentages. And this leads people who run hotels to focus on the wrong line item on their P&L statements. I apologize.
Billy Beane: Go on.
Peter Brand: Okay. People who run hotels, they think in terms of comparing their occupancy numbers, ADR and RPI to the hotels in their competitive set. This is incomplete thinking because you are measuring yourself most often against a different product (renovated / non-renovated product, suite product, branded, non-branded). Your goal should be to maximize the rooms contribution to your bottom line. Yes, perhaps I could sell more rooms through an OTA, lower the rate, overbook the standard rooms and include breakfast and parking, for everyone in order to maximize occupancy. Question is, would I really be maximizing profit for the owner? No. No. We need to evaluate every piece of business that comes our way. To those who say we should lower our rate by $30 in order to get 30 more room nights occupied — what do we lose by doing so when there are 150 rooms willing to pay the “Additional” $30 per night that would now be giving up?? What would we lose? Profit I say, and if I say that to anybody, I’m-I’m ostracized. I’m-I’m-I’m a leper. So that’s why I’m-I’m cagey about this with you.
Robert Hernandez, Hotel Profit Engineer
Author Info: Robert Hernandez is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+