Inn Consultants and Brokers Since 1993

Rick Wolf and Peter Scherman (that’s Rick on the left and Peter on the right) are both experienced speakers who have presented on a range of innkeeping related topics at the state, regional, and national level. They gather and analyze research for the Innkeeping industry and welcome the opportunity to share it with others. Contact Us

The B&B Team

Posts Tagged ‘living social’

Is Living Social or Groupon Confusing Your Performance Indicators?

July 27th, 2011 by Scott Bushnell

Countless inns are participating in the Living Social and Groupon craze (not sure if I should use the word “fad” there, which implies a short-term shelf life) and, as seen in previous postings from Janet and me, there are a number of “rules of thumb” that can make participation worthwhile.

One thing that is happening, however, is the monstrous effects it has on Occupancy and Average Daily Rate (ADR) calculations…typical discussion mileposts among innkeepers concerning the strength of their businesses.  The voucher bookings send occupancy soaring but the revenue margin on each voucher is miniscule compared to the “normal” operating rates.  Consider this example from this 10 room inn in Pennsylvania:

2010 revenues were about $156,000 and occupancy was 31.7%.  They sold 1156 rooms in 2010 giving them an annual ADR of $135.  Like many inns, they are seasonally slow in January-May and participated in a coupon drop with a net income per coupon (after discount to purchaser and the company) of $47.25.  They sold 413 coupons for a windfall check of almost $20,000…nice bucks in the slow season.

Using their 2010 performance, with these additional 413 room-nights sold, their occupancy for the year LEAPED from 31.7% to 43%!  But because their revenue for the additional 413 rooms was so low, their ADR fell from $135 to $112.

With these indicators was the coupon drop worth it?

Don’t know yet.  The hotels have been using RevPar as their measuring indicator forever.  RevPar is the Revenue per Available Room and is calculated by dividing the total room revenue by the number of rooms in the facility times 365 (days per year).  This combines the Occupancy level and the ADR into one number and makes comparisons so much simpler.

In our guinea pig inn above, the RevPar for 2010 prior to the coupon drop impact was $42.76.  With the addition of 413 room nights at $47.25 each, RevPar increased to $48.10.  This makes an easy correlation when comparing performance indicators from year to year or from inn to inn.

So was the coupon drop worth it?

Some of you just now said, Yes!   (I heard you!) but I am not sure you are right.  RevPar does NOT take into account your expenses and the ultimate impact on Net Operating Income…the REAL driver of the strength of your business.  If the inn’s expenses for the coupon drop are above $47.25 (the revenue received for each one) …their NOI dropped unfavorably.  And, as you have seen in previous postings, an inn’s variable costs (for housekeeping labor, those little soaps, laundry, breakfast, etc.) can easily be $30 or more.

RevPar needs to become the measurement of choice in the B&B industry to replace Occupancy and ADR.  It’ll take a generation or two to evolve, but with the current discounting crazes that will, most likely, become routine marketing tools (thus throwing the traditional indicators into a roller-coaster tizzy), RevPar is the only one that makes sense when comparing performance from year to year or from inn to inn.      Scott

