There is a new concept in the world of Internet Social Media. “Reputation Management” is essentially the ability to deal with the consumer generated reviews and comments about your Inn business posted throughout the Internet. There are now hundreds of web sites allowing consumers (i.e. your guests) to post comments about how they perceive your Inn and the experience that they had while there. How many Innkeepers have been hurt, embarrassed, upset, angry, and just plain pissed-off about an unfair review on TripAdvisor? Well, now is the time to think about how you best can deal with these issues. They are not going to go away, and the comments on TripAdvisor and the other review sites can have a dramatic impact on future web-based reservations. This means business, and you need to treat this as a serious concern.
The first issue is really the essential one. How can you prevent a bad review from happening? Not possible is what most will say; eventually it will happen to you. However, perhaps prevention is the best advice. That gets us back to good old hospitality and superior service. The people at TripAdvisor told us at PAII that most adverse comments are really about the Innkeepers. Either they were grouchy, touchy, angry, or the like, or they were not present when guests had issues that were important to them. If it is all about the Innkeepers, then perhaps prevention can happen before a complaint is broadcast to the universe. Also, many bad reviews are about Innkeepers rigidly sticking to their policies, particularly their cancellation policies. In this connected world, it just may be good business to waive a cancellation penalty rather than go through the difficulties surrounding a bad review. We know of one very smart Innkeeper who has been at it for over 20 years without any kind of policies (no deposits, no cancellation fees, and money back for whatever reason if the guest is not happy with the Inn). In the long run, this may be the best policy for an Inn.
The next step is to make sure that you have the opportunity to intervene if there is a problem before the guest leaves. It just may not be sufficient to ask the guest at check-out if everything was OK with their stay. That question is better said the other way around, such as “Is there anything we could have done to make your stay better?” It is hard to get guests to tell you what you need to hear, especially when they are trying to check-out and anxious to get home. Comment cards no longer seem to work, because the guest perceives that it may be a waste of their time. Those guests that had a bad experience often find the anonymity of the Internet the perfect setting to wail away at the perceived treatment that they got at the Inn. Intervening at check-out, or better yet at breakfast before they leave, may be the better choice. At that point, if they are unhappy, you can take direct action to explain your side, and to try to resolve the issue before it becomes everyone’s issue. Also, you need to have a clear policy as to what to do with a guest who just did not have a good experience. It may not matter whose fault that was, but you need to do something about it. This may mean that you may have to give that guest something of value, particularly if it was the fault of the Inn and it was a serious issue.
Here is another suggestion that was a topic of discussion at PAII. Some really thoughtful Innkeepers mentioned that a follow-up email to all of the guests a week or so after they left was a really good opportunity to communicate. One Innkeeper even stated that they do two email follow-ups, one on check-out asking if they could have done anything better for the guest, and the second answering any responses to the first one. If the response is good, the Innkeeper will suggest a few websites like TripAdvisor where the guest could leave a hopefully positive comment. Where the response is bad, the Innkeeper would then take prompt action to try to remedy the problem before an adverse review is posted.
The next step is for Innkeepers to constantly monitor what the world is saying about them and their Inn. This is not as difficult as it seems. TripAdvisor has a service to email al reviews to the Innkeeper. There are meta search websites like Google Alerts and Technorati, which will also constantly search the web for mentions of keywords and advise you if there are any mentions. It is absolutely essential that you know immediately when a bad review occurs so that you can deal with it right away.
Finally, sites like TripAdvisor provide Innkeepers the opportunity to respond directly to a review by posting a management response. This is a really critical aspect of Reputation Management which should be done promptly and dispassionately. In other words, tell it like it is from the Inn’s standpoint, and hopefully the public will understand that not all issues reflect badly on the Inn. TripAdvisor stated at PAII that often a management response is very helpful to the Inn and can overcome a bad review with reason and particularly with a warm and frank answer. This is the hard part, because we all know how hurtful a bad review can feel to an Innkeeper.
This is a brand new world that will take time away from Innkeepers who do not really have time to spare. Our thought is that this area is going to become very important to all types of businesses, especially those in the hospitality world. It is not going to go away, and you need to gear up to handle these issues. We are currently developing an internet based consulting service to assist Bed and Breakfast Inns to handle the many issues present in Reputation Management. Let us have your thoughts about what type of service may be helpful to you.
Showing posts with label Optimizing Results. Show all posts
Showing posts with label Optimizing Results. Show all posts
Thursday, April 09, 2009
Monday, March 02, 2009
Recession Reality for Bed and Breakfast Inns.
