Motels

Motel occupancy vs tariff in the current market.

How can I make money when it is so quiet?

This question is on everyone’s mind at the moment regardless of the type of business they are in. It is really hard to decide which are the best options for your business when the turnover is decreasing and the bills are still at the same level. How do you make ends meet?

One very common reaction to this problem is for a motelier to say well in order to make more money I have to increase my occupancy. Surely if more rooms are sold then I will have more money, even if I decrease my rate a bit to get people in the door. It must be better to get $80 for my room than hold out for $95 and not sell it.

 WRONG THINKING !!!!!

When you are in a business you must look at the bottom line of the business. It is not what is being paid through the cash register that counts but what is left in the bank at the end of the year.  When you discount your rooms all your expenses must still be paid, rent, rates etc, so the only place for the discount to come from is the operators profit. You are  giving your money away. Look at the attached examples of the return you can expect from a motel with varying occupancy and tariff levels. I have just adjusted the variable costs by the same percentage as the occupancy varied. This is a very simplistic approach but it does illustrate the effects on the surplus which a variance in income and costs will produce.

Motel Income.

This cash surplus is obviously important but so too is the value image you are creating for your business. Why spend thousands of dollars on advertising promoting your property in the best light and saying how good it is and then undo all this great publicity by saying actually I have overpriced my rooms and so I will give them to you at a discounted rate. Immediately the value of your business has diminished. It is the old story good news spreads fast but bad news spreads faster. As soon as your “discounted” guests leave your motel they start to spread the demise of your business. They tell all their friends that you are desperate and will discount your rooms. It is now the public perception that your rooms are only worth the discounted rate.

What about the guest who doesn’t realize the rooms are discounted and thinks hey this is great value for money (obviously the rooms are really worth more than the price paid). This guest returns to your property only to get charged full price and becomes very disgruntled. It’s exactly the same room and now the price has gone up. They don’t think they had a bargain the first time but rather you have ripped them off the second time. More bad news spreading about your motel !!!

The secret to making ends meet in a  tuff financial time and retaining the basis for your business when times come right is to hold on to the value of your product. It is a common perception that guests choose a motel on price. Many surveys have been undertaken and have all shown this is a long way down the list of priorities. Most people will ask about price because they don’t realize what else they are looking for and price is a good starting point. Don’t tell them the price. Ask them what type of room they want. How many people there are etc. Get them talking and then say I think I have a room that would be just right for you come and have a look. GET THEM IN TO THE ROOM. Talk to them on the way and be nice to them. By doing this you have started to build a relationship with them and more often than not they will take the room. Often not even asking the price until they have signed the form. If they don’t take the room and carry on to inspect other properties at least they know what they will get for their money with you compared to the next motel and there is a chance they will return. If you were buying a vacumn cleaner how effective would it be just to get the prices and choose from this information alone. It would be impossible as it is with a motel so your job as an operator is to show them what they will get for their money at your place and convince them it is value.

The other option for enticing people in tough times is to offer value added incentives. Rather than giving a discount which has a flow on effect to the variable costs of the motel offer a free add on such as continental breakfasts, internet connections, late checkout, shuttle service etc. These are all feel good things for the guest but are less expensive for the operator. A continental breakfast may cost you $4 or $5 but the guest will perceive the value to be the full $12 cost of the breakfast. The most important fact though is that you have still retained the value of your room. When times get better you will not be fighting to get your tariff back to where it was before the decline but rather increasing it from its current level.

It is also difficult to maintain your price when you see Joe Blogs down the road advertising a discounted rate at his gate and the cars driving in to his motel whilst yours is no where near full. Just remember the damage he is doing to his business. The number of guests he will loose because they will become disgruntled and the struggle he will have to rebuild his business when things come right.  Worst of all though he is working far harder than you to produce a business which will have a lower return and be worth less than yours. This motel will only have a certain number of rooms say 15 so if all the other motels maintain their current prices he can only take a maximum of 15 guests. After that everyone else retains their fair share at the standard tariffs. Let this motel take the bargain hunters who tend to be problematic guests anyway.

It is a very hard thing to watch people walk out of reception when money is tight. Think of it in a different way and it makes it easier to cope with. Every person who leaves because they want a discounted room has in fact built your business value and reputation. Conversely every person who you allow to stay at a discounted rate you have paid at least the amount of discount from your own pocket and more in the diminishing value of your business. From a sale point of view in the examples given there is a possible difference of between $150 000 and $200 000 in the market value of the business. 

Why would you want to work harder, earn less and decrease the value of your business so a stranger can stay in your motel and save themselves money?

February 26 2009 | Articles for current moteliers and Changes in Motel Trends and Uncategorized | 17 Comments »