1/ Since #RETwit has been abuzz w/ Cost Segmentation, I thought I’d talk about Revenue Segmentation in hotels... exciting, right? I’ll tie into acquisition underwriting at the end. MONSTER THREAD AHEAD!
Hotels segment rooms revenues by type of reservation.

2/ The “top level” segments are Transient, Group, and Contract - everybody uses these. The subcategories of these are generally similar, but every brand / operator I’ve come across uses slightly different language.

3/ Transient is generally thought of as reservations for individual travel, but can include groups of up to 10 individual reservations so long as the group isn’t associated w/ any event at the prop. Think: you & your fam going on vacay, or you on a biz trip to tour a market.

4/ Group is blocks of reservations of 10+ &/or blocks associated w/ events on prop. Must be a set period of time (e.g the 10th to 13th), not rolling, & w/ each res for a named person. Wedding room block, corp conference, etc.

5/ Contract is a long-term block of rooms w/ a rotating set of guests. Textbook example is airline contract - e.g. 10 rooms / night from April - October, to be filled by flight crew.

6/ W/in each segment, there are sub-categories and sub-sub-categories... Each of these categories is named and defined slightly differently by each company, but here are what you should look for.

7/ to general public, generally split b/t direct and 3rd party - read: OTA), Discount (advance purchases, packages, promotions, discounts, opaque), Negotiated (consortia, local & nat’l negotiated), Qualified (AAA, AARP, Gov’t), and Wholesale (individual tour package)

8/ Here, I focus (in the upper upscale & luxury space) on: direct bookings - how to increase; OTA - how to decrease; discount - focus on value add package (e.g. breakfast included) rather than rate diminishing discounts; corp negotiated of all stripes.

9/ In Group, look for: Corporate (may or may not include entertainment & sports), Association / Convention (think: AMA convention), Government, Tour Groups, and SMERF (social, military, educational, religious, fraternal)

10/ Here, I focus (again, UUS & Lux) on facility / location alignment... certain hotels are better equipped for corporate small group (e.g. board meetings, brainstorming sessions, depositions, etc.), others for social (ballroom w/ “green room” for bride/groom adjacent), etc.

11/ Group is much longer lead time and more sales intensive, but gives you a sure fire base of business upon which to drive transient revenues (if you have 100 rooms already booked, you can push rate on your remaining 100 b/c you need fewer price elastic guests).

12/ Segments align with reservations delivery channels (web direct, OTA, call center, GDS, etc.), and a sales / revenue mgmt strategy that shifts from high cost segments to low cost segments can be highly profitable.
Ok - so how does this matter in the acquisition process?

13/ When you’re buying for any reason other than stable, in place cash flows, you need an operationally strong business plan.

14/ Raising revenues will be part of that plan, but unless you can articulate specific strategies for specific - profitable - types of business you’ll have trouble convincing investors / lenders you’re able to meet your numbers. This gets to the operational nature of hotel RE.

15/ Either you - or a partner / management co - need to be operationally literate to succeed in hotel investment!
What are some examples?

16/ You might, as part of your business plan, aim to shift business from OTA to direct web by changing brands to one with a stronger reservation system.

17/ You also might plan a focus on local corporate negotiated rates by adding an on-property sales person whose focus is local relationships.

18/ If you see short booking windows that make forecasting and driving revenue difficult, you may decide to offer more discounts for non-refundable Advance Purchase to build your base of business. Ideally each of your strategies is clear, documented, and measurable.