1. The Numbers Don’t Lie? Once again we are faced with an incredible array of numbers coming out of respected professionals who are trying to figure out the impact of the National recession. The problem is that the numbers can be made to say anything, but a careful review will show that no matter whose numbers are used, the picture is not rosy. Take for example the Gross Domestic Product (“GDP”). The Government released figures in January showing a decline in GDP for 2008 of 3.1 %, the worst in over a decade, clearly signaling the fact that the recession was worse than most economists had predicted. On February 27th, after the markets closed, the Government revised the GDP loss to a whopping 6.2 %. Stocks world-wide are tumbling on that piece of bad news, in fear of a longer recovery period. The downward spiral seems to continue with the report that even revered investor Warren Buffet lost $11.5 billion in the net worth of his Berkshire-Hathaway Corporation.
2. What is the impact on the Inn Business. First, it is hard to get numbers for the Bed and Breakfast Inn business separately. Smith Travel Research (“STR”) is the most respected source of historical numbers for the Hospitality Business, but does not collect data from small properties (under 50 rooms). One data release from STR shows that New England seemed to be holding its own relative to the US National data. For example, December, 2008 results for New England included a drop in occupancy rate of -2.1%, while Average Daily Rate (“ADR”) decreased by -3.6%. This resulted in a huge decrease in Revenue Per Available Room (“REVPAR”) of -5.7%. The National figures during the same December period showed larger decreases in Occupancy of -6.8%, in ADR of -3.2%, and a REVPAR decrease of -6.6%.
For the Year 2008 as a whole the figures are also instructive. New England showed a decrease in occupancy of -2.8%, but an increase in ADR of 1.9%, resulting in a miniscule decrease in REVPAR of -0.9%. The National figures for 2008 were far worse, with a decrease in occupancy of -4.2%, but an increase in ADR of +2.4%, resulting in a decrease of -1.9% in REVPAR.
The numbers from STR show that, until about September, 2008 was a growth year with higher occupancies that dropped precipitously in the 4th Quarter. Rates were still climbing in December, as the Hospitality Business seemed to lag in discounting. Overall, 2008 would be a down year, but only in comparison to the strong growth in the prior three years.
3. New England is not the same. One interesting thing that jumps out of the results shown by STR is that the New England States are not homogeneous. In fact, it was clear in both the December and National results for 2008 that Northern New England (Maine, New Hampshire, and Vermont) fared much better individually than the Nation or their Southern New England counterparts. For example, for 2008 as a whole, Vermont showed an increase in occupancy of +1.9%, an increase in ADR of 4.8% along with a REVPAR increase of +6.8%. While the results in Maine and New Hampshire were more consistent, they were slightly worse than New England as a whole. The bottom line was that overall, 2008 was a non-growth year, with a really cloudy picture for 2009.
4. The Real Data comes from Sales Tax Revenues. Another well respected source of industry research comes from Atlanta-based PKF Hospitality Research (“PKF”). Utilizing results of sales tax collections in Maine, PKF reported that September lodging sales in that state dropped by -12% from 2007, and continued to drop by -2.6% in October on a year-to-year basis. While Maine finished the year 2008 slightly ahead of 2007 (+0.7% growth in revenue), this came after 6% annual growth in the preceding three year period. PKF is projecting as a whole a -7.8% decline in REVPAR for Maine in 2009, which would make it one of the steepest declines in recorded history since the 1930’s. PKF also predicts that Maine will not fare as worse as others, because of its relative low cost and its rural location which fosters escape from the big cities. Presumably this would apply to all of Northern New England with similar characteristics prevalent throughout the region.
5. Summary: Batten Down the Hatches! No one likes to consistently hear bad news, but there is little about the economy that seems to be saying that things are going to get better soon. Predictions for a recovery in late 2009 and early 2010 are all that we have to go on, but most economists are hedging on those dates. Similar to the broad-based declines in 4th Quarter, 2008, retail spending, the American consumer seems to have switched to a survival mode, and this does not bode well for discretionary spending at least until there is some better news on the horizon. We have advised our consulting clients of the following:
a. Budget for a decrease in revenue of about 10% for 2009, adjusting expenses as much as possible to that revenue;
b. Increase spending in Marketing, particularly electronic marketing to capture market share;
c. Neither increase or decrease overall rack room rates. Develop packages with adventure travel features which show good overall value. Up-sell rooms whenever possible, and include value-added options with all room rates. Partner with local businesses and cross-market as much as you can.
d. Hold discretionary spending to a minimum and build cash wherever possible in the event that this recession lasts longer than expected. Do not defer necessary repairs and maintenance, but this is not the year to spend money on capital improvements.
e. Remember why you came into the Hospitality Business. It is all about the guests and not the Innkeepers!
f. This too shall pass. Look to the future, because the past is gone forever.
