When it comes to the “most important room” in the hotel – you may think of a certain VIP guest, penthouse suite, or the final room of a perfect sell-out, but for many branded hotels with performance based reimbursement thresholds, the most important room of the night can often be that last room that pushes you over your full ADR reimbursement threshold.
For those that don’t follow, most of the major brands (think IHG, Hilton, and Marriott) offer an additional revenue reimbursement for high-occupancy nights to help offset the missed revenue opportunity caused by in-house points / rewards stays. Many times it is based on an occupancy threshold. For example, one major brand requires hotels to hit 96% occupancy; if the hotel hits this mark or better, all points/rewards stays will be reimbursed at 90% of the property’s non-rewards ADR. For hotels that have a strong rewards/redemptions contribution, this means that the difference between hitting 95% and 96% can often be thousands of dollars in room revenue, even on a single night.
Here’s a great example of a property that we work with that had a high-stakes night and managed to hit their threshold, but we were still curious to know: What would the downside have been had we not hit our occupancy threshold?
The Set-up:
This 91 room property started the day with 82 rooms, or 90% occupancy. We priced this particular Saturday night at BAR rate of $279 (compset average rate was at $278), and rather than continue to push our BAR rate and risk encountering rate resistance and missing the 96% occupancy threshold, we decided to stay put at a rate that we knew would make hitting 96% occupancy and also the perfect sell-out much more likely.
What made this particular night “high stakes” from a redemption revenue perspective was the amount of points stays on the books. In this instance it was 16 rooms, or almost 20% of our booked market mix. This made the benefit of simply getting to the 96% threshold much, much more important from a topline revenue perspective than selling an additional 3 or 4 rooms at a $20 or $30 rate premium.
Using Spider’s ‘Market Segments’ tab within the Day by Day module to identify the large amount of rewards room nights on the books, and therefore potential reimbursement opportunity.
Check out this graphic below that emphasizes what was at stake regarding hitting 96% occupancy, or missing that threshold by 1 room:
In scenario 1 above (real outcome), we were less restrictive regarding who we sold to for those last few rooms, but ultimately hit our reimbursement threshold. In scenario #2 (hypothetical), we managed to sell a few rooms at a much higher BAR, but were unable to hit the reimbursement threshold. In this case we managed to grow our Non-rewards ADR, but it was ultimately not the optimal outcome.
Notice that the difference in reimbursement revenue is a whopping $1002.61 for simply selling that 1 incremental room (in this case selling an 88th room). Thankfully at this property we hit the 96% threshold and were able to execute and gain that strong additional revenue boost, but this highlights why it is important for the revenue management team to always look bigger-picture and understand the reimbursement structure for each brand. There are instances in which, when it comes to selling the last few rooms, you may not actually need to be as concerned with channel optimization so much as just hitting the reimbursement mark. As an added bonus check out the great STR results we were able to get over this weekend because we recognized that more was at play than just our BAR rate!
Be sure to reach out if you need help maximizing your near sell-out nights at your hotel!
