How We Turn Hotel Revenue Into Bottom-Line Profit - Paul Mengacci, Desert Hospitality Management

Josiah: We're recording this in the middle of October 2026. It's been an interesting year. You shared some of your thoughts on this on a webinar we did at Actabl, so I'll link that in the show notes so people can see some of your commentary. But I've been really looking forward to speaking with you, because I just came back from a couple of different investment conferences where they're sharing the latest economic data, and it's interesting to see the top line in some regards improving, or at least a more optimistic view there.

It does feel like profits are still under a lot of pressure, and there are still a lot of costs that are getting out of control. You spoke to this a little bit on that Actabl webinar, and again, I encourage people to check that out. But I want to get your thoughts now, since some time has passed. When you think about the top line, you think about revenue, and ultimately you're here to drive results for investors, for the owners of these hotels.

Building on what you just shared about raising financial literacy, how do you interpret that flow-through when you think about growth, and making sure that you have enough of that flow-through to the bottom line to drive those profits?

[02:02] Paul Mengacci: Yeah, absolutely. It's critical, because it is about the profit at the end of the day, and that is what ownership is going to be most focused on.

And so there really is not a singular answer to this question. The answer is that it depends. It depends on the nature of the business that is in the hotel. So for example, if you have a SMERF group that is a big soccer team, and people are packing four, five, maybe more people, eight, into a room, well, those are more supplies in your room. That is greater wear and tear on your rooms.

If there's a complimentary breakfast offering, that is a lot more breakfast that is being served to that group. And you're also going to continuously need more labor throughout the course of their stay, whether it's checking them in initially, the room attendants, or having people at the desk on an ongoing basis just to be a presence for all of the people that are going to be going throughout the lobby. If you have more people in the rooms, you're likely going to have more housekeeping requests, more maintenance requests. Everything's going to have a multiplier effect.

[03:10] Josiah: To clarify this for folks who are maybe new to the business, SMERF would be the non-corporate groups, right?

And so it's looking at the composition of the business that's coming in. A corporate group is probably going to behave a little differently from a sports team or some other group, versus an individual traveler. And it's interesting across the board, the maintenance, the breakfast. You're looking at the whole piece of it.

[03:31] Paul Mengacci: That's right. Yeah. So SMERF is an acronym for different types of groups that could come, and sports is one of those. That is the S in that acronym. So yes, they would generally have more people traveling along with them, which would lead to all of those additional costs.

And yes, on the contrary, you would have an individual business traveler that is going to be pretty low-maintenance by all accounts. It's likely someone that travels on a frequent basis. They may be doing more through the app. They may be using a mobile key, going right to their room, not even stopping at the front desk.

If they're there for a couple of nights, they may not be looking for housekeeping service for the nights in between. They may say, "We're all set for the duration of my stay." And so there's just not going to be as much activity and service required for that particular guest, versus the group that is going to have all of those people and come with more and more costs throughout the entire operation.

So what that means from a flow-through standpoint is, all right, we've got business A and business B coming in here. Business B, with the group, let's say, may have great revenue numbers, but what are all the costs that are going to go along with that as well, and what's the net profit at the end of the day?

Whereas business A could be that individual traveler, and we can say, we can get to profitability. We can flow a lot better on that business versus having multiple people with each reservation.

[05:08] Josiah: Interesting. So a booking isn't a booking isn't a booking. You've got to look at the whole picture. And for someone new to the business, what does this look like practically? What is the point of decision, or how do you coach your teams, especially those that are new to the industry, to understand how to make decisions that are going to end up flowing more profit through to the bottom line?

[05:25] Paul Mengacci: Yeah, absolutely. So you also need to look at the average rate and the occupancy component of it as well. Those are the two pieces that get you to your room revenue total. So if you have business that is stronger on the rate side versus occupancy, rate is going to flow much better to the bottom line, because you're not going to have as many variable costs that come along with that additional occupancy. And that additional occupancy could be the number of rooms, but as we touched on, also the number of people in the rooms.

And that latter piece may not show up on the P&L as part of the occupancy percentage, because that percentage is only going to look at the rooms occupied in total divided by the available rooms. The P&L is not necessarily going to show that there were four people in that room. But those are the discussions, those are the analyses that need to be completed by the team at the hotel prior to the business even coming through the door, to evaluate if it made sense. And that's where it needs to be a collective decision.

