Smart Sourcing Tips for Double-Digit Hotel Savings

Business travel is up, and so are hotel mergers. That means hoteliers have more negotiating power, and room rates are rising too. According to research by BCD and Carlson Wagonlit published late last year, US customers were seeing an average rise of between one and two percent in their negotiated rates.

However, you can still get good hotel deals by being smarter about the way you source and negotiate. In fact, by strategically using the data from both your travel agency and your expense management system, you may still be able to negotiate double digit discounts if you play your cards right.

Here are three tips for smarter hotel sourcing: Seeing the whole pie, finding the ancillary levers, and timing. Let’s take them one by one.

1. Seeing the whole pie.

Most companies approach the negotiating process relying solely on their travel agency data. That's a valuable source of data, but it has limitations, so you need to enrich it with data from your expense management system, or you’re negotiating with one hand tied behind your back.

That’s because travel agency data will only include hotels booked through the agency or its travel booking tool. However, studies have shown that on average, 40 to 50 percent of corporate hotel bookings are made outside of the preferred travel agency.

This could be for perfectly legitimate reasons. Maybe employees are attending a conference and there’s a special room rate. Or, perhaps they’re visiting a big multinational company that has fantastic rates at hotels near their main offices. Most companies are fine with employees capitalizing on these kinds of discount opportunities.

A more controversial reason is that many hoteliers have started to offer better rates and amenities for loyalty program members, but only if you book through their website. That’s luring employees to book outside the corporate agency. Finally, some people may just dislike the user experience of the corporate booking tool and won’t use it. Whatever the reasons, this leaves a big gap in travel agency data.

The other limitation of this data is that it only represents the booked amount of your room nights, not the final hotel bill. In contrast, ancillary purchases are typically captured in the expense system after the trip. According to industry benchmarks, those can add an average of 15 percent more to the tab.

The upshot is that if you’re only looking at data from your travel agency, you’re only seeing part of the pie. You might be negotiating with $5 million of spend, for example, when you really could be negotiating with more than $7 million if you were to compliment that with corporate card and expense data. So that’s the first step to smarter hotel sourcing.

2. Find hidden levers

Seeing the whole pie sets you up nicely for tip two: Finding the hidden negotiating levers. Many managers fixate on getting a discount off the published room rate. But a lot of hotel sourcing experts advise identifying other bargaining chips that can also save money, and may be more palatable to the hotel's corporate booking representative.

Most automated expense management tools let companies require employees to itemize their expenses, so you can see how much they spent at the hotel on meals, room service, Wi-Fi, parking, use of the gym, laundry, conference rooms and other ancillary services. You can identify what the most valuable levers are, and that gives you more flexibility in the negotiation.

It's very hard these days to get a 10-15 percent discount on room rates unless you're a very large corporation. If you can haggle with more levers, you can say, "Can I get 5% off the rate, and get Wi-Fi and breakfast included?" If they say yes, you've effectively gotten double digit savings on your hotel expenses.

3. Timing

Traditionally companies put out a big RFP in the fourth quarter to negotiate hotel contracts for the coming year. There’s nothing wrong with that, but if you’re a mid-sized business, you’re not going to be in a position of power when you’re negotiating with a busy property manager who’s trying to land a lot bigger fish. Obviously, you’re going to get less attention, and that could result in less value from the negotiation.

Try to adjust the timing of your RFP. In the universe of hoteliers, if you ask around you’ll find a decent number who are willing to field an RFP in the second or third quarter. That alone should put you in a better negotiating position.

The other thing you can do is use your data to do sourcing throughout the year. It’s likely that opportunities will come up that you didn’t know about during the annual RFP exercise. Here too, there’s an advantage to leveraging both your travel agent and expense management system data to try to spot those opportunities more quickly.

For example, let’s say you’re a consulting firm, and a massive project has just come up in Dallas that’s going to last a couple months with two dozen consultants on the ground. That could add up to a couple hundred thousand dollars.

Ideally you’d have a mechanism in your company to alert the sourcing manager about such a large travel expenditure, but that doesn’t always happen. If you’re a busy travel manager only looking at your data every month or so, you might miss it.

Some of the travel tools and expense management systems, including Coupa, allow you to set alerts to bring those opportunities to your attention. This is a very exciting emerging feature that we’re investing in and possibly others are as well.

The way it works is if bookings or spending on lodging in a particular city suddenly spike, you get a notification. Then, you can investigate to see what’s happening, and determine if the amount of spending is large enough to justify a negotiation.

The smarter way

Even with hotel rates trending upwards, you can insulate yourself from rising costs by leveraging data and technology to expand upon the old way of doing RFPs, namely using only travel agency data and sourcing just once a year.

The smarter way is to add in more data to look at your hotel spending more holistically to enhance your negotiating power and find additional bargaining chips. Consider sending out your RFP during a less busy time of year. And, spot and act on opportunities throughout the year, instead of waiting for the fourth quarter and negotiating against all the other corporates in the world. Any one of these tips will improve your outcome, and when you combine them all you could well be looking at double-digit savings.