Latest / The Modern Hotelier / #301: Helping Hotels Reduce Revenue Leakage | with Mike Baldinger
Transcript
- The Modern Hotelier #301: Helping Hotels Reduce Revenue Leakage | with Mike Baldinger === Steve Carran: Welcome to an episode of The Modern Hotelier coming to you from HITEC in San Antonio. Today we are joined by Mike Baldinger, co-founder and chief strategy officer at Evention, and we are at the Evention booth today. How we doing, Mike? Mike Baldinger: I'm doing great. It's day two of HITEC and it's a great week so far. Excited. Steve Carran: Yeah. I walked past your booth yesterday, and it was packed. Yes. So looked like things were going pretty well for you. Mike Baldinger: Yeah. We're having a great time. Steve Carran: So Mike, I wanna start off by this, 'cause we talk to so many hoteliers. Yep. And when we talk about OTAs to hoteliers, they seem like they have a good handle on OTAs. What do you think? Do they really have as good of handle as they think they do, or could they be doing something better? Mike Baldinger: Well, I do think most hoteliers have a good grasp of the obvious cost of OTAs. They know the commission rates, and they know that it drives a significant volume of their bookings. But what I think really surprises a lot of the operators is the amount of revenue that's really leaking out their doors each night through these OTA channels. And the examples there would be virtual credit cards that are not charged correctly, commissions that are overpaid, things like resort fees, taxes, or cancellations that are not being charged. So these are just examples, but the better question I think an operator should be asking is not, "What is my commission rate?" but, "Can I ensure that all of my OTA reservations are being settled correctly, and can I ensure that all my guests are being charged correctly?" Because that's really where the gap is occurring. Steve Carran: Well, I agree, and I guess when I think, when I thought about OTAs, I'm like, "It's a pretty simple process. I pay the OTAs. OTAs pay the hotels." Is it really that simple? Mike Baldinger: Well, on the surface, it feels like it should be that simple. Yes, the guest pays the OTA, and the hotel gets paid. But the reality is that a single OTA reservation touches multiple systems. And every one of those systems records a slightly different version of the truth. So if I book through an OTA, I'll of course pay the OTA. That OTA, in many cases, will issue a virtual credit card. That VCC flows through a channel manager into a property management system. There's a payment processor that charges the card. The bank funds the card, sometimes for the full amount, sometimes not. And then the general ledger tries to make sense of all of it. And then you add in the real-world complexity, like a guest short staying, a guest canceling, taxes or resort fees showing up on the wrong folio, or one of the biggest issues is the guest being mischarged or a front-desk agent accidentally charging the guest's physical card instead of the OTA's virtual card. Sure. So those are some of the examples of things that can go wrong. Steve Carran: Which touches a lot more points than I previously thought. Seems like a very simple process, but a lot goes on behind the scenes. Mike Baldinger: Yes. Steve Carran: So you talk about OTA losses being invisible. What do you mean by that, and why do smart finance teams miss this? Mike Baldinger: Yeah, so I think the best way to describe this is nobody's going to ignore a $10,000 problem, but many of us may ignore 1,000 $10 problems. Sure. And that's really the nature of distributed leakage. Each individual variant seems small enough, "Eh, let's not put a team on that. Let's not really chase it," but they compound to staggering numbers. And the other reason that it often can be invisible is that many hotels look at this from a totals or summaries perspective. That's where they're doing the validation, but a lot can hide in totals. You can have an overcharge in one area offset with an undercharge in another. And so the totals might look fine or close to fine, but the underlying settlements can be a complete mess. Steve Carran: Sure, sure. And what range of exposure do you actually see when you get into those operators' data? Mike Baldinger: Sure. So for a typical 300-room hotel with significant OTA distribution, we're seeing about $130,000 a year in revenue leakage, and that's from some of those categories I just described. That's VCCs that are undercharged, commissions overpaid, taxes, resort fees, cancellations, those types of things that are leaking. But what I think surprises operators the most is not the direct revenue leakage. It's actually the impact of guest reviews and the negative guest experience. So when you have a guest that is mischarged, that creates a financial discrepancy, but it creates a guest experience problem. Steve Carran: Yep. Mike Baldinger: So that guest is likely going to complain. They're maybe going to file a chargeback or post a review, and that could be a real public review, something that says, "Hey, I stayed at this hotel. They double charged me, and it took two weeks to resolve that." So reviews affect your ratings, and ratings are going to affect your future bookings and ADR. So that's kind of the complexity here. If you combine the direct revenue leakage with the impact on the guest experience and the ratings, that can be $430,000 a year of impact. And that's for a problem most hotels aren't even tracking. You multiply that across a portfolio of, let's say, 100 hotels, that's $43 million a year. So this is not a back office accounting problem. This is strategic financial risk that belongs on their risk register because it touches revenue, the guest experience, and brand reputation simultaneously. Steve Carran: That is crazy, and I feel like we talked about the disputes for hotels, and I feel like hotels have always been at a disadvantage against the OTAs. Where does that come from, and are we able to shift that at all? Mike Baldinger: