Once the IC Factor is quantified, the Seller’s Profit is also quantified. The IC Factor refers to the actual, real, cost a company incurs when outsourcing the task to generate additional sales. The cost, to a hotel, to provide a room that would go unsold should, certainly, be less than 25% of rack rate.
A hotel with 10M in corporate sales, 9M in expenses and 1M in profit. Income is exclusive of revenue from consumers, not-for-profits or government contracts. The hotel’s unused and unsold capacity is estimated at 10M and the IC Factor at 40% including sales commission and fees. From the data, a Trade Budget of $500,000 (5% of 10M) is extrapolated, representing the amount of business that will be conducted with the hotel during the next fiscal period.
The Trade System allows for a small portion for the available inventory (5% to 10%) to be sold using a combination of cash and trade credits, resulting in sales made at 50%, or more, profit margin.
The remaining 90%-95% is available for in-house sales and sales by the OTAs.
This represents 50% of the available inventory sold by the hotel’s In-House Department, leaving 50% in unused and unsold inventory. There are two ways for the remaining inventory to be marketed:
1. Additional sales by the Sales Department, and
2. Sales via the Outside Travel Agents (OTAs), Expedia, etc.
Both methods entail large discounts. To maximize revenues from this inventory, it is important for the available inventory to be as large as possible.
The IC Factor for the hotel is 25%. A 10% commission is added and 5% for the System’s charges for a total of 40%. At the end of the fiscal period the hotel will have sold $500,000 in services at a 60% profit margin.
The trade credits earned from sales are spent, via the procurement department, to make dual-currency purchases, balancing the trade account.
The System allows for the hotel to outsource, never more than 10% of the unsold capacity, at rack rate and for cash, using the private currency as part of the transactions.
Economic Advantage of the IC (incremental Cost) Factor
This represents a hotel’s potential revenue, based on 100% of the rooms being sold at rack rates, and all other services being 100% sold, 100% of the time.