2. What is the impact on the Inn Business. First, it is hard to get numbers for the Bed and Breakfast Inn business separately. Smith Travel Research (“STR”) is the most respected source of historical numbers for the Hospitality Business, but does not collect data from small properties (under 50 rooms). One data release from STR shows that New England seemed to be holding its own relative to the US National data. For example, December, 2008 results for New England included a drop in occupancy rate of -2.1%, while Average Daily Rate (“ADR”) decreased by -3.6%. This resulted in a huge decrease in Revenue Per Available Room (“REVPAR”) of -5.7%. The National figures during the same December period showed larger decreases in Occupancy of -6.8%, in ADR of -3.2%, and a REVPAR decrease of -6.6%.
For the Year 2008 as a whole the figures are also instructive. New England showed a decrease in occupancy of -2.8%, but an increase in ADR of 1.9%, resulting in a miniscule decrease in REVPAR of -0.9%. The National figures for 2008 were far worse, with a decrease in occupancy of -4.2%, but an increase in ADR of +2.4%, resulting in a decrease of -1.9% in REVPAR.
The numbers from STR show that, until about September, 2008 was a growth year with higher occupancies that dropped precipitously in the 4th Quarter. Rates were still climbing in December, as the Hospitality Business seemed to lag in discounting. Overall, 2008 would be a down year, but only in comparison to the strong growth in the prior three years.
3. New England is not the same. One interesting thing that jumps out of the results shown by STR is that the New England States are not homogeneous. In fact, it was clear in both the December and National results for 2008 that Northern New England (Maine, New Hampshire, and Vermont) fared much better individually than the Nation or their Southern New England counterparts. For example, for 2008 as a whole, Vermont showed an increase in occupancy of +1.9%, an increase in ADR of 4.8% along with a REVPAR increase of +6.8%. While the results in Maine and New Hampshire were more consistent, they were slightly worse than New England as a whole. The bottom line was that overall, 2008 was a non-growth year, with a really cloudy picture for 2009.
4. The Real Data comes from Sales Tax Revenues. Another well respected source of industry research comes from Atlanta-based PKF Hospitality Research (“PKF”). Utilizing results of sales tax collections in Maine, PKF reported that September lodging sales in that state dropped by -12% from 2007, and continued to drop by -2.6% in October on a year-to-year basis. While Maine finished the year 2008 slightly ahead of 2007 (+0.7% growth in revenue), this came after 6% annual growth in the preceding three year period. PKF is projecting as a whole a -7.8% decline in REVPAR for Maine in 2009, which would make it one of the steepest declines in recorded history since the 1930’s. PKF also predicts that Maine will not fare as worse as others, because of its relative low cost and its rural location which fosters escape from the big cities. Presumably this would apply to all of Northern New England with similar characteristics prevalent throughout the region.
5. Summary: Batten Down the Hatches! No one likes to consistently hear bad news, but there is little about the economy that seems to be saying that things are going to get better soon. Predictions for a recovery in late 2009 and early 2010 are all that we have to go on, but most economists are hedging on those dates. Similar to the broad-based declines in 4th Quarter, 2008, retail spending, the American consumer seems to have switched to a survival mode, and this does not bode well for discretionary spending at least until there is some better news on the horizon. We have advised our consulting clients of the following:
a. Budget for a decrease in revenue of about 10% for 2009, adjusting expenses as much as possible to that revenue;
b. Increase spending in Marketing, particularly electronic marketing to capture market share;
c. Neither increase or decrease overall rack room rates. Develop packages with adventure travel features which show good overall value. Up-sell rooms whenever possible, and include value-added options with all room rates. Partner with local businesses and cross-market as much as you can.
d. Hold discretionary spending to a minimum and build cash wherever possible in the event that this recession lasts longer than expected. Do not defer necessary repairs and maintenance, but this is not the year to spend money on capital improvements.
e. Remember why you came into the Hospitality Business. It is all about the guests and not the Innkeepers!
f. This too shall pass. Look to the future, because the past is gone forever.
Wednesday, January 21, 2009
Bed & Breakfast Inns vs. Hotels: We Win, Hands Down!
We spent some time over the Holidays with our family outside of Boston. Rather than displace some of my nephews, we tried the closest hotel. This was a large chain hotel on a major route west of Boston with a huge shopping center across the street. While there were several small (3 room) bed and breakfasts nearby, we thought we should see what the hotel industry was up to. What a mistake!
First of all, we should say that the room itself was newly redecorated, fairly large and well furnished. The bed was a new pillow-top king-size, and the furnishings were standard up-scale hotel furniture. There was a very large, new flat-screen TV with Hi-Def capabilities. There was also free wi-fi and good desk space with plenty of lights and a.c. outlets. It contained the typical business set up with desk and swivel office chair in addition to two other upholstered seats. The heat was the ubiquitous through the wall air conditioning/heat unit, but with a more modern temperature control on one of the walls. The bathroom was standard size, but upgraded with a stone countertop, tile floor, and bowed shower curtain rod, giving the appearance and feel of a larger bathtub. In short, this was a fairly up-scale hotel room, the same to be found in most cities of the Country. What it lacked in charm, it made up with functionality; or so we thought.