It's saying, "Okay, sales, we have sourced this business. Here is the rate, the occupancy, the type of demand that we expect from the business once they're here. What is that going to mean operationally?" So then you bring in your operations leaders, and they'll say, "Okay, we're going to have greater demand in the breakfast area, so we're going to need to staff more people to support that." We touched on earlier that there may be more housekeeping needs in general, whether it's an actual room attendant servicing the room, or the houseperson having to deliver items to the room and keep the lobby clean. Those are all things that sales would then discuss with operations to say, "Okay, where is this all going to net out?"

Then you bring in the revenue management team as well to say, "Okay, this is one piece of business. Let's compare and contrast that to another piece of business that is potentially out there. Which one makes more sense at the end of the day? Which one is going to generate more profit and have a more positive impact on the hotel?"

So it truly needs to be a collective effort and team evaluation well before the business is even accepted.

[07:33] Josiah: Well, I appreciate getting into the detail, Paul, because I think it's important to conceptually understand that this is what needs to be done, but then understanding who's involved and what the process is. That's the final piece of the trifecta, I guess.

So process is really interesting to me. Where, if at all, does technology play a role in this? Because I'm hearing you talk about a lot of data points, a lot of things to reference, and information flowing between people or teams. In this whole process of evaluating sets of business and making decisions, where have you found technology to serve this goal you've outlined of making sure it's the right business, the right profitable business?

[08:08] Paul Mengacci: So yeah, technology is across the board in the hotel industry right now, from the tools that the revenue management team is going to use to look at the forecasting and help evaluate the type of business that's out there, to sales, certainly, with the tools they have to help identify and source the pieces of business that are out there, to then be able to run these different analyses about what business makes the most sense.

But certainly on the operations side of the business, once we're able to forecast the business that would be coming in, that opens up a much wider set of financial data to then be able to analyze and implement into the operation. So as an example, once we have our forecast updated, that's going to feed directly into our checkbooks at a departmental level, and it's going to feed directly into our labor management system. And particularly on the labor side, that's the biggest expense in any hotel.

That is where we're then going to be able to say, "Okay, here is the forecast for this particular business." We do need to make sure we're accommodating the type of business that it is, which we spoke about earlier. If it's going to be one person in the room, or if we expect it to be multiple occupancy in each of those rooms, that's going to determine the labor model.

But you have those labor standards set up to say, "Okay, if this is the forecast, this is the level of demand we expect within that forecast, your schedule should be somewhere along these lines." And then it allows our team to make sure that the schedules that are actually being put out there are in line with those labor standards.

And then on the back end, we also need to continually be learning from the business that comes through the hotel. It's not just set the labor standards once for the entire hotel and you're good to go. It is continually evolving, certainly with the different types of business, but also looking at the history and saying, "Okay, this is what we've set up as the labor standards for this particular piece of business. This is what actually happened. Did that work well? Was that an appropriate fit? Were there any gaps that we need to address?"

And to continually be going through that process, having the tools and the technology, the data being shared between all of the different systems so that information is readily available to the team to analyze and make decisions from, is critical.

[10:46] Josiah: Yeah. So Paul, would you be willing to get into forecasting? Like, what exactly is the tool, and then what other tool does it go to? I'm trying to give our listeners a little bit of a mental map, and I think that might bring this to life if you're open to it.

[10:59] Paul Mengacci: Yeah, absolutely. So on the forecast side, we use ProfitSword, which is under the Actabl umbrella, and on the labor management side we're using Hotel Effectiveness, which is also under that same Actabl umbrella. And so these tools are very much in sync with each other, which is great for the ability of that data to be shared back and forth. And it truly does go both ways.

You have forecast data that is feeding from ProfitSword into Hotel Effectiveness so that it populates your labor models, but then you have actual labor data coming back through Hotel Effectiveness into ProfitSword so that you can compare how your forecast matches up with the actual results that came through.

And having that data go between the different systems allows you to continually evolve, to continue to make those tweaks and adjustments to the operation as needed. The communication between the tools becomes very valuable at that point.

[12:07] Josiah: And then Paul, at some of these recent events I've been at, it feels like forecasting is so, so important. If you're willing to share, what data sets is ProfitSword pulling from? Does it pull from other tools? Is it referencing things that then roll into ProfitSword and start that cycle?

[12:22] Paul Mengacci: Yes, absolutely. So ProfitSword is receiving data on the front end from the revenue management tools. All of our hotels are branded hotels, so ProfitSword is able to interface directly with the revenue management tools on the brand side, which are feeding into the reservation systems, which are feeding into the property management systems where the actual data is coming through. So then that all feeds into ProfitSword as a central hub, where you have the data coming from different sources to be able to make those forecasts, but then also, on the back end, to be able to look at how the actuals have come through and compare them to what those projections were on the front end.

