Why running a hotel like you run your storage array could put you out of business.

<this post was updated on April 2, 2010>

Recently I wrote about why “Cost per raw TB” wasn’t a very good metric for comparing storage arrays.  In fact, my good friend Roger Kelley over at StorageWonk.com wrote a nice blog specifically “Comparing Storage Arrays “apples to apples” .  We don’t say this as a means to simply ignore some of the features and functions that some of the other vendors offer.  It’s just our helpful reminder that there is no “free storage lunch”.

So let me take you on a different type of journey around “cost per raw TB” and “cost per useable TB” and apply it to something outside of technology.  Hopefully this will make sense!!

Let’s assume you are in the market for a 100 room hotel.  You entertain all sorts of realtors that tell you why their hotel is better than the others. You’ve decided that you want to spend about $100,000 for 100 room hotel which averages about $1000 per room.   So, at a high level all the hotels offer that same cost per room.  Let’s call this “Cost per raw occupancy”.  It’s the easy way to figure out costs and it looks fair. 

You narrow down your list of hotels to three choices.  We’ll call them hotel C, hotel N and hotel X.   Hotel C and N have the same architecture, same basic building design, essentially they look the same other than names and colors of the buildings.  Hotel X is unique in the fact that it’s brand new and created by a group that has been building hotel rooms for 30+ years with each hotel getting better and better.  They are so confident in their building that it comes with 5 years of free building maintenance.   

So, you ask the vendors to give you their “best practice, not to exceed hotel occupancy rate”.  Hotel C tells you they have some overhead associated with some of their special features so their number is about 60 rooms that could be rented out at any given time.  The reservation system will let you book an unlimited amount of rooms, but once you get over 60 things just stop working well and guests complain.  Hotel N says they can do about 70 rooms before they have issues.  Hotel X says they have tested at 96 room’s occupancy without any issues at all.  

So, while at a high level hotel’s C, N and X were $1000 a room, after further review hotel C is about $1600 a room, hotel N is $1400 a room and hotel X is $1041 a room.  Big difference!!  Let’s assume each of these vendors could “right size” their hotel to meet your 100 room request but the room cost will stay the same.  So, hotel C would now cost you $160,000, hotel N is $140,000 and hotel X is $104,000.  So that my friend is what I like to call “Cost per useable occupancy” !!

Another way to do this is to have hotel C and N right size down to your budget number based on “cost per useable occupancy”.  If the $100,000 is the most important and you understand that you will only get to rent out 60 or 70 rooms from the other hotels, then you could save money with Hotel X by just purchasing 60 rooms in hotel X.  That would bring Hotel X’s costs down to $60,000 or a nice savings of $40,000!!  The net-net is you get 60 rooms across all 3 hotels but 1 offers you a HUGE savings. 

At the end of the day, as the owner of that hotel you want as many rooms rented out as possible.  The last thing you want to see happen is your 100 room hotel only capable of 60% or 70% occupancy. 

So, if you are in the market for a 100 room hotel, or a Storage Array, you might want to spend a little more time trying to figure out what their best practice occupancy rate is !!  It’ll save you money and heartburn in the end.  

I’ll leave you with this – based on the array you have today, what do you think your occupancy rating would be for your 100 room hotel?  Feel free to leave the vendor name out (or not) 🙂

@StorageTexan