What really makes an accommodation business more profitable?

When we analyse the profitability of a property, we don't start with a ready-made answer. Sometimes we find a clear opportunity to generate more revenue. Other times the business needs to review its cost structure, invest in the product, change a piece of technology or reorganise part of the operation.

We may even conclude that an investment that seemed necessary isn't worth it.

These are very different decisions, but they all end up meeting in the same place: the bottom line.

That's why, when we talk about profitability, we're not just talking about Revenue Management or selling more rooms. We're talking about understanding where it's worth acting and what effect that decision can have on the business as a whole.

Which decision really makes this business more profitable?

Sometimes you really do need to sell more

A property carries a large share of its costs even if not a single guest checks in that night. Rent or financing, much of the team, certain utilities, technology, insurance, maintenance… they're all still there.

And the rooms we don't sell tonight can't be saved for tomorrow.

That's why selling matters. A lot.

In some businesses the first opportunity for improvement lies precisely in generating more demand, improving distribution, working Revenue better or selling the existing product differently.

And that can mean using channels with a higher acquisition cost.

A direct booking will usually cost something different from a booking that comes through an OTA. But if that channel is bringing in demand the property can't currently generate on its own, the comparison shouldn't simply be how much a direct booking costs versus an intermediated one.

The real alternative may be paying a commission or leaving the room empty.

In that context, the commission can make perfect economic sense.

With another property, one with a more established brand, its own ability to attract guests and enough demand, we might analyse exactly the same distribution and reach a different conclusion.

Our view of OTAs hasn't changed. The business in front of us has.

Other times you need to change what you're selling

We've also worked with properties where improving Revenue, distribution and sales could only go so far, because the product had reached its limit.

Then the conversation changes.

Does it make sense to refurbish? To create new categories? To change certain spaces? To add a service? To reposition the property?

A refurbishment has a cost and may also force us to close rooms for a while. But if it raises the value the market places on that product for years to come, it may be one of the most profitable decisions the business ever makes.

The question isn't just how much the refurbishment costs. We need to understand what we expect to change once it's done.

And when to do it. Closing a room during a period when it would probably sit empty doesn't cost the same as taking it out of inventory when we know we could sell it.

The investment is the same. Its economic impact isn't.

Cutting costs isn't always the answer either

When we talk about profitability, it's easy to look at the P&L and hunt for what we can cut.

And of course, some costs need reviewing. Inefficient processes, tools we no longer need, duplicated tasks or structures that no longer make sense.

But a cost isn't bad simply because it exists.

Cutting staff can improve one line of the P&L while hurting the service. Removing something that seems to cost too much can damage the guest experience. And always choosing the cheapest technology can end up creating hours of manual work that also cost money.

It works the other way round too. We may decide to bring in more expensive technology because it reduces booking errors, automates work or lets us run a much larger operation without growing the structure at the same pace.

So before asking "how much can we save?", we need to understand what that cost brings to the business and what would happen if we removed it.

Some profitability decisions don't look like commercial decisions

This is probably the part that interests us most.

Because many of the decisions that end up affecting profitability don't start in a conversation about revenue.

Choosing more expensive technology because it cuts booking errors by 50%. Automating a process someone has been doing by hand for years. Creating a new room category that captures a segment of demand that wasn't reaching you before. Reorganising part of the operation to handle more volume without adding staff. Deciding when to refurbish to minimise the impact on occupancy. Hiring someone for areas that are currently neglected. Eliminating a repetitive task. Adding a service the market values. Or deciding not to make an investment because the numbers say it doesn't pay off.

None of these decisions has to increase sales tomorrow.

But they can change how much it costs to run the business, how much value we can generate from the same asset, what price the product can hold, how much structure we need or how much capacity we have to grow.

And that's why we find it hard to talk about profitability from a single department.

Revenue can be working very well and yet there's a cost problem. We can have a fantastic product and a structure that doesn't make it viable. We can cut spending and damage exactly what allowed us to hold the price. Or we can increase revenue and find that the complexity we're adding is eating up much of the extra profit.

Decisions don't end where they're made.

You also need to know when not to do something

This may be one of the least visible decisions.

When an opportunity to improve a business comes up, we tend to think straight away about what we can do: refurbish, bring in technology, add services, change distribution, hire, automate...

But not every potential improvement justifies an investment.

If we add something to the product, we need to understand how much it can change its ability to generate revenue. If we implement a technology, what problem it will solve. If we add structure, what it will let us do that we can't do today.

And sometimes, after running the numbers, the best decision is not to do it.

Not because the idea is bad. Simply because the value we expect to generate doesn't justify the cost, risk or effort needed to achieve it.

That's managing profitability too.

So where is it worth acting?

We don't know until we've analysed the business.

It could be in Revenue, costs, product, distribution, operations, people, technology or an investment. And often it will be in several of them at once.

The point isn't to pull every possible lever. It's to identify which ones make sense for that business and understand how they affect each other.

That's why there's one question we keep coming back to when we analyse a property:

Which decision really makes this business more profitable?

Sometimes it will be generating more revenue from what we already have. Other times it will be investing to change the product's future potential, cutting a cost that doesn't add enough value, professionalising a process, changing a technology or reorganising an operation.

And other times it will be deciding that the best thing is to do none of that.