The holy grail of any hotel brand’s tech stack is likely to be the creation of a "unified guest profile" with the various data points on an individual piped and structured so that teams can more meaningfully improve the guest experience tovdrive more revenue, more profit and better asset valuations.
For some, that improvement is onsite personalization — something as simple as knowing a certain guest likes extra pillows and ensuring this is fulfilled prior to arrival. For others, it’s looking at what services and amenities are best able to grow the business, especially when lensed through the goal of increasing ancillary spending on a per-customer basis. Ultimately, what any hotelier wants is higher nightly rates, more on-property utilization and guests that boast about the property to friends or are much more likely to return.
The singular metric that brings this all together is the customer lifetime value which in hospitality’s case computes the total amount of present-day revenues that a hotel is projecting to derive from a single guest. Our hypothesis is that wellness-oriented customers have a significantly higher average CLV than non-wellness guests, which will help to quell any doubts about achieving a positive return on wellness investments. For this reason, every hotelier should be investigating their options with regard to attracting travelers with a wellness mindset as well as actively cajoling guests to drink the wellness Kool-Aid.
Equation Breakdown
To statistically verify this hypothesis is more a task for a PhD candidate with a whole semester on their hands, but we can nevertheless do some convincing back-of-the-envelope estimation by evaluating each component with the formula used to calculate CLV. For simplicity, we’ll use an equation that’s specific to a single hotel consumer while not incorporating other elements like churn rate, profit margins and the discount rate of money.
CLV = (average spend per stay) x (projected stay frequency per year) x (remaining healthspan in years)
To grasp this, let’s plug in some basic numbers for a twenty-something, corporate, heads-in-beds guest:
- Average spend per stay = $500 (representing an average length of stay of two nights with no other ancillary spend)
- Annual stay frequency = 1 (meaning this guest is projected to come once a year, with this measurement being brand-wide and not just for a singular property within a group)
- Remaining healthspan = 45 (the healthy years that one has left in their life where they are able to travel without assistance)
- CLV = $22,500
Wellness Boosts All Three Variables
Once our simple version of the CLV formula has been broken down into these three variables, it’s easier to see where wellness adds value and also calculate some conservative estimates for just how much. Of course, this will vary by guest, by guest context (midweek business trip versus a family vacation), by the property, by the package purchased, by brand and by location, but we can still make some general conclusions.
For average per-stay spend, take the aforementioned example with its $250 per night rate but change the guest context to a wellness-oriented getaway at double occupancy. Let’s also suppose that this property doesn’t have a spa facility. For ancillaries, we’re going to add an upsold "sleep well" turndown service at $15 per night and two couples dinners off the new health-minded prix fixe menu totaling $150 including alcohol per night. Together, that’s already an increase of 66% to $830 per stay.
Next, for frequency, it is hard to beat the reservations volume of a road warrior executive who travels every week or every other one and has their loyalty program of choice. In the post-pandemic world, these are a dwindling breed. For most other guest contexts, though, wellness programming offers a veritable ‘reason to visit’ independent of a pure-location rationale like a work trip. Unwinding, rejuvenating, recharging, digital detoxing and staying fit while abroad all contribute to the emotional thrust of why guests choose wellness-oriented brands over others. Let’s take frequency up by 25% to 1.25.
The third variable is where things get interesting. While the science is still out on extending human life beyond its current limits as defined by mortality tables, we do know that staying healthy is the best way to reduce causes of early death like congestive heart failure, thereby extending healthspan. Put another way, if the maximum lifespan is held at 100, wellness habits would work to allow a consumer to sustain their vigor for 90 of those years rather than having chronic ailments hinder regular travel beyond age 80. With this 10-year bump, it brings the remaining healthspan to 55 years.
Now to bring it all together:
- Average spend per stay = $830
- Annual stay frequency = 1.25
- Remaining healthspan = 55
- CLV = $57,062.50 (a 254% increase)
There are lots of assumptions built in here to get to a 2.5 times boost, not to mention net profit analyses that are necessary because many of these wellness services are expensive to execute. But even if we pare down some of the boosts, the positive revenue effect should be patently clear.
Most significantly, what we emphasize from this examination of CLV is to look at the "lifetime" and not necessarily with a quarter-over-quarter mindset. As well, a caveat is that these rough calculations speak nothing to the amount of work you will need to do to figure out which direction to take your wellness programming, define all the standard operating procedures, train your team and market it all so that guests are actually aware of your brand’s newfound reason to visit.
Adam and Larry Mogelonsky are partners of Hotel Mogel Consulting Ltd., a Toronto-based consulting practice. Larry focuses on asset management, sales and operations while Adam specializes in hotel technology and marketing.
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