We were using reward points left over from the corporate world for one of the two nights of our stay. This is where the trouble started. We had paid for our second night as a deposit, with the first to be paid for by the reward. The cost of the room was quoted as $99 plus tax. When we checked in, however, the desk clerk advised us that we would need to check-out and then check-in again on the next day. They said that they could not guarantee that we would be able to stay in the room, as room assignments for check-ins are made each morning. We advised them that they needed to figure it out, but we were not moving rooms. The next day we did, in fact have to check-out and then check-in again, but somehow they managed to keep us in the room. We then went to breakfast in the dining room. This was a holiday, so they were not serving a buffet. We were seated, and then waited about a half-hour for a server to bring the menus and coffee. Overall, the breakfast was sub-par and the service very poor. When we finally checked out, the desk clerk told us that since we stayed in the same room, which apparently was a higher level than the rate quoted us, we had to pay an additional $50, despite the fact that our written confirmation was clear. We, of course, refused to pay, and the desk clerk said she would discuss it with the manager. After we left, they just charged the difference to our card anyway. We are still waiting for the credit that they promised, but the credit card company will reverse the charge if the hotel does not do so.
The long and short is that in the battle between hotels and bed and breakfast inns, we win, hands down! It is not about luxury rooms, amenities, or discounted rates. It remains true that personal service, quaintness, and charm will win out every time. It is not just about the room. While our room was perfectly adequate, and in fact, in some respects a clear upgrade, it was sterile, lacking any “charm” or individuality. This room could have been found anywhere in the United States. Close your eyes, and you may not know where you are for a minute. One of the things about old house syndrome at bed and breakfast inns, particularly those in older, historical buildings, is that the sounds of the Inn at night, the groans of the boiler or creaks and pops of the radiators, can impact your sleep, at least on the first night. Well try those hotel thru-wall heaters which make a huge noise as they cycle on and off all night. I’ll take charm every time.
The most important thing that we have to offer in our small part of the Hospitality Industry is the personal service that our innkeepers give to their guests on a daily basis. This is what clearly sets us apart from the much larger hotel business, and the one thing that will help us survive the tough times to come. The more the economy gets worse, the more respite, peace and good old fashioned hospitality will be needed to provide our guests with a retreat to recharge their batteries. Do not ever underestimate what we have to offer the traveling public. It is something that hotels can never supply, no matter how many concierges they have. The hotels of the world will compete by price to stay alive. The bed and breakfast industry has a magic wand and can better compete with hospitality, charm, and personal service. For all times, this is what differentiates us from the hotel business, and what will continue to make us successful in the years to come. What we need now is to spread the world that we are open for business as usual, and that means “Hospitality” with a capital “H.”
First of all, we should say that the room itself was newly redecorated, fairly large and well furnished. The bed was a new pillow-top king-size, and the furnishings were standard up-scale hotel furniture. There was a very large, new flat-screen TV with Hi-Def capabilities. There was also free wi-fi and good desk space with plenty of lights and a.c. outlets. It contained the typical business set up with desk and swivel office chair in addition to two other upholstered seats. The heat was the ubiquitous through the wall air conditioning/heat unit, but with a more modern temperature control on one of the walls. The bathroom was standard size, but upgraded with a stone countertop, tile floor, and bowed shower curtain rod, giving the appearance and feel of a larger bathtub. In short, this was a fairly up-scale hotel room, the same to be found in most cities of the Country. What it lacked in charm, it made up with functionality; or so we thought.
We were using reward points left over from the corporate world for one of the two nights of our stay. This is where the trouble started. We had paid for our second night as a deposit, with the first to be paid for by the reward. The cost of the room was quoted as $99 plus tax. When we checked in, however, the desk clerk advised us that we would need to check-out and then check-in again on the next day. They said that they could not guarantee that we would be able to stay in the room, as room assignments for check-ins are made each morning. We advised them that they needed to figure it out, but we were not moving rooms. The next day we did, in fact have to check-out and then check-in again, but somehow they managed to keep us in the room. We then went to breakfast in the dining room. This was a holiday, so they were not serving a buffet. We were seated, and then waited about a half-hour for a server to bring the menus and coffee. Overall, the breakfast was sub-par and the service very poor. When we finally checked out, the desk clerk told us that since we stayed in the same room, which apparently was a higher level than the rate quoted us, we had to pay an additional $50, despite the fact that our written confirmation was clear. We, of course, refused to pay, and the desk clerk said she would discuss it with the manager. After we left, they just charged the difference to our card anyway. We are still waiting for the credit that they promised, but the credit card company will reverse the charge if the hotel does not do so.
