Over the last few years there has been much discussion in the the world of hotel revenue management on managing GOPPAR and NREVPAR over only REVPAR. Understanding the cost of distribution is vital to the financial success of every hotel. For this we would need our systems to support us in registering and calculating such costs. Unfortunately many hotel Property Management Systems (PMS) have not yet evolved sufficiently in this area.
In a discussion on my last post on the Hotel P&L the topic came up. I have made this plea various times already to PMS providers. So I am using the start of 2019 to make a public plea to request all hotel systems to develop a comprehensive cost of sales functionality.
As hoteliers we need to be able to track our cost of sales properly. This includes not only base commissions but also overrides and other transaction fees or costs
Therefore, we need a system that allows us to program the cost for each channel. When talking commissions the functionality should administer standard OTA commissions, but also take into consideration commission overrides. This data should be included in the reservation delivery interface, avoiding laborious manual corrections on the hotel side. Some OTA have a mix of sell (gross) and net rates. This would all need to be well recorded on a per booking basis.
But we don’t only pay commissions to OTA. How about groups an travel agency reservations? Again here we would need for a standard commission to be applied based on a contract. This most PMS allow for. But what if there is a commission override? Can we post this to the group folio to be recalculated over all the reservations?
And override commissions on FIT and Wholesale contracts, we should be able to record these as well as a cost of sales. On this segment another question comes to mind, should we be able to add a markup to have a gross rate, when comparing to BAR and other public rates?
And then, there are the GDS and CRS, what do they cost by month and transaction. How can we configure our systems to track this as well. Same goes for chain and representation fees. Booking Engine, Channel Manager and interfaces costs should also not be overlooked.
Meta-Search and Adword advertising are also important costs we should look to incorporate in our cost of distribution. However the cost of these bidding models cannot be allocated to individual reservations. So maybe we need a module allowing us to administer advertising costs on a scheduled basis. This could either be per month, day or week. But take note the spending moment equals the booking date but is not related to the stay date. Would a calculation considering booking lead time allow us to assign costs effectively?
This type of distribution cost functionality will finally allow us to move beyond a proverbial ‘garbage in, garbage out’ era, and enable hotels to gain much better insight in the true cost of sales.
Hoteliers will finally be able to make an apples to apples comparison on Net-ADR and Net Revenue Contribution per agency, channel and segment. It is time we get a full understanding on how each and every single reservation contributes to the bottom line.
This is of course highly complex, and as you can see I don’t have all the answers. But I hope this post will start a public debate amongst hoteliers on which requirements we have as an industry from our technology providers. This would give them the full specs on what to build, and hopefully we will see some great developments by our system partners in 2019.
Look forward to everyone’s feedback, both from hotels and PMS vendors of course …
Happy 2019 everyone!