Your hotel might be leaking profits without you even realizing it. These profit leaks happen every day through high OTA commissions, ineffective marketing campaigns, and popular services with surprisingly low margins. How do you plug these leaks? You need a new strategy.
Here is Profit-Oriented Revenue Management (PORM), a framework designed to shift your focus from simply chasing revenue to actively driving profit. Before you can plug the leaks, you must find them. Spotting these hidden costs requires a powerful Hotel Business Intelligence (BI) tool. A BI platform unifies your data, revealing exactly where profits are draining away and empowering you to make strategic, data-driven decisions. PORM provides a holistic view of your hotel’s financial health by accounting for every cost associated with a booking.
Key Concepts: The Language of Profitability
Embracing PORM means you need to understand a few key metrics that go beyond RevPAR.
- Marginal Contribution: Marginal Contribution represents the additional profit you make from selling one more room, meal, or spa treatment after accounting for its direct variable costs3. Not all revenue is equal, and understanding the marginal contribution of each product or service allows your team to prioritize selling your most profitable offerings.
- Flow-Through: Flow-Through shows what percentage of new revenue is converted directly into profit. The goal is to ensure that as your revenue grows, a significant portion “flows through” to the bottom line. For example, increasing a room rate should have a flow-through of 90-100%, as there are few additional costs.
- Customer Acquisition Cost (CAC): Customer Acquisition Cost (CAC) is the total cost to acquire a customer, including sales and marketing expenses, commissions, and loyalty program costs. It’s widely accepted that CAC can be between 15% and 25% of your room revenue—a significant cost that you must manage.
- Cost of Goods Sold (COGS): Cost of Goods Sold (COGS) includes the direct costs of providing a product or service10. For a hotel room, COGS includes amenities, housekeeping, laundry, and the proportional cost of utilities.
A New P&L for a New Strategy
PORM proposes a small but powerful adjustment to the traditional Profit & Loss (P&L) statement. You subtract the Customer Acquisition Cost (CAC) from your Total Revenue to create a new, crucial profit level:
Net Revenue.
The change immediately highlights the cost of acquiring business and holds the commercial team accountable for generating profitable revenue, not just any revenue.
It Takes a Village: Roles & Responsibilities in PORM
Successful PORM implementation requires collaboration across the entire hotel. Every department has a role to play in maximizing profit.
The Commercial Team
The commercial team (Marketing, Sales, Revenue, Reservations) is responsible for optimizing the hotel’s total revenue mix to achieve the highest possible profit.
- Marketing attracts profitable guest segments to lower CAC.
- Sales negotiates contracts that prioritize high-margin services.
- Revenue Management sets pricing strategies based on the marginal profit of each room type, channel, and length of stay.
- Reservations have a prime opportunity to upsell and cross-sell profitable services directly to guests.
The Operations Team
The operations team (F&B, Events, Spa, Front Office) is responsible for managing the costs of delivering services. They must also educate the commercial team on the profitability of each product so they know what to promote and sell.
- The F&B Manager can use “menu engineering” to design menus that feature high-profit items.
- The M&E Manager can use dynamic pricing for event spaces and work with sales to create profitable packages.
- The Spa Manager can optimize therapist and treatment room utilization and promote the sale of retail products.
How to Get Started: A 3-Step Plan to Implement PORM
Shifting to a profit-oriented mindset is a strategic process. The whitepaper outlines three core steps to guide your implementation.
- Brainstorm & Plan: Identify all stakeholders who the shift to PORM will impact. Set clear, measurable objectives aligned with your hotel’s financial goals and develop a transition plan.
- Understand Your Cost Structure: A critical step is to analyze the CAC, COGS, and marginal profits for every single revenue stream, product, and service you offer.
- Allocate Profit Responsibilities: Assign ownership for each profit level in the P&L to the corresponding stakeholders28. Establish clear Key Performance Indicators (KPIs) to measure each team’s contribution to profitability.
By shifting the focus from simply generating revenue to actively managing for profit, your hotel can build a more resilient, sustainable, and successful business.
