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Profitroom is a booking engine platform that hires 300 people and serves over 3,000 hotels in 50 countries. At the time of our projects, they were going for more than $15M in annual recurring revenue. A company was recently acquired by MCI Capital, one of the region's biggest software investments. It's one of the fastest-growing SaaS products in the travel & hospitality industry. The main value proposition is an engine that allows you to increase direct booking on your website, therefore hedging the hotel against fees of online travel agencies (OTAs) such as Booking.com or Expedia.
On top of that, Profitroom has a set of sub-products such as a channel manager (to manage calendars better and booking via omnichannel), marketing automation (increasing booking value and conversions), payments (to do it flawlessly with an operator) and a few others. By the way, these differentiating products were one of the primary reasons for success.
It was one of the first times we have worked with external consultants. The Valueships team did an excellent job carving out an entire pricing strategy, shifting our business model into new territories. Interestingly enough, we have felt or discussed some of these things internally, but they facilitated the discussion and pushed us in the right direction. They also supported the reasoning with fact-based analyses and data-driven arguments, which were required then. On top of that, we brought them to our annual all-employees meeting to deliver the workshop for the whole company, and they did really well.
We were approached by Anna, who leads the role of Chief Growth Officer at Profitroom, to ask if we can help create a new pricing policy for their business. While Profitroom grew substantially over the years, the company has accumulated a lot of discrepancies in its pricing policy, e.g., various discounts, numerous pricing policies, caveats, and edge cases. Something that is completely usual when a company grows at 50% CAGR, as Profitroom did. Also something that Valueships experts had experience in.
The goals ahead of us were pretty simple:
We can't lie here; analytically speaking, it was one of the hardest projects we had to do. First of all, the Profitroom business model operated on a few revenue streams:
Our project consists of three main stages:
Our revenue engine diagnostics, our usual go-to approach, had to be customized to the utmost extent. However, we have achieved our goal: we've established an effective take rate baseline.
Take rates are critical for the travel and hospitality industry because they're a foundation for capturing customer value. What is your part in the entire value creation chain?
We have compared commission and subscription revenue streams to the revenue flows created by the hotels. This led us to identify real impact in areas such as discounting and geolocalization differences and to the main hypothesis that a commission-led model should be the primary source of revenue creation.
We have gone the extra mile to analyze the competitors' business models, prices, and effective take rates. What is interesting is that we also received quotes via mystery shopper exercises and from industry experts.
Triangulating multiple data points led us to conclude which areas Profitroom was more expensive in and where it was cheaper than leading competitors.
Moreover, we have run some scenario modelling exercises based on various use cases to identify which business model is the most effective in terms of generated lifetime value. In other words, during the workshops with the whole Profitroom, we have made a decision, comparing multiple options with the pros and cons of each of them, e.g., full commission-based, hybrid, user-based, flat rates, etc.
This analysis was fundamental for the next steps – a full understanding of the value creation process.
This was the moment in which both Profitroom and Valueships could shine. First, the client's products were outstanding and differentiable on the market. Second, we at Valueships love identifying sources of value creation.
During live workshops with ~50 employees gathered in Poznan (add a photo later), we identified key value drivers for each product and built up successful value equations. This "Economic Value Analysis" (EVA) exercise was a foundation for further work. In other words, we have calculated the size of potential revenue or cost savings for each of the Profitroom models.
Based on that, during the following weeks, we will successfully build calculators and pass them to the sales team so they can create successful ROI calculations for their customers and win more deals at higher prices.
As for now, we see the highest impact on the internal expansion, and it's been over 6 months since the initial pricing implementation.
It's not over yet, because there are things left on the implementation side, so we're expecting the overall impact to be even more substantial!
Increased commission take rates by 30%
The value of new deals increased by 5-15%
The conversion managed to stay at the same level
