I’ve been thinking a lot lately about moving forward in the field of Hospitality Revenue Optimization.
NB: This is an article from Strategic Solution Partners, one of our Expert Partners
As an industry, we have discussed moving towards a total revenue optimization model ad nauseum for years but achieved only limited success in meeting room space management. It’s time hospitality fully embraced the discipline.
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Challenges such as ongoing staffing shortage showing no end in sight and operational leaders wearing multiple hats, as well as the availability of better data in our industry make now the perfect time to take this leap.
What is Total Revenue Optimization (TRO)?
First, let’s start with a solid definition of total revenue optimization. At its core, it’s a concept of maximizing not just revenue but profit, through all time-perishable aspects of the hotel’s revenue streams. One leader spearheading, analyzing data and collaborating with the other revenue stream leaders, providing cohesive strategic direction for the entire property.
Why advance to a total revenue optimization model?
What’s the big deal about performing under a total revenue optimization model? In order to answer that question, you should first ask yourself the following:
- Could each of my revenues be managed as strategically as that of rooms in order to maximize the entire hotel’s revenue?
- Is there an opportunity to reduce costs and align efforts between departments?
- Are there other ways to ultimately improve my hotel’s performance?
If the answer to any of those questions is yes, TRO is the model your organization needs to move forward, because it addresses the barriers to efficiency caused by the different departments not complementing each other sufficiently to maximize revenues and profits. The need to make sure all streams complement each other to maximize revenues and profits is the logical evolution. When every department embraces the total revenue optimization concept, it will position their contribution not just as an amenity to the guest and a cost to the hotel but above all, as an additional income stream increasing the profitability of the hotel.
How do we execute this change?
There are a few steps. In the first part of the process, we must overcome the perceived barriers to moving towards a total revenue optimization model. In my opinion, the 3 largest are:
Financial Barriers – Our current set of primary performance metrics are not suitably structured to move forward with total revenue optimization. Our industry has always and still laser focuses on RevPAR and RevPAR growth more so than profitability. We must learn to expand our focus past RevPAR into TrevPAR (total revenue per available room), and ProfPAR (profit per available room). Additionally, there will be a need for better analytics, likely requiring financial investment as well.
Organizational Barriers – The culture of the hotel industry is extremely siloed. Each department tends to work as an independent unit instead of a cohesive organization with one direction of strategy. Changing the team’s mindset is a must to move forward.
Technological Barriers – Upgrading systems to integrate and gaining permission from larger corporate organizations can present its challenges. At the onset, Revenue Leaders must add to their repertoire the various point of sale systems along with the current systems.
What’s the best way to develop and nurture a Total Revenue Optimization culture?
The best way is a two-phased approach. The first phase is the learning phase. As revenue optimization leaders, we must focus on analyzing, working with other departments, understanding each department’s nuances, strategies, and metrics.
The second phase is to create a total revenue strategy team and begin execution. Identify rollout timeline. Determine the most impactful revenue stream and focus on it first. Measure results and adjust strategies as learning unfolds. Maintain momentum by meeting often, conducting candid discussions, and adjusting as needed.
Ensure there is a cohesive understanding of the metrics.
Measuring success is a vital part of any strategic discipline. The focus must shift from RevPAR and RevPAR Index to an average revenue per guest (ARG) model. Learn from what is already in place within our rooms divisions and apply those tools to each of your hotel’s revenue streams.
Avoid overwhelming the team with all the numerous metrics by department and focus on a few key metrics to start. Keep the focus on one or two metrics and grow the depth as the team grows strong in managing total revenue. The metrics to watch during this process are:
TrevPAR – total revenue per available room total hotel revenue/number of available rooms
GOPPAR – gross operating profit per available room gross operating profit/number of available rooms
ProfPAR – profit per available room operating profit/number of available rooms
As the team gains confidence and knowledge, keep the momentum going!
Maintain your momentum by meeting often, conducting candid discussions, and adjusting as needed. Build your timeline of the rollout and work hard to stay on schedule. Measure consistently, and, as with everything in life, encourage change and celebrate the wins. Here’s to much success in your brand new venture!