The long and short is that in the battle between hotels and bed and breakfast inns, we win, hands down! It is not about luxury rooms, amenities, or discounted rates. It remains true that personal service, quaintness, and charm will win out every time. It is not just about the room. While our room was perfectly adequate, and in fact, in some respects a clear upgrade, it was sterile, lacking any “charm” or individuality. This room could have been found anywhere in the United States. Close your eyes, and you may not know where you are for a minute. One of the things about old house syndrome at bed and breakfast inns, particularly those in older, historical buildings, is that the sounds of the Inn at night, the groans of the boiler or creaks and pops of the radiators, can impact your sleep, at least on the first night. Well try those hotel thru-wall heaters which make a huge noise as they cycle on and off all night. I’ll take charm every time.
The most important thing that we have to offer in our small part of the Hospitality Industry is the personal service that our innkeepers give to their guests on a daily basis. This is what clearly sets us apart from the much larger hotel business, and the one thing that will help us survive the tough times to come. The more the economy gets worse, the more respite, peace and good old fashioned hospitality will be needed to provide our guests with a retreat to recharge their batteries. Do not ever underestimate what we have to offer the traveling public. It is something that hotels can never supply, no matter how many concierges they have. The hotels of the world will compete by price to stay alive. The bed and breakfast industry has a magic wand and can better compete with hospitality, charm, and personal service. For all times, this is what differentiates us from the hotel business, and what will continue to make us successful in the years to come. What we need now is to spread the world that we are open for business as usual, and that means “Hospitality” with a capital “H.”
Wednesday, November 26, 2008
Thanksgiving at the Inn
Thanksgiving is perhaps the best Holiday at a Country Inn. It is the one time that the Innkeepers get to really share their Holiday time with the guests and neighbors and to show their thanks for both a bountiful season and the joys of Innkeeping. I know that we looked forward to this Holiday every year at our Inn.
It is a great time to share an amazing, traditional Thanksgiving meal with the community. Often we welcomed both lodging and dinner guests to the Inn whose families were far away. This gave us all a chance to celebrate a great Holiday as a kind of substitute family. The spirit of Thanksgiving permeated the air as the fantastic smells from the kitchen provided a welcoming touch to the Fall decorations at the Inn. A moment to stop to give thanks for all that has been given to us, and then a traditional meal served family style with seconds passed until no one could ever want more. Good cheer, great food, good music, and the laughter around the dining room was reward enough for this very special day. For those guests staying over at the Inn, we always brought out the leftovers that night for home-style sandwiches and pie. This was always a very special treat for our guests.
In this year of changing times, we give thanks to what we have, and renew our energies for the work to come.
Happy Thanksgiving to all!
It is a great time to share an amazing, traditional Thanksgiving meal with the community. Often we welcomed both lodging and dinner guests to the Inn whose families were far away. This gave us all a chance to celebrate a great Holiday as a kind of substitute family. The spirit of Thanksgiving permeated the air as the fantastic smells from the kitchen provided a welcoming touch to the Fall decorations at the Inn. A moment to stop to give thanks for all that has been given to us, and then a traditional meal served family style with seconds passed until no one could ever want more. Good cheer, great food, good music, and the laughter around the dining room was reward enough for this very special day. For those guests staying over at the Inn, we always brought out the leftovers that night for home-style sandwiches and pie. This was always a very special treat for our guests.
In this year of changing times, we give thanks to what we have, and renew our energies for the work to come.
Happy Thanksgiving to all!
Wednesday, November 19, 2008
Operating a Bed & Breakfast - Complacency Spells Trouble!
The most recent news from the Hospitality Industry is not good for Innkeepers. Hotel REIT giant, LaSalle Properties announced it was cutting 20% from its hotel staffing (mostly run by large hotel management companies) and has rescinded its 2008 guidance to the stock market. LaSalle reported that its Revpar (revenue per available room) decreased by 11.4 % in October; a huge drop! While the Innkeeping Business does not use Revpar as a measurement, it is fundamentally the same as saying that average daily rate and occupancy combined dropped by that amount. LaSalle is an important bell- weather for Inns because it is comprised of mostly luxury and higher-priced hotel properties. For the full story, please see: LaSalle Orders 20% Cut in Hotel Staffing - WSJ.com.
We hear anecdotally that many Inns and Bed and Breakfasts across the Country have had good years in 2008, at least until the end of October. Now is not the time for Innkeepers to rest on their laurels. A sea change is coming, in the form of a recession, the likes of which we have not seen in our lifetimes. This is also not the time to just burrow in fear of what is to come. As we have said many times before, when there is a downturn, those Inns at the top of their game can improve market share as against the competition. A bigger piece of a smaller pie may save the day after all.