[13:11] Josiah: So interesting.

[13:12] Paul Mengacci: But one piece I want to also insert into the loop. We talked about revenue management tools, but there are also the sales and catering systems that the sales and marketing team is working with. Delphi is an example of a popular tool that is going to capture all of the data that the sales teams have in their platform.

That's going to feed directly into ProfitSword as well. Much of that will feed into an area of the system for pace reporting. Pace allows you to see not necessarily how the results finish, but are we on track compared to a similar point in time last year, which is usually the most common comparison.

So it's not so much looking at what is final, but at the pace of where we are today versus where we were at another point in time. That gives you an idea of, okay, even if we only have X amount today, last year between this time and this time we booked X number of rooms, and so we can feel confident that we would do that again and fill in that gap.

So that's another tool as we're evaluating the whole forecast and future booking opportunity, and it's critical to that piece.

[14:29] Josiah: It's interesting, Paul. Just to build on that, what I'm hearing from you is that you're building confidence, not just for yourself but for your teams, your owners. You build this confidence loop. And if I understood you correctly before, it sounded like there's a loop between ProfitSword and Hotel Effectiveness, where you get a sense of the forecast and make sure you're right-sizing staffing to meet the moment there.

And then is there information flowing back from Hotel Effectiveness into ProfitSword, so you understand how this landed in terms of financial performance? Did we do it right? Is that the loop that I'm hearing?

[14:58] Paul Mengacci: That is absolutely the loop. And you can do that on both the top line and on the expense side of the equation as well.

So with Hotel Effectiveness, yes, the actual labor data is feeding back through, so then you can go back and compare that against what you forecasted initially. Did those assumptions check out? If not, where are the gaps? Why are there gaps? Okay, how do we apply those learnings from the past to our future forecasting, our future scheduling?

So that's where the value really comes from: being able to keep that circle going and continually be learning. Having the data continuously shared throughout the process allows you to have those different reference points at different times to then continue to build out your knowledge and information and make better decisions.

[15:48] Josiah: I love it. Are there things on your mind that you find yourself thinking about a lot?

[15:51] Paul Mengacci: There are so many things. Like everyone else, there's the macro side of the equation and just where we are going from that standpoint. So much of that has a direct impact on our business.

Most businesses and most consumers, but certainly when you look at it on the business side from a hospitality investment standpoint, to the extent that we have interest rates that are higher, labor costs and construction costs that are higher, that makes development of new hotels, or even acquiring existing hotels, more of a challenge.

And so what that then leads to, until that side of the environment has a little bit more stability, is: what can we do on the operational side of the business to drive that bottom line as much as possible? And so that's where getting into AI and figuring out the right places and the right types of technology to deploy is something that I am hyper-focused on, continually researching, continually discussing with our other team members, because it's very easy to get caught up in all of this technology that's out there.

It's very easy to go chase the shiny new penny and say, "Oh yeah, we absolutely need that," or, "That sounds great." But at what point have you added technology for the sake of adding it, and you've not necessarily seen the return on some of those? Now, we've shared examples where we absolutely feel we're getting the return on those platforms, and the connectivity of the systems and our teams, that information is critical.

But there may be other ones out there that either are not producing the level of return that you'd like to see, or maybe they're not being fully optimized by your existing team members. I think that's a key piece to look at too when we're looking at technology, whether it's AI-specific or technology in general. Before we go add anything else, are we fully optimizing the technology that we have in place today?

Because there can be a tendency to add and move on to the next one. Add, move on to the next one. But are we fully maximizing the potential of the tools that we've already put in place? And I've found along the way that there's usually opportunity to get back in with more training, more education, more conversations with your team to see how they're using the tools and the technology and what opportunities still exist.

Working together, we've done this with Actabl, certainly, with Hotel Effectiveness specifically. There were opportunities on our end to get the system implemented more and truly maximize the potential of all of the features it had to offer. And we were having a hard time on our end getting over that hump.

But by reaching out to our partners, we were able to say, "Can you provide our team with more support in this area?" And that's ultimately what we did, and we got over our hump. Now we're in a much better place of using that technology to its full potential, and we've seen financial benefits on the P&L as a result of that.

So it is constantly looking at the entire P&L, but certainly as it relates to tech: where are the right investments, where is the technology that is truly providing a return today, and where are the ones that we feel we need to add moving forward, not only for the benefit of the hotel and the team, but also to stay competitive?

There's a lot going on out there right now, and making sure that you continue to put out a competitive offering for your team members and for the owners of the hotels requires continually staying on top of all that's available.