Revenue leakage occurs when it becomes more expensive to operate a hotel than the revenue generated by its services and amenities. If this happens, hotels need to take the necessary steps to stop the problem before they go out of business.
Fortunately, there are ways to detect and prevent revenue leakage in your hotel to ensure that you stay in business and keep making money even if you have no budget at all.
Throughout this blog post, you will learn complete information on revenue leakage in the hospitality industry. From meaning to fixing the issues, everything is mentioned below. You just have to scroll down and check them with concentration.
What is Revenue Leakage in Hotel Industry?
In simple words, revenue leakage happens when revenue is accrued but not realized in the financial books due to many reasons. Both internal and external factors might cause revenue leakage.
It’s a serious problem in the hotel industry that can be difficult to identify, especially if you’re operating as an independent operator. It might include when guests utilize hotel services without paying for them – for example, ordering food but declining to pay at checkout or consuming alcohol without purchasing it.
Revenue leakage also includes free services that guests may receive such as parking or Wi-Fi. The hotel might even provide amenities during their stay that they weren’t aware of and don’t intend on paying for, such as towels or soap.
Causes of Revenue Leakage and Its Prevention
Here are some examples of revenue leakage in hotels along with strategies on how to prevent it from occurring again in your establishment.
Costs on OTAs
Online Travel Agents (OTAs) have done significant damage to hoteliers in recent years. These services enable homeowners or renters to offer their property for vacation accommodations on a day-to-day basis.
Most individuals consider these services more convenient than traveling to a hotel because travelers can stay in neighborhoods that are unknown but might be more welcoming and less expensive.
Furthermore, these providers often charge less than hotel chains do. Their prices reflect the fact that they don’t provide some things (such as food) which you would get with a traditional hotel booking.
Hotel Room Inventory
Most inventory leakers are easy to spot. These are the expenses that seem like they should be included in a department’s operating expenses but they’re not, such as cash paid tips or gratuities or room taxes not charged.
What do these items have in common? They’re all expense categories a hotel charges its guests but doesn’t record on its own balance sheet. Make sure you know your hotel’s true occupancy rate so you can better forecast your revenues by identifying leakages early on.
Don’t ignore this problem because it’s extremely hard to fix once it becomes a chronic issue. Conduct regular audits of your revenue cycle and keep an eye out for trends; this will help identify leaks faster than if you only look at financial statements periodically.
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A common occurrence with hotel guests is cancelling reservations at the last minute. There are a few ways that hotels try to prevent this from happening, such as adding fees or penalties, but those may discourage guests who would otherwise have booked.
Instead, use software that automatically reminds customers of upcoming bookings if they haven’t completed payment. The more warnings you give them before your cancellation window opens, the more likely they’ll be able to take care of it in time.
Pricing disparity is when the same room of same hotel is booked at different prices across OTA websites. It’s important for hoteliers to look beyond merely fixing pricing disparities to fix leakages in revenue at their hotel.
Besides this, overpricing rooms has long been a revenue leakage issue for hotels. This is when different classes of guests are charged different rates for the same room. There are two pricing disparities commonly found at hotels today – prices for booking on a hotel’s own website, versus prices through third-party sites and rooms with prices higher than national or corporate sponsored rooms.
When these discrepancies are left unattended, some of your best guests might seek their lodging elsewhere. To fix this issue you must negotiate with your OTA that are undercutting your prices to bait guests.
Waste of Energy/ Power
If you’re getting high energy bills, you need to emphasize reducing the power cost in your hotel otherwise your revenue will continue to leak. One way that hotels can use energy more efficiently is by using occupancy sensors. These sensors provide detailed data about how much power each room uses, which enables hotel management to change their habits, modify programs and promote conservation.
These sensors automatically turn off the devices when space is unoccupied. And, they also provide instant access to real-time information which results in energy saving for the hotel.
One big expense for hotels is food. When prepared on a large scale, chances are high that most of the prepared food is going to waste. And, this results in your top and bottom line.
Additionally, lots of fruits, raw vegetables, packed groceries are also wasted in big hotels, which is a concern and needs to be fixed anyhow. And, this is not an issue that needs rocket science to be fixed. It can easily be solved with proper management.
Cost of Manpower
It’s estimated that 15% of all revenue leakage can be attributed to human error. In a hospitality industry where margins are typically slim, reducing workforce costs is more difficult than for other industries because you always look to provide quality service to your guests and quality service always costs high.
However, as hospitality becomes increasingly digitized, reducing cost of manpower is becoming easy too. With the hospitality industry adopting the new automation technology, many tasks are helping hoteliers to cut the operational cost and reduce the revenue leakage.
While marketing can be a powerful tool for generating revenue, it also comes with significant costs. Depending on the amount of marketing you want to do and how often, those costs can add up quickly.
To avoid wasting precious resources, review your marketing efforts regularly and figure out what is working and what isn’t.
If a campaign isn’t generating enough revenue or converting prospects into guests, then it should either be cut or redesigned before more money is sunk into it.
With proper planning, you can develop effective campaigns that are affordable and sustainable over time.
Pro Tip: Instead of using traditional medium of marketing, try digital marketing for your hotel as it can bring in more results in very less money and you have most of the factors in control such as targeting, optimization, scaling and many more.
There is a strong possibility that your hotel might have some other cause for revenue leakage. All you need to do is just find out the cause and look for the fixes that will work.
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Great fortune ahead!