# 5: The Preferred Hotel Savings Metric (Easy Version)

Metric Type                                                      Level
     SAVINGS: Yes                                              MASTER
     SERVICE: No                                                 ADVANCED
     SAFETY: No                                                   BASIC
     SUSTAINABILITY: No

Description
There are a number of different ways to calculate savings from contracts your company may have with hotels. None are perfect. Maybe that's why so many corporate travel managers and travel management companies shy away from even trying to quantify savings. Of course, if you have done the work to set up a list of preferred hotels, you might as well get credit for the savings. 

This posts shows the simplest form of calculating hotel savings from contracts (we called these 'preferred hotels'). 


Formula
Preferred Hotel Contract Savings = Dollars Spent in Preferred Hotels / (1 - Average Savings % for Preferred Hotels) x Average Savings % for Preferred Hotels


Process
At the time you negotiate your hotel rates (typically Q3/Q4 for the following calendar year), you must identify the difference between the standard rate your travelers would pay without a negotiated discount and your contracted rate. For example, if a hotel's typical corporate non-contract rate is $150, and you negotiate a rate of $125, your savings is $25 per night or 17%. 

Do this with each of the hotels you have in your preferred hotel program (some firms have only a few while others have hundreds). Average the savings percentages together to find the average (mean) discount.  [NOTE: you may want to weight the average if you have a few hotels with significantly more room nights than average, especially if your discount percentages with these hotels is significantly different than the median discount). 

Whichever way you do it (unweighted or weighted), you have now identified your Average Savings Percentage for the entire year (assuming your program and your travel trends don't change). 

Now, using data supplied by your travel agency, identify how much spend your firm had in these preferred hotels for a given time frame (quarterly is pretty standard). Then simply apply the formula above to come up with a good, yet conservative, savings projection. 


That Was Too Easy
You have to acknowledge that this is a relatively rough (although perfectly credible) estimate.  Things to keep in mind:

• Because we are using an overall average, the "true" savings figure will most likely not be exactly what you calculated. When you think about the work that would go into researching and documenting every single reservation (whether it was made via the travel agency or not), the cost of getting a more accurate number seriously outweighs the value of having a truly accurate figure.
• Some may argue that if the preferred rate wasn't there, the traveler would have stayed in some other place at the same rate (because the travelers is oh so budget conscious). Point out that the reasons hotels are selected for your list go beyond simple rate calculations. Consideration is given to proximity to office or client destination (saving ground transport costs), quality of the property (cheaper hotels may not be of a reasonable enough standard for your travelers), and savings from negotiated ancillary services (calculations for which to be discussed in another post).
• Finally, for most companies, only a percentage of hotel bookings are actually made through the travel agency. Industry benchmarks show that 40 to 60% (more for non-US locations) of room nights are not booked through the agency. Some unknown portion of these 'unmanaged' room nights are booked in the preferred hotels at your preferred rate anyway. By only using the travel agency's reporting, you are purposely under-counting the savings. Therefore, the hotel savings you are claiming with this calculation are actually conservative if nothing else. 

Usage
This metric should be used in your communications to your boss, senior management, and the travelers. Clearly highlighting the value of these programs, and asking for more compliance (both in staying at these properties and booking through the agency) can help you improve the savings figures each year.

This type of metric is easily understood by non-travel professionals, although as we noted above, some push-back may be expected from some cranky quarters.