So this is the time to be countercyclical and increase your spending on marketing, especially electronic marketing through your website, blog, and by email. Create attractive packages rather than discount, and spend all of that extra time you have due to declining occupancies to come up with creative and imaginative ways to get your repeat and referral guests to the Inn. Most of all, just lowering the price will not work, and may make things worse in the long run (see previous article on Discounting).
Most of all, have heart. The biggest reason that they come back to the Inn is because your have created a refuge and a respite from all of the problems the guests face at home and in the real world. Remember that this is exactly what the guests need in these troubled times, and they will pay you for this experience.
We hear anecdotally that many Inns and Bed and Breakfasts across the Country have had good years in 2008, at least until the end of October. Now is not the time for Innkeepers to rest on their laurels. A sea change is coming, in the form of a recession, the likes of which we have not seen in our lifetimes. This is also not the time to just burrow in fear of what is to come. As we have said many times before, when there is a downturn, those Inns at the top of their game can improve market share as against the competition. A bigger piece of a smaller pie may save the day after all.
So this is the time to be countercyclical and increase your spending on marketing, especially electronic marketing through your website, blog, and by email. Create attractive packages rather than discount, and spend all of that extra time you have due to declining occupancies to come up with creative and imaginative ways to get your repeat and referral guests to the Inn. Most of all, just lowering the price will not work, and may make things worse in the long run (see previous article on Discounting).
Most of all, have heart. The biggest reason that they come back to the Inn is because your have created a refuge and a respite from all of the problems the guests face at home and in the real world. Remember that this is exactly what the guests need in these troubled times, and they will pay you for this experience.
Tuesday, November 04, 2008
Running a Bed & Breakfast Inn: Discounting Room Rates Does Not Work!
In troubled times like today, Bed and Breakfast Innkeepers have an overwhelming feeling that the best way through this downturn (say recession!) is to put their room rates on sale. Isn’t that just what the retailers do at Christmas time to survive a bad season? The answer is that discounting in the travel business not only does not work, it creates a pattern of customer behavior that will last for years, even when times are better. Let’s look at the specifics.
Following 9/11, the Hotel Industry reacted to the basic loss of corporate business by deeply discounting their rates and putting large blocks of unused inventory on third-party web sites. The result was $50 a night rooms on sites like hotels.com which set up a huge expectation with consumers that this was the right price to pay for hotel rooms, no matter what the differences were in quality between each hotel. Many subsequent studies showed that the hotels basically killed their business for several years after the original reason for the discounting had gone away. The PAII Industry Study for 2002 and 2004 shows clearly that while occupancy at bed and breakfast and country inns decreased somewhat over the same period, rates did not go down significantly. Innkeepers knew the value of their product and held their rates. The result was that the Inn Industry basically avoided the meltdown that the Hotels suffered during that time.
By the end of 2007, rates for both Hotels and Inns were higher than in 2001, and occupancy rates had climbed back for the most part to 2000 levels (the best year to date in the Inn business). It is hard to tell where we will end up in 2008, but it clearly will not be a growth year. More important, where will we be in 2009?
Let’s put this into perspective. What would be the impact of your Inn business if revenues declined by say 10%? For an Inn grossing $400,000, that would mean a decrease in sales of $40,000. If the Gross Margin for that Inn (net cash flow/gross revenue) was an efficient 46%, then the net cash flow will also go down by 10%. In this example, the net cash flow would decrease by $18,400 from $184,000 to $165,600. The expenses also have to decrease, and there clearly can be cost reductions since many of the Inn’s expenses are variable and related to occupancy. In other words, as occupancy decreases, certain expenses like housekeeping, amenities and other costs related to occupancy levels will decrease as well. Added to this are the discretionary spending that can be reduced or deferred, all of which leads to the conclusion that even a 10% decrease in revenue will not result in a calamity for a well-run Inn business. It is more like something that needs to be weathered.
Most Innkeepers have a good sense of what the true expenses of operating the Inn are, and can find the ways to reduce costs. More important, most of your personal expenses seem to be interwoven in the Inn’s finances as well, providing a really sound way of reducing expenses. Knowing what is the real cost of the Inn gives you a better way of knowing how much you have to charge in rates to make an adequate return on investment (i.e. to pay the mortgage and have some for yourself) at any level of occupancy. Once you do this, you do not have to discount, you need only charge a fair price to achieve a fair rate of return on investment.
The real concern then remains this nagging feeling among Innkeepers that the only way out of a downturn is to discount. This should be avoided at any cost, because, as described above, once it is done, your guests will never again feel like paying your full rates. It will take many years to climb out of that hole. A better approach is to sell well priced packages and have value-added specials to supplement your rates. This has always worked well for our Industry, and will work again.
