Analyse & optimise your hotel's software contracts to reduce costsJune 9th, 2020 - Thibault Gence
Dramatic events call for dramatic changes and it is safe to say our industry will never forget the unprecedented harm COVID has caused to all its stakeholders: hotels (big and small), online travel agents, technology vendors, and especially PEOPLE. But the point of this piece is not to ramble on all the bad things this crisis has done but to share some tips on what you can do as an independent hotelier, chain operator or management company do align the stars between your hotel(s) technology needs and your budgets during this low demand period.
Many will argue, and they are right, that now is the best time to finally go through your business’ digital transformation by adopting new tools to enable your operations to be more fluid on one side and to modernize your guest experience on the other. Nevertheless, technology for the sake of it has never proven to be successful and it is crucial to prioritize what you will tackle first. Before going on the hunt for new solutions, here’s a small guide to help you assess where you stand with your different suppliers and what you can do to optimize your spendings, subscriptions, and partner relationships.
Lay down the groundwork
Start by listing all your different tools & services, that they be your revenue management system or your online marketing agency. Of course, you must have the original contracts for each of them to conduct this exercise thoroughly. Pursue by identifying the cost of each app, which team members utilize it, and have a chat with them to understand their perceived value.
Technology only acts as an enabler for your business and as you focus on “business as usual”, you tend to forget how many different systems you have implemented and what you are actually paying for each of them so it is important to identify Stars & Dogs as you would in a restaurant menu engineering principles framework.
Once you have mapped out all your hotel’s technology providers, it’s time to evaluate your relationship status’ to know where flexibility lies. For each one of them, read through the contract and find out:
- The business owner (who in your team is accountable)
- Start date
- End date
- Renewal date
- Cancellation policy (number of days before the contract end date to qualify for cancellation. This can go up to 6 months depending on the provider)
- Automatic renewals terms & period
- Cancellation method (through the app, by email or official written mail)
Time to dive in
Now you have all the information you need to start reviewing the business criticality of your tools as well as their respective subscription plans. Before taking harsh decisions, there might be space for reducing your current costs by reevaluating, for instance, how many people need it or what support package is adapted to your requirements. Maybe some of your tools don’t require 24/7 support as they’re not critical to the business or perhaps not all team members need access to the tool and someone can export reports for them when needed.
With each system’s business owner, discuss how you can optimize each license or subscription, based on the available pricing plans and your current setup:
- Is the pricing per seat (user)/month? Then look if you’ve removed all departed team members or if everyone really needs full access (tools like staff collaboration or sales & catering usually have it that way)
- Did you ever experience downtime with the tool and how was the response time? If the app (almost) never crashed, why do you need strong SLA’s or support packages that cost you more money
- Do some of your tools have overlapping functionalities that would allow you to discard one of them to reduce your spending?
- Do you use all or only a fraction of the functionalities of each app and could you downgrade to a cheaper plan with fewer features?
One aspect that should not be underestimated is what we call “Shadow IT Costs”. There are many different shapes of it: security breaches, investing in the wrong solution, overpaying for licenses or network costs. Here will be focusing on overpaying licenses as it is one of the most common forms of shadow IT in hotels. The idea is that some employees of your hotel or group have subscribed to certain systems without getting the “green light” from the IT department or general manager. When looking at hotel marketing departments, it is quite typical that some team members subscribe to small tools to automate their processes or enhance website monitoring for example.
Another example can be that several hotels from the group or employees from an independent hotel have individually subscribed to a service instead of having a top-down approach through the IT department in order to negotiate a bulk discount. For an independent hotel, solving that issue is “relatively” easy, still time-consuming as it requires looking at your transaction history in your bank account. For bigger organizations, this can be a nightmare to catch up with.
Therefore, make sure to survey your staff members to know if they have expensed certain subscriptions on the company (e.g. Linkedin Premium accounts or lead generation tools like Dux-soup for sales teams) which you or your IT department might not be aware of. When conducting this, also take the opportunity to ask for opinions on the satisfaction each one has on their tools to identify good and bad apples to know what to kick out or find a better alternative for.
Get your negotiator hat on
Once you are up to date on all contracts, you are ready to start exploring potential cost-saving opportunities whilst keeping the success of your business your number one priority. Not all providers will be ready to negotiate. While startups usually have a “customer-centric” mentality, large corporations might not be flexible. Also, bear in mind that given the current technology landscape, the big companies are most probably the ones providing your most business-critical systems.
Therefore, start by looking at your niche systems (staff collaboration, upselling, website conversion tools) and go from there. Above, we have already covered some areas that would allow you to reduce costs without having to negotiate. Here are some ideas to work with your providers in finding a common ground that suits both parties:
- Ask for a variable-based discount looking at either your occupancy rate, revenue, or usage of the tool (some providers have stopped billing clients until they reach 50% occupancy)
- Propose an extension of the contract or longer renewal period in exchange for a discount
With the rise of Software as a Service and the shift to cloud-native platforms, the number of different systems required to run your hotel will be increasing in the coming years. For that reason, it’s a great time to start centralizing all your software subscriptions and contracts in a single view to always keep track of finishing dates, automatic renewals, and costs. At Hotelhero, easing this process for hoteliers is at the core of our mission and we have just launched a tool to facilitate it.