Total profitability will mean something slightly different to each hotel, but the concept involves understanding all of your revenue streams and cost centers, then applying strategies that enable them to work together to contribute to profit. Since profit equals revenue minus costs, the first step in working toward total profitability is gaining an understanding of both parts of this equation. To fully grasp total profitability at your hotel, you’ll need data about your guest personas, stay patterns, marketing channels, guest spend, acquisition costs, and operating costs. Technology is key here: your data likely lives in your PMS, channel manager, CRM system, accounting platform, and other tech tools. You may be able to compile reporting through these systems, or you might be able to feed data through an API into a business intelligence tool for further analysis. A revenue management system like Duetto does this heavy lifting for you, giving you a user-friendly dashboard where you can monitor revenue performance and trends so you can take quick action when necessary.

But, taking a step back, why does total profitability matter? If you’re selling high ADRs or getting good occupancy, isn’t that enough? In today’s market conditions, profitability is more important than ever. Many hotels are facing staff shortages, unpredictable demand, or rising costs. Owners and investors want to guarantee a return on their investments, meaning their hotels must profit, rather than focusing only on topline revenue. As Sabrina Jackson, Senior Director of Product Management at Duetto, says, “When analyzing hotel performance, Revenue Managers should think of themselves as Profit Managers. They are in a unique position to directly impact and attract high value, loyal customers and focus on net cash generated and return on investment (ROI).”

Managing all revenue streams and cost centers might sound overwhelming, but we can distill the most important activities into a few areas of focus. Here’s where to start:

• Manage all revenue streams: Rooms revenue is often your largest revenue stream, but F&B, parking, meetings, spa, retail, and golf will also offer opportunities to grow your topline revenue.
• Track and monitor total guest value: The first step, tracking guest value, is necessary to set benchmarks and understand your typical guest behavior by segment. Once you know how much revenue a guest brings in, and what costs they incur, you can more accurately forecast profitability from each segment. 
• Build a profit-focused distribution strategy: Knowing how much each channel costs, including commissions and fees, will inform how you want to leverage your distribution channels. You might also find opportunities to make channels more profitable by negotiating contracts, increasing rates, or running marketing campaigns that target higher-value guests.
• Build loyalty: It costs less to retain an existing guest than acquire a new one, so your operations strategy should prioritize delivering an excellent guest experience that encourages guests to stay with you again and again.
• Measure profitability metrics: Although RevPAR is the guiding metric in the hotel world, metrics like Total RevPAR (TRevPAR) or Net RevPAR, which factor in non-rooms revenue and costs, can give a more comprehensive picture of your bottom line.
• Foster collaboration between marketing and revenue: Combine these teams’ efforts to target your highest-value guests, improve efficiency, and decrease acquisition costs. Promotional offers or upsells can also increase spend on property, contributing to topline revenue growth.

We hinted at it earlier: RevPAR is not the most effective metric when you want to measure profitability and total guest value. RevPAR only considers rooms revenue, and it ignores costs completely. In addition to RevPAR, consider setting goals based on these alternative metrics:

• Total Revenue Per Available Room: TRevPAR includes all revenue generated on-property, including rooms, F&B, retail, spa, and more, but doesn’t consider costs.
• Net Revenue Per Available Room: Net RevPAR starts with your standard RevPAR calculation, but subtracts costs associated with distributing that room, including channel fees and commissions.
• Adjusted Revenue Per Available Room: ARPAR takes into account both revenue and operating costs per occupied room, which can help you determine pricing efficacy and operating efficiency.
• Gross Operating Profit Per Available Room: GOPPAR factors in costs per available room, and includes costs whether rooms are occupied or not.

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Netherlands-based hotel group Van der Valk generates over half their revenue from F&B and banquets, so taking a total profitability approach is the only way for their 60+ hotels to accurately measure and forecast revenue, costs, and profits. Van der Valk’s revenue team also focuses not only on selling rooms, but also cross-promoting F&B, and other opportunities for ancillary spend. As Gerk van der Poll, the group’s Commercial Director, explains, “We create a lot of packages to boost our revenues in F&B and banqueting designed around the four seasons of the year, as well as [packages] incorporating leisure activities inside and outside the hotel surrounds.”

Since Van der Valk Hotels uses Duetto, the group’s revenue team has access to features like segmented discounts and room type automation, which frees up time for them to brainstorm new ideas and share best practices internally. In addition, Van der Valk leverages Duetto’s integration with upsell platform Oaky to offer upgrade options to guests in pre-arrival emails. Oaky taps into Duetto’s pricing intelligence to offer tailored discounts that generate up to 45% higher guest spend per night. Tying it all together, Van der Valk’s guiding metric is Net TRevPar, which factors in all guest spend (not only rooms revenue) and subtracts costs like channel commissions and internal sales costs to calculate profitability per night. 

With over 170 hotels, Grupo Posadas is Mexico’s largest domestic hotel company, and the group’s revenue team is working to increase guest spend and topline revenue. Tobroaden the revenue team’s focus beyond rooms revenue, Erick Valdespino, Head of Revenue Strategy at Grupo Posadas, shares that “currently, we are working on a project where the revenue management team will be more involved in ancillary sales and upselling in order to improve other revenue lines for the properties.” In addition to using Duetto to power its pricing strategies, Grupo Posadas plans to automate the upsell and cross-selling process, since guests have the opportunity to book experiences like dinners, cabana rentals, and spa packages before arrival. With more attention paid to ancillary spend, the company plans to shift its main KPI from standard RevPAR to TRevPAR, which measures not only rooms revenue per night, but also revenue from other income streams, like F&B and spa.

Looking to run a more profitable hotel? Profitability is driven by higher revenue and lower costs, but regardless of which levers you pull, you’ll need to find the right metrics and tech solutions to measure your progress. A flexible, nuanced revenue management system like Duetto – together with an organization-wide focus on profitability and total guest value – can unlock opportunities to increase revenue and decrease costs.

This article was created collaboratively by HotelTechReport and Duetto