Finally, a word about cutting costs. Marketing and maintenance are the two areas that are easy to cut, but have the longest negative affect on your Inn business. This is the time to do what you can to increase marketing, because while the overall travel business may be decreasing, by great marketing you can stabilize or even increase your market share of the business that exists. Deferring maintenance is also something that comes back to bite you, since the cost of making repairs will always be more in the future if something is deferred.
The long and short is that you can favorably impact your results, even in bad economic times. Have faith that this too will pass, but in the interim, cut costs and market, market, market!
Following 9/11, the Hotel Industry reacted to the basic loss of corporate business by deeply discounting their rates and putting large blocks of unused inventory on third-party web sites. The result was $50 a night rooms on sites like hotels.com which set up a huge expectation with consumers that this was the right price to pay for hotel rooms, no matter what the differences were in quality between each hotel. Many subsequent studies showed that the hotels basically killed their business for several years after the original reason for the discounting had gone away. The PAII Industry Study for 2002 and 2004 shows clearly that while occupancy at bed and breakfast and country inns decreased somewhat over the same period, rates did not go down significantly. Innkeepers knew the value of their product and held their rates. The result was that the Inn Industry basically avoided the meltdown that the Hotels suffered during that time.
By the end of 2007, rates for both Hotels and Inns were higher than in 2001, and occupancy rates had climbed back for the most part to 2000 levels (the best year to date in the Inn business). It is hard to tell where we will end up in 2008, but it clearly will not be a growth year. More important, where will we be in 2009?
Let’s put this into perspective. What would be the impact of your Inn business if revenues declined by say 10%? For an Inn grossing $400,000, that would mean a decrease in sales of $40,000. If the Gross Margin for that Inn (net cash flow/gross revenue) was an efficient 46%, then the net cash flow will also go down by 10%. In this example, the net cash flow would decrease by $18,400 from $184,000 to $165,600. The expenses also have to decrease, and there clearly can be cost reductions since many of the Inn’s expenses are variable and related to occupancy. In other words, as occupancy decreases, certain expenses like housekeeping, amenities and other costs related to occupancy levels will decrease as well. Added to this are the discretionary spending that can be reduced or deferred, all of which leads to the conclusion that even a 10% decrease in revenue will not result in a calamity for a well-run Inn business. It is more like something that needs to be weathered.
Most Innkeepers have a good sense of what the true expenses of operating the Inn are, and can find the ways to reduce costs. More important, most of your personal expenses seem to be interwoven in the Inn’s finances as well, providing a really sound way of reducing expenses. Knowing what is the real cost of the Inn gives you a better way of knowing how much you have to charge in rates to make an adequate return on investment (i.e. to pay the mortgage and have some for yourself) at any level of occupancy. Once you do this, you do not have to discount, you need only charge a fair price to achieve a fair rate of return on investment.
The real concern then remains this nagging feeling among Innkeepers that the only way out of a downturn is to discount. This should be avoided at any cost, because, as described above, once it is done, your guests will never again feel like paying your full rates. It will take many years to climb out of that hole. A better approach is to sell well priced packages and have value-added specials to supplement your rates. This has always worked well for our Industry, and will work again.
Finally, a word about cutting costs. Marketing and maintenance are the two areas that are easy to cut, but have the longest negative affect on your Inn business. This is the time to do what you can to increase marketing, because while the overall travel business may be decreasing, by great marketing you can stabilize or even increase your market share of the business that exists. Deferring maintenance is also something that comes back to bite you, since the cost of making repairs will always be more in the future if something is deferred.
The long and short is that you can favorably impact your results, even in bad economic times. Have faith that this too will pass, but in the interim, cut costs and market, market, market!
Monday, June 30, 2008
Optimizing your Bed & Breakfast Inn Business With Metrics
With a clear downturn in the economy facing us, it is really time to put your Inn’s business practices in order. Metrics is the study of measuring past performance so that you can improve your business. The basic concept is that you cannot improve the future without looking at what happened in the past. Simply put, “you can’t control what you can’t measure”(Wikipedia definition of “metrics”).
Probably the most important information that you need to have to improve your business is the detailed results from prior years’ room sales. But not just your occupancy and average daily rate for the prior year! You need to know on a daily basis what your room sales were for prior years. Only through detailed record keeping are you able to compare year to year changes in your Inn’s sales performance in time to do something about it. For example, if you are being impacted by discounting from neighboring Inns, it will likely be too late to do anything about it if you only look at sales data on a monthly basis.