Living Social Interview II

June 29th, 2011 by Janet Wolf

The Lakehouse Inn & Winery

The Lakehouse Inn & Winery

The Lakehouse Inn & Winery in Geneva-on-the-Lake, Ohio is the subject of our second interview with innkeepers who have used Living Social or another of the social commerce sites available. The opportunity for innkeepers to take advantage of these sites to pump up the volume of their business in the off seasons have become more and more prevalent. Is it here to stay? That will depend on the public and the experiences they receive. Let’s hear what innkeeper Andrea Bushweiller has to say about her experience and her guest’s comments on their experience.
Q What was your motivation for using Living Social?
I first heard about Living Social at the PAII conference in January and after speaking with a representative from the company decided it would be a good way to generate business mid-week during the winter months when business is usually very slow.  I also thought it would be a great way to reach consumers that did not know about our facility and the extra business would keep my staff busy.
Q What did your package include?
The package includes 2 nights lodging in a traditional B&B room or cottage (Sunday-Thursday), a full breakfast each morning, 2 wine tasting trays, a bottle of Lakehouse Inn wine and 2 souvenir wine glasses.
Q What kind of feedback have you gotten from the participating guests?
Overall, the guest comments were positive-many of them had never been to our area or our Inn before and many said they would return again.  Some people were disappointed that there was not a lot to do in the area (it was the off season) and many complained about the weather (nothing I could do about that!).  Also, many people did not read the restrictions before they purchased it so we had to spend time explaining to guests that it was only valid in the winter and why they could not use it during the summer.
Q Would you do it again?
Yes, I would do another Living Social for a similar time period (mid-week during the winter months)
Q What advice would you want to pass on to innkeepers who are considering putting a package on a social commerce site?
1.) Be prepared for your phone to ring like crazy the first 48 hours.  Even though we were told to be prepared we were not ready for the 100+ phone calls we received each of those days.
2.) We had to extend the dates of our offer. All of the dates for the last month (May) booked up in the first few weeks.  We then had numerous guests call us in mid-April/May wanting to make reservations and we no longer had dates available so we had to extend the offer for the end of October-mid-December.
3.) If you are going to offer a deal from Living social or a similar site think carefully before you choose the dates that you want to the package to be valid for and only offer dates that would normally be empty.
Thank you Andrea.
For more information on the subject PAII CEO Jay Karen has recorded a video entitled “Social Buying: Craze or Just Crazy?,” which is one of PAII’s webinars available to members. He has teamed up with innkeepers like Andrea who have used social buying. They discuss everything from the successes to the challenges. Worth looking into? Any information available to help innkeepers attain a higher degree of marketing success is definitely worth looking into. The video is available for purchase or free depending on your membership level.  Also check out the PAII Forum for the occasional thread on innkeeper’s experiences and questions concerning social commerce.
One of the best and most informative blogs on social buying was written by The B&B Team affiliate and braniac Scott Bushnell. If you haven’t read this already, read it and read it again! What’s all this Stuff about Living Social and Groupon? Among other information Scott explains the financial process innkeepers should consider to help them understand the variable costs involved when creating a package. This information is most valuable. We believe that before you proceed with social buying as a provider the more research and preparation you do, the more successful you will be.
Janet Wolf

What’s All this Stuff about Living Social and Groupon?

April 28th, 2011 by Scott Bushnell

A little more info to add to Jan’s post of April 6th.

It used to be the mantra in the B&B industry to NEVER discount your rooms.  You cheapen your image and could set lower price expectations for the traveling public for their next trip to your inn.  Well William Shatner in his TV ads and a multitude of Price Lowering websites and alternatives have already changed those expectations…so get over it.

Here are a few Mid-Atlantic stories that counter the old school discounting taboo:

A Full Service Inn in New Jersey, through Living Social Escapes, sold 225 vouchers offering two options to purchasers…a one night stay (voucher price $230) or two night stay ($380)including dinner, breakfast, champagne, chocolates, 2 martinis at the bar and 2 tickets to a regional attraction.

Another upscale B&B in Maryland sold 86 coupons through Groupon for one night, flowers and chocolates for a voucher price of $155, and a larger inn in Maryland, using Living Social Escapes,  is offering two nights, wine and chocolates for $157 (weekends) and $117 (weekdays) and sold 632 at last count.  They make their money on upselling spa services and gift baskets with each voucher at a 20% discount from usual pricing.

A fourth, very upscale inn in Baltimore sold 550 Groupons at $99 for a room with a value up to $250!

The two largest companies, Living Social and Groupon, offer coupons to their memberships at deep discounts…often 50% or more.  They do mass marketing through their email membership databases usually targeted in a particular region or city.  Retailers and service providers have seen phenomenal traffic from the vouchers sold to these members.

Living Social has an “Escapes” section on their site specifically attractive to their travel membership.  Often, this is the section in which an inn can participate.

Here’s the general process:  A retail or service provider signs a deal with the service for a particular product or service having an identified value.  A discount to the purchaser is provided (50% off is usually the minimum…but negotiable with the company), and the coupon “drop” is targeted for a specific market.  The company sells the voucher, subtracts a commission (often 30%+ depending on the voucher price), and sends a net proceeds check each month to compensate the business.

Sound scary to try it?  Here are a few VERY IMPORTANT considerations when planning such a coupon drop:

  • Understand your variable costs.  Your fixed costs are those bills that you have to pay anyway…whether there is a guest in the house or not…such as the electric, real estate taxes, insurances and cable TV bills.  Variable costs are the extra costs when you have a guest, including:
    –  Food costs (take your annual food costs and divide by the number of room-nights sold…should be about $8 or $9).
    –  Laundry (use about $4 per room)
    –  Room amenities (shampoos, soaps, munchies, etc….perhaps $3?)
    –  Housekeeping labor and the withholding associated with wages (probably in the $10-$12 range)
    –  We won’t count the little bit of extra utilities a guest will use.
    –  Add a buck or two for the office supplies (confirmation letters, postage), wear and tear on the linens, etc.

This Variable Cost adds up to about $25-$30 for the first room-night…about $15 more for a second night’s stay.

  • Take the rack rates for the rooms you wish to dedicate to this effort…say it’s $160.  Divide that by two to figure in the 50% discount to the purchaser.  That leaves $80 price for the voucher in our example.
  • You can expect to pay at least 30% commission to the company.  They will also, most likely, charge you the credit card fee they have to pay (let’s say 2.5%).  That leaves $54 which is sent to you for each voucher sold.

