While last financial year showed strong figures for bookings, surprisingly on average the accommodation industry saw profitability decrease.
Higher commissions from online travel agents (OTAs) resulted in diminished returns to owners. Expedia raised Wotif’s commission from 12% to 15% in February, a move that was quickly followed by Agoda also hiking its rates. Hooroo, the Qantas Group’s accommodation website, increased its base commission from 10% to 13.2% from July 1. Booking.com has advised some hoteliers that it’s increasing commissions in certain major Australian markets, including Sydney, Melbourne and the Gold Coast, from 12% to 15%. While OTAs offer a number of advantages to hoteliers including a wide reach and large marketing budget, it is clear to see why OTA commissions are such a burden on your profit margin.
Cleaning costs also increased last financial year by 5% on average. This becomes particularly important when assessing your performance throughout the year. The increase surely had an apparent impact on your bottom line.
Another business expense hitting bottom lines last financial year was marketing. When done correctly, marketing efforts such as social media or paid ad campaigns can increase your reach and yield a generous return on investment. Businesses need to regularly assess their marketing efforts to ensure they are achieving value for the time and money spent. It’s very common for properties to run paid ad campaigns and spend hundreds of dollars on clicks, only to receive little exposure and few conversions. The goal is always to reach the most amount of relevant people with the least amount of time and money, then convert as many as possible into bookings.
There are certainly benefits to employing a professional marketer in-house for just a day or two each week. For a similar price to other D.I.Y. marketing methods, a professional will be able to get to know your business personally. This means they will be able to pinpoint the key benefits and advantages your business has over competitors, while also assessing the best channels and strategies for your marketing.
The start of a new financial year is the perfect time to assess what you’re charging compared to your competitors. This year’s decrease in profitability could be attributed to property managers not adjusting their rates during peak periods to maximise their earning potential. Always be sure to optimise your rates. In peak season make sure you price your rooms to suit the increased demand, while offering specials and discounts only when you expect low occupancy.
Quite often a flood of bookings in peak times arrive overnight whilst your office is closed. This leaves little time to adjust your rates as last minute bookings come in. Therefore it’s important to use comprehensive business tools that can adjust your pricing automatically, ensuring you earn the best rate based on availability at all times.
While vying for the same customers, don’t forget that your closest competitors are often also your closest neighbours. Talk to them! See if their service costs, such as cleaning, have also seen an increase to ensure your suppliers are giving you the best possible price. They might appreciate the additional insight from your end as well.
Many operators are now organising social events at each property on a monthly basis to discuss overall business conditions. Room pricing is almost always at the forefront and even though most agree they don’t charge enough, no one seems brave enough to lead the charge in changing the current pricing module. Perhaps the solution is known to all but undertaken by none. Therefore can anything really change unless someone is prepared to step up and be first?
In addition, with talk of another “group” forming in Queensland, independent operators may find themselves even more on the outer if they don’t start changing the way their business operates. It seems to have come full circle and if small independents want to continue, they need to work with other independents to remain viable. It’s the old adage of keeping your friends close and your enemies even closer.
With general operating expenses on the rise it’s no wonder that the returns for managers are less. Now is the optimal time to ensure that this trend toward lower profitability is reversed this financial year. Take a good look at where your business is spending money, and ensure that the return on investment is sufficient to warrant the outlay. Make sure your marketing efforts are producing the desired increase in your bottom line. Look at your pricing and make sure that increasing costs are covered; if this is not the case you will need to look at adjusting your tariffs. Look at alternatives which may allow you to increase your direct bookings and minimise the commissions outlaid to OTAs and the like. For the sake of your business, take advantage of the trend for increased bookings by maximising profitability across all areas of your business.
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