Over the past few years, the practice of revenue management has evolved beyond simple and tactical approaches for managing guest rooms and pricing alone.
Automation and the processing power of the advanced analytics embedded in machine learning has played a key role in how revenue management has evolved to provide hotels with proven results. Hotels using automated revenue management have experienced immediate improvements in average daily rate (ADR), occupancy and shoulder night revenue, as well as overall advancements in revenue-driven processes, technologies and the people who manage them.
As revenue management and the automated technologies that power it have continued on this evolutionary track, an opportunity for a broader, more holistic revenue management approach has emerged. Below are four ways that a successful revenue management strategy can deliver ongoing profits for today’s hotel owners:
1. Go Beyond the Guestroom
The effects of a robust revenue management culture permeate different hotel departments, from marketing to sales to operational teams. Today’s revenue managers are beginning to evaluate total revenue contributions beyond just rooms guests stay in. This includes the management and pricing of meeting and event spaces, group business and ancillary revenues. Revenue managers are also evaluating costs, like reservation acquisition fees, to help the hotel focus clearly on profits—not just revenue.
While hotel owners don’t need to be heavily involved in these types of day-to-day operations, they have a huge opportunity to communicate overall hotel profit goals to senior management. This kind of open communication can directly influence the strategic role of the revenue manager and how they strategically manage the business beyond setting a price.
Consider this scenario: The hotel in question is a new asset and the owner wants to ensure that the new property penetrates the market effectively as they come into peak season without sacrificing profit and setting the wrong precedence for rates in peak season. Communicating this goal allows the entire hotel team to focus their strategy around achieving that objective and managing reservations costs as effectively as revenues to achieve ideal profitability. This is something that the competition may not even be considering, especially without visibility into their costs and production by channel.
2. The Operational Opportunity
Hotel owners have a huge operational opportunity to understand how insightful revenue management forecasts will not only positively influence their property’s profits but also help in the planning of staffing levels and inventory.
Accurately anticipating demand patterns that are not readily visible to the human eye allows the hotel to allocate staff across departments in response to low and high periods of demand. This supports optimizing wage costs and increases guest satisfaction since departments are staffed to handle the flow of guest traffic.
Detailed forecasts help anticipate expected demand in restaurants and spas—so the levels of perishable inventory, such as fresh food, can be accurately ordered, with waste minimized.
An automated revenue strategy powered by analytics can also indicate expected demand for hotels, allowing them to yield business that drives longer length of stay and onsite spend. These critical insights improve overall revenues—giving owners a complete handle on their hotel’s total demand, what it can accommodate and who they want to accommodate.
3. Not All Business Is Good Business
Occupancy, average daily rate (ADR) and revenue per available room (RevPAR) are good financial indicators of hotel health and have a direct impact on bottom-line performance. However, when hotels weigh one piece of business against another understanding profitability potential is key.
Hotels can be tempted to sell out their rooms to lower rated business in order to build a base, but they end up losing out on other business that would have driven more revenue. To help improve a hotel’s RevPAR or ADR, the right customers need to be attracted at the right price. Revenue management technology can provide analysis in identifying the highest valued customers.
For example, as Brian Douty, chief financial officer at IDeaS Revenue Solutions explains, group business has the potential to drive additional profitability when accepted under certain terms. However, disrupting normal guest booking patterns by accepting less profitable group business that displaces higher valued transient business can be a costly mistake. Fortunately, advanced analytical systems can assess the displaced inventory, whether it is guest rooms or meeting rooms, and the profitability a group inquiry brings versus the profitability of displaced transient or other group business. These insights enable owners and their revenue teams to confidently price and accept the pieces of business that will drive optimal hotel profit performance in the long run.
This is a complexity of revenue management that owners may find difficult to appreciate because it may seem counterproductive to turn down any kind of business. Trusting forecasts and market pricing will demonstrate over time that turning down the wrong business can lead to significant increases in profit.
4. Timing Can Be Everything
Investing in revenue management from an early planning stage—even before a property opens its doors for business—is important. When effective revenue management culture is established in the early stages of a hotel’s lifecycle, it informs everyone about the hotel’s direction and the path it’s going to take to get there. This makes the return on an investment in technology easier and quicker to obtain.
The investment stage is the ideal place to introduce revenue management since it can be capitalized to its fullest through feasibility studies, revenue projections and the resulting flow-through. It can further be used to set strategies and establish a long-term action plan.
Given the potential revenue uplift, hotel owners should capitalize on the opportunity to take an active interest in the principles of revenue management, building a revenue aware culture and implementing those processes across their hotels. By incorporating these four principles of better revenue management—owners can begin maximizing their returns and increase the lifetime value of their hotels and guests.