There has never been a simpler model than extended-stay hotels that flies in the face of traditional hotel management. At the same time, the segment has the highest returns of any in our business if managed correctly.
All profits start with a solid sales effort that is structured to the goals and model that drives the extended-stay model. This fact is paramount to any successful operation and a topic that every owner must appreciate and embrace as the beginning to our desired end of superior profits. No level of operating skills will save you from sales that do not support the model.
The Fundamental Model
The fundamental of the extended-stay model tells us that the aim of our reservations and group-sales effort is to have a high level of occupancy based on customers staying multiple nights, in some cases for a week, a month and even longer. This leads us to the term “ESOCC” or extended-stay occupancy. Based on the hotel sales effort or revenue-management effort and understanding the full mix of reservation potentials, a hotel may set different ESOCC goals by season to drive the efficiency of long-term stay but not lose the compression of high average daily rates on shorter stays. The perfect balance of maximizing the house potential through tier pricing sets up operations to be efficient in planning all aspects of the operations strategy.
Comparative breakeven analysis thinking is key to making these decisions.
The concept sounds simple: Longer stays, fewer staff required for the payroll and lower overall costs equal higher profits. But a good extended-stay operator is savvy in detailing all costs—including payroll and operating costs—while providing the exact level of service mandated by the hotel brand, which can vary greatly depending on the brand.
We forecast needs and then apply strict rules of operations to purchasing based on cost per occupied room and cost of sales, departmental norms for operating and service delivery. And then, train the team to understand the norms, set expectations and measure constantly while always reforecasting to be prepared for the days, weeks and months ahead. Stick to the model.
I highlight the last sentence because an owner or management company must be involved on a daily basis to effectively manage to the profit goals. This person must be a loving trainer of the staff, a planner to assist property staff in their daily functions and an accountant to measure, measure and measure again, which keeps the extended-stay model on the tracks.
We employ a checkbook accounting system that tells the property general managers that, if they are over or under the forecasted budget, to set spending limits that correlate to the over or under revenue in a percentage format so that the spending is controlled. That goes for all variable costs such as payroll, supplies and hours in general for all departments. This is not a green light to overspend when business is over the forecasted budget but rather a control system to understand that higher occupancy requires more labor and more expenditures for other amenities offered. Again, plan, measure and hold the property accountable for following these simple guidelines. We also run variances report with each monthly profit-and-loss deck. Any sales- or cost-item over or under budget is listed and critiqued on either how to continue the savings or end a potential overspending.
The extended-stay segment is different from a strictly transient hotel. Operations must understand this and create the “residential” atmosphere we all talk about. That means extensive training on hospitality, problem-solving and making every guest feel that your hotel is their home away from home with people that care about meeting their specific needs.
About the Author
Douglas Artusio is chairman and CEO of Dellisart Hospitality and founder of the Extended Stay Lodging Association. ESLA is holding a workshop with Kalibri Labs, April 29-30 in Phoenix.
