Maximize profit by diversifying revenue streams in your hospitality business

  • 22/06/2021

Improve your bottom line and get an edge in the market against competitors

In the hospitality industry, for properties, the dominant revenue stream – if not the only one – has always been selling rooms. This is not going to change. There are, however, ways to diversify your revenue, boosting your bottom line and creating a more stable income.

It’s been a year since the hotel industry collapsed due to coronavirus and if there is anything hoteliers have learned in the last year it’s that having all your eggs in one basket is not always a safe and reliable business model. While the likelihood of anything similar to this happening again in our lifetimes is very low, it has highlighted the importance of not being complacent. Just because business seems good now, does not always mean it will stay that way.

We have seen hoteliers of all types adapt and change to the new unstable market and think outside the box to come up with creative strategies of generating more income streams just to survive. It may be time for you to rethink your business strategy and adopt some of these options, which we will explore in this article.

Know your market

Before racing full speed ahead and overhauling your entire business, it is vital that you answer a few basic questions so you are confident in knowing what will be most effective for you moving forward. This is the time to truly understand changing customer behaviors and preferences. Firstly, who have traditionally been your typical customers/guests and has this changed? You may think you already know but it is important to take into account the new COVID-conscious consumers. Likely there will be many more potential guests coming from closer to home rather than abroad. Locals will be more dominant than they have ever been. Is there a way for you to offer locals more services that they may potentially need?

Another thing that will determine what type of consumers you are targeting and what you can do to target them will be your location. Is it in a city or a beach? Winter destination or summer? Why do people typically travel to your area? This will greatly influence what will work for your property and what won’t and knowing these things will help predict more accurately how you can add value to your guests’ experience and what further services you can offer them.

Once you understand who your customers are and why they come to your destination in particular, make sure you are maximizing your occupancy rate before focusing on further income opportunities – remember selling beds/rooms will always be your dominant income stream.

Increase occupancy rate

Regardless of ancillary revenue streams, it is a good idea to make sure you are doing everything you can to maximize your occupancy rate before exploring other avenues.

One of the best ways to do this, is to appeal to more types of customers. More and more people are working from home and according to a survey from Accenture, 79% of people have said they are looking to work from a ‘third space’. This gives properties a great opportunity to capitalise on this need by advertising office spaces for a ‘day rate’ when you have free rooms. Of course, this will require a good desk/workspace and a fast internet connection will be a must but it can also cater to business travellers and remote workers at the same time.

Some other markets you can cater to are family travellers, by offering highchairs & baby cots – if you don’t already – and allowing children under 5 years to stay for free. You can check your settings in OTA’s to change your policies around children to be more family-friendly.

Lastly, make sure all of your OTA listings are up to date, with new or recent photos, all facilities on offer listed and check that your descriptions are clear and accurate. Many properties don’t realise how vital the photos and facilities are to potential customers when making a decision on where to stay, so make sure everyone is seeing the best of what you have to offer.

Once you are confident you are getting the most ‘head in beds’ as possible, now it’s time to take advantage of other opportunities and diversify your revenue streams.

Ways to maximize profitability

Host activities/entertainment events:

Offering activities/events, not just to paying guests, but to anyone who wants to join is a great opportunity. Many people have been stuck indoors for the better part of a year so allowing locals to participate in these activities may be a great opportunity. Tours have always been the traditional activity to offer and you can even find some local tour companies in your area and partner with them in a mutually beneficial agreement where you advertise their tours and get a percentage of the sale.

Now that everyone has been forced into lockdown, most people are simply craving any sort of socialisation so you can also offer dinner nights, movie nights, game nights or even an organised picnic in a local park with a small participation fee. Many hostel style accommodations are already set up with a ‘common room’ where you can hold these events. Posting notices around your local area and inviting friends and locals and encouraging them to bring their friends is a good way to get the word out there. Allowing non-guests into these events is also a great way to maintain the ‘atmosphere’ of your property when faced with possible low occupancy.

Make sure to provide something of value – remember people are paying to be there – and try to keep the fee as low as possible while still making a profit. If it’s a movie night, game night or a get-together in a local park, provide some food and drinks. You can also set up some games or activities for everyone to participate in. Teaming up with local performers, musicians or entertainers is a great way to create a worthwhile event that customers will be excited to come back to next time.

The activities that you are able to offer people will be dependent upon the local laws and regulations in your area, so make sure you research well beforehand and follow any social-distancing measures and restrictions on the amount of people allowed at gatherings in private and public areas.

Extra services:

Most hospitality businesses are likely already set up with some facilities that you can offer to the wider public rather than just paying guests. Things such as; professional laundry services, pool & spa access, restaurant/bar delivery, private transfers, tours, luggage storage etc. When faced with possible low occupancy at your property, offering these services to the public can help generate a small amount of extra income.

If you have a pool, there are doubtless many locals and even people staying at other properties without a pool that are more than willing to pay a fee to use the pool on a hot summer day. Offering professional laundry services to customers at the door is a great way to use large industrial washing machines sitting idle. If you have a restaurant, team up with local food delivery companies to sell your menu to customers from the comfort of their own home or office.

The great thing about this option is that it requires minimal to no extra work to implement as you are utilizing facilities that are already available, all it will take is a small amount of marketing to make people aware of what’s on offer.

Upsell extras:

Have some basic items available for sale in the lobby or at reception for guests to purchase. Teaming up with independent local producers/artists to sell their products will bring your guests an authentic home-made item from your area.

Typical basic grocery items such as; bread, milk, drinks, coffee, tea and ready to eat snacks are a good place to start. You can take this one step further by having some grocery items that are specific to your area. Being an Australian, I know tim-tams and vegemite are good choices and having travelled extensively for years some other specialty items could be ajvar & rakia in the Balkans, stroopwafels in The Netherlands, halva in Turkey and Greece etc. Offering these items to foreigners is a great way to enrich their experience while visiting your area and create a fun and welcoming environment.

Offer a few useful non-food items as well such as; earplugs, phone chargers, toiletries kits, single-use raincoats, masks, hand sanitizers etc. Depending on your location you can consider more area specific items such as sunscreen, beach towels, hiking gear, ski gear and souvenirs.

In all cases above, especially when trying to bring specific products from your local area, teaming up with independent home-made producers and artisans to sell their products will bring your guest a good quality authentic product they will want to buy while also supporting local businesses.

New spaces:

There are many spaces that are underused and transforming them to serve a new or dual purpose is another way to boost your bottom line. Larger rooms that are left empty could be good for conference halls or meeting rooms to be rented by the hour, outdoor areas may be well-suited for hosting markets and other events. Local independent fitness instructors may be looking for a space to rent out to hold classes. Maybe you have ‘storage areas’ that aren’t being used and can be reinvented for a new purpose.

Think of the spaces you are working with and be creative when coming up with possible uses for them. If done right, you can serve the needs of your customer while also crafting a more profitable business model.

Go forth and profit

The suggestions above are just a small portion of what’s available when trying to make extra income. There are countless creative and innovative solutions out there. Thinking outside the box and doing thorough research and planning before deciding on one or more possible routes will be the key to success.

Above all, make sure you are bringing something of value to your customers while maintaining or improving your current standards of business. You can increase your bottom line and offer a unique and enriching experience to your guests all at the same time.

Sources: Accenture

Author: Emma Flynn