As hotel roles are consolidated and responsibilities are expanded, many hoteliers are not only asking their staff to do more with less, but are also considering what will be the most effective revenue management approach for their property, group, or estate given the market outlook.
NB: This is an article from IDeaS
Today there are three common approaches to revenue management your hotel can implement:
An on-property revenue manager is the traditional approach of having a dedicated revenue management professional (or team) working onsite to drive revenue decisions and support the overall commercial function of a hotel.
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A cluster revenue manager works remotely from a corporate office and is responsible for a group of properties, determined by location or brand, and are expected to make strategic revenue decisions for up to a dozen, or more, hotels every day.
Finally, there is the option for outsourced revenue management services which sees a hotel hand over the management of its room pricing decisions to a specialized partner or consultant group.
To help determine the best application of revenue management personnel for your hotel, let’s take a closer look at what is involved and the benefits of each approach.
On-Property Best Practices
In the past when hoteliers sought to improve their property’s revenue performance, one of their first steps would be to hire an on-property revenue manager. Typical on-property revenue management roles focus on forecasting demand, adjusting pricing by channel or rate categories, managing room inventory in direct and third-party channels, evaluating group bookings, and participating in annual budget process and monthly review.
However, given the rapid pace of change within the industry, on-property revenue managers today should be elevated and form part of a hotel’s leadership team or executive committee.
Many hoteliers today are transforming their previously tactical focused revenue managers into more strategic commercial analysts, with success. These modern-day commercial strategists no longer focus solely on room revenues but consider a hotel’s overall financial potential. This is done through analyzing and optimizing all revenue and profit-generating streams (rooms, meetings & events, food & beverage, etc.) to strengthen a hotel’s financial performance.
Hotel groups looking to establish cluster revenue management across their portfolio of properties must consider how to allocate the costs for this department. Will it be a subscription-based service fee, or will the costs for accessing the cluster revenue management department be split (in some way) among the participating properties?
Subscription-based service fees are popular with managed or franchised properties, paying a certain amount of money per month to the cluster revenue management service center to receive professional revenue management services in return. On the other hand, cluster revenue managers are also used by owned properties, where the participating properties share the expenses of the revenue management professionals or team. In such cases, fees can be varied based on the number of participating properties in each cluster.
In the subscription-based model, the headcount of revenue management professionals or team belongs to the corporate office. The revenue management professionals will be part of the corporate structure and report to the leaders in the revenue management service center.
Tools like IDeaS Optix can help cluster revenue managers quickly gain insights from rolled-up data across multiple properties, spot outlier performances across the portfolio to prioritize time and resources, and recognize important trends as they occur.
For hotel chains without an established revenue management service center to execute cluster revenue management, or the budget to bring on an on-property revenue manager, an outsourced revenue management service may be best.
In evaluating if the outsourcing of revenue management operations is appropriate for your hotel, it should be considered if the existing in-house team would each have the experience and ability to operate key systems, such as a revenue management system (RMS), property management system (PMS), central reservation system (CRS), and channel manager?
Also, does the existing team have sufficient knowledge of the local market, including competitor activities and experience in setting accurate rates? If the answer is “no” to any of these questions, then outsourcing revenue management activities to a group with specialist knowledge and experience may be a better option.
Any outsourced group who take responsibility for your revenue management operations will require access to accurate data and have to use automated technologies to support accurate and efficient pricing decisions. In the age of big data and machine learning, an outsourced revenue management provider must operate with an RMS. Hoteliers should question any outsourced partners as to what technology they use and if those systems are fit for their purposes.
Benefits & Limitations
Depending on the style of hotel you operate, there are distinct advantages and disadvantages with each approach to revenue management.
On-Property Revenue Management provides the widest range of commercial support to an individual hotel, compared with other approaches. A property revenue manager can offer detailed support for commercial planning activities, owners’ review meetings and in-property training. However, experienced revenue management professionals are scarce resources. Even if you have one, you may not keep them forever as they outgrow working for one property alone.
Cluster Revenue Management offers hoteliers the ability to access qualified revenue management talent within a reasonable budget. In addition, cluster revenue management professionals provide best practices that can be shared amongst a hotel portfolio and have direct corporate team support, such as access to regional marketing and loyalty departments. The challenge with cluster revenue managers is that they are shared between properties and have real limitations on the time and tasks allocations they can provide to any single property. You may not be able to directly engage a cluster revenue manager at any given time, even if it is critical to your hotel.
Outsourced Revenue Management Services may be the most cost-effective solution among the three approaches, but also come with the most risk and limited scope of support. The outsourced revenue management provider should leverage advanced RMS technology to optimize performance, and the hotel itself must have a solid foundation of IT infrastructure to support the remote professional services.
The Choice Is Yours
There is no right or wrong answer when it comes to which approach to revenue management should be adopted by what style of hotel today. Each approach to revenue management must be deliberately evaluated by each hotel based on their needs. For some hotels this may be to bring on an in-house specialist to work closely with all commercial departments, while for others a better option may be to hand over pricing decisions to outside experts.
Whatever approach your hotel takes, it is important that once the initial model is chosen, a change management practice is enacted to align all stakeholders and establish processes to achieve the best revenue outcomes for the hotel.