Daily record keeping is not hard, but you have to be organized to do this. Most PMS systems now have a Quickbooks interface which allows you to post room sales on a daily basis. Even if you don’t do this automatically, you can develop a simple Excel Spreadsheet for daily posting, allowing you to balance your sales and payment accounts and then post them in Quickbooks every day. Quickbooks then allows you to run either Year-to-date or Month-to-Date comparison reports with last year. If after the first few days of the month you are falling behind last year’s sales, then you at least are warned that you may have to do something about it to catch up or exceed last year. Even better would be if you had a complete budget for the current year by month showing where you expected to be at that point in time (Quickbooks averages each day within a month for daily analysis). This would help to analyze the data based on past results but having factored in changes in plan made for the current year (such as a rate increase).
Now let’s take the sales analysis one step further. You also should be tracking advanced deposits and advanced reservations on a daily basis. In this way, you can tell a few months out, then a month out and then two weeks out from a given date how your reservations are progressing against the same period last year. Again, this gives you much more ability to change your sales practices to overcome deficits in advanced sales well before it is too late to make a difference. At that point you can decide whether to run rate favorable packages or specials to catch up to last year’s advanced reservations or your current year’s budget plan. In other words, you can attempt to control your own destiny, rather than waiting and watching what happens. Tie this into a program of aggressive email marketing and yield management for rate changes, and you are doing your best to maximize sales.
This is just one example of how you need to use financial data (Metrics) to improve and impact results. Another example is making sure that you are tracking source data for your guests. You need to know income by source (what are the sources of your room sales), but also where are your guests coming from and why are they coming. A lot of this is just asking the right questions when they call (the old “how did you hear about us?” still works well). But in this age of Internet reservations, you must also carefully analyze your web site tracking data and also make sure to analyze the data that is available to you as a subscriber to the various web inn directories. This is all critical information to know who your guest is and then to determine among the many, many options available to reach that exact guest. Why, for example, advertise in the August edition of a popular tourism magazine, when you have 90% occupancy for that month. Likewise, why continue on with certain web directories when your returns from them are below average. Unless you are tracking results you can never answer these questions and improve your bottom line.
In sum, tracking financial results will always be the best way to optimize your Inn business. This is the quickest way to improve your results and to add long-term, sustainable value to your business.
Probably the most important information that you need to have to improve your business is the detailed results from prior years’ room sales. But not just your occupancy and average daily rate for the prior year! You need to know on a daily basis what your room sales were for prior years. Only through detailed record keeping are you able to compare year to year changes in your Inn’s sales performance in time to do something about it. For example, if you are being impacted by discounting from neighboring Inns, it will likely be too late to do anything about it if you only look at sales data on a monthly basis.
Daily record keeping is not hard, but you have to be organized to do this. Most PMS systems now have a Quickbooks interface which allows you to post room sales on a daily basis. Even if you don’t do this automatically, you can develop a simple Excel Spreadsheet for daily posting, allowing you to balance your sales and payment accounts and then post them in Quickbooks every day. Quickbooks then allows you to run either Year-to-date or Month-to-Date comparison reports with last year. If after the first few days of the month you are falling behind last year’s sales, then you at least are warned that you may have to do something about it to catch up or exceed last year. Even better would be if you had a complete budget for the current year by month showing where you expected to be at that point in time (Quickbooks averages each day within a month for daily analysis). This would help to analyze the data based on past results but having factored in changes in plan made for the current year (such as a rate increase).
Now let’s take the sales analysis one step further. You also should be tracking advanced deposits and advanced reservations on a daily basis. In this way, you can tell a few months out, then a month out and then two weeks out from a given date how your reservations are progressing against the same period last year. Again, this gives you much more ability to change your sales practices to overcome deficits in advanced sales well before it is too late to make a difference. At that point you can decide whether to run rate favorable packages or specials to catch up to last year’s advanced reservations or your current year’s budget plan. In other words, you can attempt to control your own destiny, rather than waiting and watching what happens. Tie this into a program of aggressive email marketing and yield management for rate changes, and you are doing your best to maximize sales.
This is just one example of how you need to use financial data (Metrics) to improve and impact results. Another example is making sure that you are tracking source data for your guests. You need to know income by source (what are the sources of your room sales), but also where are your guests coming from and why are they coming. A lot of this is just asking the right questions when they call (the old “how did you hear about us?” still works well). But in this age of Internet reservations, you must also carefully analyze your web site tracking data and also make sure to analyze the data that is available to you as a subscriber to the various web inn directories. This is all critical information to know who your guest is and then to determine among the many, many options available to reach that exact guest. Why, for example, advertise in the August edition of a popular tourism magazine, when you have 90% occupancy for that month. Likewise, why continue on with certain web directories when your returns from them are below average. Unless you are tracking results you can never answer these questions and improve your bottom line.
In sum, tracking financial results will always be the best way to optimize your Inn business. This is the quickest way to improve your results and to add long-term, sustainable value to your business.
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