What would Andrew Carnegie think about Chargebacks?

By Blog

Andrew Carnegie, the Scottish immigrant turned steel tycoon of the American Gilded Age, still offers deep insights for how to run a business in the 21st century. Specifically for the current problem of chargeback disputes, it’s vital to revisit and dwell on his famous quote, “Watch the costs and the profits will take care of themselves.”

However miserable he was – and all the abusive labor policies aside – we can apply this to today in that nightly rates at hotels are largely market-driven. Yes, the work of revenue managers is critical to building ADR and occupancy, but the price you are able to command for your guestrooms is primarily influenced by overall demand, particularly in the ongoing era of COVID-19 travel uncertainty.

The only thing that is directly within the property’s control is its costs. If you itemize all your costs to reduce or, at the very least, prevent hemorrhaging, you will stand a far greater chance at remaining profitable no matter the market conditions.

Sadly, though, when it comes to chargeback costs, the hotel industry has not been so vigilant. We see the percentage of total reservations that result in credit card disputes as well as the total amount that’s ultimately refunded to guests, both of which are captured in the line on an income statement under ‘bad debt’ or ‘negative revenues’. But what we don’t see are the hidden costs which can quietly hinder profitability in a bearish economy.

While the refunds offered to between 1% to 3% of all guests – a conservative estimate – who initiate chargeback disputes is chalked up as a natural aspect of doing business, what hoteliers don’t see is the unremunerated wages for servicing those rooms that end up as unpaid for.

Just think of every frontline worker who contributes to upkeeping a guestroom including:

  • Time spent by a front desk clerk at check-in and check-out
  • Housekeepers cleaning the room after it has been vacated (and doing a stayover clean during multi-night, non-opt-out stays)
  • Rooms division supervisors who inspect the cleaned rooms and put them back into the available inventory for sale
  • Maintenance workers who must perform regular repairs
  • Accountants who must itemize the lost revenue as well as prepare documentation to support the hotel’s case in a dispute (what’s called representment)

All this time adds up to a far-from-negligible cost. If Andrew Carnegie were a hotelier today, he would be furious and would take bold, decisive action to stop the bleeding.

Our question for you then is: what are you doing to stem the losses from credit card disputes? TransForm offers you the best chance to accomplish this goal, so reach out and book a demo to see how you can keep your chargeback costs under control.

Learn more about TransForm

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