Integrated technology is a top priority for many, including industry leaders like Wendy Mertz, CIO of Virgin Hotels. In a recent ILHA Tech Integration Committee report, Mertz notes, ‘Integrated technology helps gather more information about guests so that we can have better conversations with them. We should use this information to enhance their experience without being intrusive.’
However, people get scared when they imagine the costs of the technology solutions they’ve been hoping for. They often exaggerate those costs in their head and convince themselves that there’s no room in the budget this year. And along the way, they also forget about the benefits that they were after in the first place. This often leads to the phrase, ‘There’s always next year.’
But if we are really serious about enhancing the guest experience with technology, we need to stop focusing on costs alone and dig deeper into the benefits. We need to stop seeing line items on a budget sheet and instead, reframe it as an investment. And once we look through the investment lens, we’ve set ourselves up to see the return.
So, let’s see this in action.
Calculating ROI on Hospitality Technology
In the world of luxury hospitality, technology must offer solid returns on investment while enhancing the customer experience. The best tech solutions save the hotel operator money, allow the staff to put more time into client services, and improve the guest’s stay.
But what is the return on a technology investment? The golden metric we all want to show is increased revenue. So, how can we attribute technology to an overall increase in company revenue? And is revenue really the right metric to prove positive ROI on a technology investment?
The answer is probably no. If we rely on revenue alone, we’re always going to struggle to directly prove ROI.
However, there are other metrics we can track – in addition to revenue – that build a strong case for a technology upgrade. You can wrap them all up into one ROI equation that looks like this:
It doesn’t look too complicated – and it’s not. But there’s a bit more going on under the hood here. Let’s take a look at each element separately.
Total Cost (TC)
First, to get a good estimate on ROI, we must understand our total cost, which you can figure out using this formula:
TC = II + RSF + MC + TT + DC
Initial Investment (II)
How much does it cost to purchase technology and install or program it?
Recurring Service Fees (RSF)
Any monthly or quarterly costs to keep the technology operational.
Maintenance Costs (MC)
This could be a recurring maintenance contract or a one-off repair.
Training Time (TT)
How much time will it take to train your staff? What is the cost of that in labor dollars?
Downtime Costs (DC)
Will you have to shut down during installation or maintenance? How much money will you lose while down? Estimate a daily average.
You can get these numbers by simply having a conversation with your technology professional. But this is where most people stop and decide to put their technology investment on hold. This is only half of the information we need to truly determine whether your technology solution can have a positive ROI.
Let’s look at the other half.
Financial Benefits (FB):
The second part of estimating the ROI of technology is determining the potential financial
benefits your tech solution might provide your bottom line, using this equation:
FB = B + R + RB + EP + OCS
Bookings (B)
Offering certain technology solutions has the potential to increase bookings by attracting new guests or enhancing the guest experience to a point that inspires return bookings.
How much do you estimate your total bookings will increase? Use that dollar amount here.
Revenue (R)
Estimate or set a goal for how much your revenue will increase due to your technology solutions.
Return Bookings (RB)
Return bookings are a great indicator that your technology solution has provided a desirable experience for your guests. How much do you estimate your income will increase due to return bookings alone?
Money saved is just as good as money gained for ROI purposes. So, we also need to factor in potential cost savings to our financial benefits formula. Here are the big ones:
Employee Productivity (EP)
Will automation streamline certain tasks to make your staff more efficient and reduce your labor costs? How much money do you estimate you will save on labor?
Operational Cost Savings (OCS)
Technology solutions have the potential to save you money through sustainable energy practices and waste reduction. Work with your technology professional to determine potential savings. How much money are you saving on operations?
Your Technology ROI Formula
Time to put it all together. Here’s what the final ROI formula looks like:
This equation will give you a percentage that represents the potential return on your investment. A positive ROI indicates that the investment could be profitable, while a negative ROI suggests a loss.
It’s important to note that this is not a hard-and-fast rule or a perfect direct attribution measurement. It is an estimation tool to help you make a more informed decision and justify the investment in a new technology solution.
Work closely with a hospitality technology professional or technology solutions provider to get the most accurate estimates and decide what kind of technology solutions will provide the biggest ROI for your business.
Crestron understands that the most important role for technology in the hospitality industry is not to replace the human touch, but to enhance it. That’s how you create the “oh wow” factor for guests immediately, exceed their expectations during their stay, and ensure they’ll come back.
Get more of the latest trends from top hospitality leaders in the report from the ILHA Tech Integration Committee here.