    Then compare the proceeds you will receive with the Variable Costs you will incur…Worth it?

That is why inns are upselling other packages and services with their offer.  It increases the value of the voucher and ultimately the check received at a rate greater than the costs associated with the package.  But you must understand your costs.

On the good side of such an effort:

  • You can dedicate a time frame within which the voucher must be used.  Aim those dates to the holes in your schedules including the slow season and mid-week.  Stay away from the weekends and busy season when you will sell your rooms at your usual rates anyway.  You can put those restrictions on the voucher.
  • You can limit how many you sell so that you don’t have the risk of overselling for the time frame and angering guests.
  • Experience is showing a large number of younger couples taking advantage of the deals.  This is the NEXT generation of inn visitor…a valuable asset to the industry.
  • You will build your database with email addresses for future marketing efforts.
  • You can “hook ’em” with your hospitality so that they become repeat guests.
  • It seems about 20% of the vouchers will never be redeemed.  This is free income to you, but don’t budget it.

A few watch-outs from those who have used these programs:

  • The demographics of the visitors may not be your what you are used to.  They can be “cheapskates” (as one innkeeper put it), asking for other discounts and taking advantage of the free goodies you have around the inn.
  • “Sit by the phone” when the coupon drops…you will be swamped all at once.  One inn had a list of 60 callback names and numbers to get back to because the calls came in like a tsunami.
  • You will get calls from people trying to buy the deal after the vouchers sell out.  They saw it online and feel they have the right to book it directly with you.
  • The voucher holders tend to book early (as soon as they buy it) or late (just before they expire).  Be prepared with rooms for the procrastinators.

For those start-up inns or inns with very slow months of the year…I think it’s a valuable tool for cash flow.  Any other inns out there doing it?  Would love to hear your comments.    Scott

Living Social Tips from Innkeepers

April 6th, 2011 by Janet Wolf

ShoppersAttention shoppers…group buying marketing companies have hit the air waves. In radio days the airwaves were the frequency that transmitted the signals that carried information to the world. We all know what claims the airwaves today, social media.  And the latest addition to the social media tool box is…

If you haven’t heard, Living Social along with Groupon are the front runners when it comes to social commerce. These two companies have attracted the largest audience of consumers.  Since the introduction of Living Social Escapes (many of us were first introduced at the Charleston PAII Conference) there have been a number of innkeepers that have taken advantage of this form of ‘social shopping’.  This is a new way to attract buyers to your brand. Increased exposure, isn’t that what we all need?

I recently interviewed Janel Martin, Innkeeper/Chef (extraordinaire) of The Wakefield Inn in New Hampshire about her experience with Living Social Escapes.

Chef Martin in The Wakefield Inn Kitchen

Q.  What was your motivation for using this social media tool?

A.  Marketing exposure. In the past I tried all the conventional advertising media and spent lots of money with no results. It has been a struggle to get my name, brand out there. I got instant and phenomenal exposure with my package posting. It went viral instantly.

Q.  What did your package include?

A.  I tell myself all the time, sell what you know and what you know will sell. I do cooking classes that are hands on; I love to get the guests involved. So my package includes a cooking class, a massage and a Deneen mug to take home, and the room of course. Oh yes, I believe it is important that the guest take home something with the Inn’s logo to remind them of the great time they had, so don’t forget to pre order the mugs, I ran out!

 Q.  What kind of feedback have you gotten from the participating guests?

A.  They all leave saying they can’t wait to tell their friends about the experience. I got at least 20 new reviews on Trip Advisor from these guests. Also there were at least 100 people that contacted me saying they missed the deadline and was I going to post one again. These are new people that are now in my database. Many of the people are from as far away as Montreal.

Q.  Would you do it again?

A.  Definitely!

Q.  What advice would you want to pass on to innkeepers who are considering putting a special on a social commerce site?

A.  If I was to do it again I would be more specific and firm about the rooms I offer and the dates. It would be for mid-week only and for a shorter period of time. You must structure your package very carefully and be very detailed about what you offer.

                Thanks Janel.

A point that Janel wanted to empathize is that you can do all the number crunching to see if your package will be profitable and that is important but her real motivation was the increased marketing exposure. This is what we at The B&B Team also believe is a prime reason to use any social media tool.  Marketing 101: Draw customers to your sell!  Your package is your invitation to customers to experience what you have to offer and it must be worth their while. If the growing number of customers using social commerce see your ‘escape’ and think it is worth their while than you have a new customer X 100, 200, 300, 400! Is it worth your while too?  Hope this helps you decide one way or the other.

This will a part of a series of interviews I will have with innkeepers that have participated in Living Social. Stay tuned.

Janet Wolf