Well, I think there is a perception of a disadvantage, but it really just comes down to timing and evidence. And it's true, OTAs do have strict timelines. Your virtual credit cards do expire. Sure. And if you don't charge within that window, that money is gone. That's breakage back to the OTA. Commissions have to be disputed within a specific timeline, and if you don't dispute there, again, that's breakage. But the way to shift the balance here isn't really to be more aggressive with the OTAs. The OTAs are key partners here. They're driving a significant amount of business. So what we all want is fairness and accuracy for all three parties: the OTAs, the hotels, and most importantly, the guest. And the way to really reset that balance is just helping the hotels be able to answer those simple questions. What was booked? What was paid? What was funded? What was charged? What was commissionable? And were all my guests charged correctly? So if a hotel can answer those questions easily and within the timelines that they need to, it completely changes the conversation. Steve Carran: Absolutely. And Evention is described as a financial trust layer, not a reconciliation tool. Can you tell us why that differentiation matters and how hotel operators should be thinking about this whole category? Mike Baldinger: Absolutely. So a reconciliation tool is really something that compares numbers after the fact, but a financial trust layer is something much broader than that. So this sits beneath all of your financial activities and processes and continuously validates every dollar to ensure accuracy, accountability, and that every dollar is explainable. And in hospitality, we have so many different disconnected systems. Sure. You've got your POS, your PMS, your processors, your banks, your cash, and every one of those systems records its slice of the truth, but there's no single system that has the whole truth, and that's really the role that Evention plays. So we bring all of those different pieces together to really allow operators to know that what was recorded, what was deposited, what was collected are all aligned. So that's really what a financial trust layer is. OTA Recon is an example of that, but the bigger picture is financial truth across the whole operation. Steve Carran: And we talk so much about siloed technology and these disconnected systems, and feel like we've been talking about it for five, 10 years. Mike Baldinger: Yes. Steve Carran: So it sounds like Evention bridges that gap and really makes sure that there's nothing slipping through the cracks, which is pretty cool. Mike Baldinger: Yes. Steve Carran: Yes. So you mentioned OTA Recon. Can you tell us a little bit more about that? Because it sounds like you're solving quite a bit with that with tips, gratuities, credit card reconciliation, cash, things like that. Mike Baldinger: Yeah. So the common thread here is really trust after checkout. So in Evention's world, the process does not end when the guest pays or when they check out. That's actually the beginning of the validation process. So again, in hospitality, a dollar can move through so many different systems. If I pay at the hotel, it's going to go through a terminal, and then a gateway, a processor, POS, PMS, bank, general ledger, and every one of those moves creates an opportunity for something to be missed, misclassified, delayed, or paid incorrectly. So the Evention platform is really designed to allow an operator, financial team, ownership group to be able to track those dollars and trust that every dollar is validated, and they can do this without spending manual processes, putting spreadsheets in place, and doing after-the-fact cleanup. Steve Carran: That's great. So we have a lot of hoteliers that are gonna be listening to this. Yeah. If I'm a GM, CFO, and I'm not sure if I have an OTA problem, what's one question I should be asking my team this week to see if I do have a problem? Mike Baldinger: I might actually have them ask two questions. So the first one that I would ask is just go back to the team and ask them if they are validating their OTA reservations at a summaries or totals level, or if they're doing it at the detailed reservation level, all the way down to the resort fee, the room rates, the taxes. Because if they're doing it at a summary level, I can almost guarantee you there's revenue leaking. The second question I would have them ask is, are we sure that every one of our guests is being charged correctly for each and every stay? Because that's really the core of it. It's not all about revenue recovery, it's really about protecting the guest experience. And one practical thing I would have any hotel operator do is just go onto Booking.com, Expedia, whatever your favorite portal is, and search for negative reviews related to billing. You could search for things like mischarge, double charge, charged twice, resort fees, and you're very likely to find errors. And if you do, that's really just public evidence that shows that there's failures in your OTA workflows or your OTA reconciliation processes. Steve Carran: Great questions to ask your team. Well done, Mike. This was a great conversation. Love to hear how Evention is helping hoteliers and guests make sure they're not getting charged wrong. So for those that are listening, what is the best way to learn more about Evention and get in touch with you or your team? Mike Baldinger: Yeah, absolutely. Our website is eventionllc.com. We would love for them just to reach out and our team, both here in the US and in Europe, can walk them through all their processes, show them what this looks like for their operation. We'd love the opportunity to talk to any of those teams. Steve Carran: Sounds good. Well, this has been a great conversation, Mike. Thank you so much. That does it for another episode of The Modern Hotelier, hospitality's most engaged podcast. Don't forget to follow, like and subscribe, and we'll see you next time. Mike Baldinger: Thanks, Steve. Steve Carran: Thanks, Mike.