Sales and Revenue Management: Why Can’t We Be Friends?
According to the 2019 AMEX Global Meetings & Events Forecast,1 the meetings industry is in a period of consistent growth, with small but meaningful increases projected in meeting sizes, length, and number of attendees. And although trend data2 supports that room night share, guest-paid RevPAR, and group ADR have been relatively flat, the group/meetings customer segment remains a strong and steady source of hotel business.
NB: This is an article from Rainmaker
Business meetings, conventions, sports tournaments, educational gatherings, and others all provide lucrative opportunities for hotels. They are sources of repeat business, fill rooms during off-peak times, and – in conjunction with accurate forecasting – create compression that helps maximize transient revenue. Unfortunately, when it comes to group business, revenue and sales don’t always see eye-to-eye.
While we’d all like to believe that every hotel department is working toward the same goal of making their hotel the most money and the most profitable as possible, in reality we know there are different motivations in play. Revenue management (RM) strives to convert bookings and drive ADR and, in the eyes of some DOSMs, is often given too much leeway in controlling inventory and rates. On the flip side, sales managers work tirelessly to secure as much group business as possible, but at times may not fully consider or understand the potential for higher-value groups that that may come later, seeking that same inventory
All to often, the sales team doesn’t have access to the big picture. When they can’t understand the what or the why behind the suggested rates from RM, they’ll view them as a roadblock between them and paydirt. If sales managers don’t have the tools they need to get instant, scientifically generated demand forecasts and pricing, revenue teams won’t trust them. Hours, sometimes days, of navigating through meetings and layers of approvals are then the end result. And as any sales professional knows, time kills deals.
This fundamental misalignment among your teams ultimately prevents your hotel from achieving peak performance, leading to sub-par key performance indicators (KPIs), lost revenue, and lackluster performance relative to your competitors. This can also deteriorate into an unproductive cycle of politics and power struggles. Your hotel cannot maximize profitability solely by managing inventory and rates, nor by booking as many groups as possible. To achieve success, a significant culture shift must occur where sales and revenue departments work together with the entire property’s profitability as the main objective.
There may be days when your hotel needs to push group occupancy down in order to drive ADR. Other days will warrant a need to accelerate group business and sacrifice ADR in order to reach an overall target. Both teams must always work in lock step in order to achieve the right business mix to optimize revenue and profitability for the hotel.
The issues that stem from conflicting motivations between sales and RM don’t stop here. DOSMs can get frustrated when they don’t have easy access to historical trends and/or other data to help them quickly determine the best rate to quote. This lack of instantly available information makes this a painstakingly manual and long process. And when they can’t easily understand how their decisions impact a hotel’s performance, they’re sometimes quick to make decisions that are less than optimal for overall revenue and profit.
In the last 10-15 years there have been significant advancements in traditional RM processes and technology that have fundamentally changed the way DORMs manage and price inventory. But the quoting process for group business had never been disrupted until recently. As a result, there are countless group sales teams still executing the same, outdated playbook. Time is wasted, deals are lost that could otherwise be won, and revenue is left on the table (or maybe it’s going to your competitors’ pockets).
The process is nuanced, involving multiple steps from the point at which a request for proposal (RFP) is received on through to contract execution, or lack thereof. Today, planners can submit multiple RFPs digitally within minutes. We’ve seen a 300% increase in group RFPs3 over a five-year span. As a result, DOSMs are swamped with wading through unmanageable volumes of leads while uncertain as to which are the most valuable and worthy of their time.. It’s a difficult and time-consuming process that results in declining conversion rates.
With long booking horizons and uniquely customized requirements, group pricing is yet another key challenge to face within any hotel’s revenue strategy. Non-room revenue streams from function space, F&B, etc. only add to the complexity.
Evolve or Repeat
It’s tough to break old habits. But the hotel industry is at an inflection point and change is necessary. Securing the most valuable meetings business requires breaking free from today’s fragmented ecosystem of siloed departments and inefficient, manual processes. RM and sales must stop duking it out and begin to work with one another. This requires integrated technology that ensures cross departmental team alignment by providing shared data integrity and actionable insights. Hotels must evolve to the point where they’re managing group business as tightly and scientifically as they’ve being doing for years on the transient side.
Seventy-five percent of group RFPs are awarded to one of the first five properties to respond.4 Innovative tools now exist to prioritize leads and enable quicker responses to RFPs. The industry has seen response times drop from weeks to hours. This allows hotels to quickly zero in on the most promising inquiries by optimizing the lead intake and qualification process which results in higher conversion rates. These solutions can also provide alternative stay date recommendations for highly compressed dates, helping properties fill need periods as opposed to displacing high-value transient business.
In addition to creating more alignment with technology solutions, maintaining open communication is also critical. Encourage both sides to meet on a regular basis. Sales will come to see how the value of a group is impacted by a variety of factors. And they can share which groups will likely turn into lucrative, repeat business. RM will grow to understand what it takes to secure new business. And they’ll be able to more effectively use the right group business as a base to drive higher transient rates.
Group Demand Impacts Pricing
Nothing affects your bottom line as much as optimal pricing. In order to achieve this, an accurate estimate of anticipated demand, from both group and transient business, is critical. Accurate group demand forecasts must look beyond transient displacement. Other elements such as market conditions, comp set pricing, market segment characteristics, events, LOS, and more must all be considered; not to mention other ancillary revenue streams such as event and function space, ground transportation, equipment rental, audiovisual support, and F&B contribution.
F&B is an increasingly important consideration as a group revenue stream. A recent International Association of Conference Centre (IACC) survey5 of event planners ranked F&B as the third most important factor in their site selection decisions. And with the increasing margins seen in F&B,6 61 percent of hotel general managers and F&B directors are planning net growth in event catering.7
The right technology quickly accounts for multiple components, ensuring that you convert the right group business while reducing costs and streamlining processes. In addition, rather than RM and sales wrestling over static minimum available rates (MARs), your sales team will be instantly armed with optimized pricing recommendations that will maximize total profitability for each group. Sales will be happy. RM will be happy. And management will be happy with the end result.
While you may hear whispers about the appeal of virtual meetings, a study by Oxford Economics8 confirms that group business is here to stay. Face-to-face meetings were the clear winner among corporate executives who perceived virtual meetings to be 85 percent less effective with prospective customers, and 63 percent less effective with current customers.
Hoteliers committed to effectively winning and managing group business must understand that it’s a team sport. It requires a constant flow of communication and data among all departments. And when applied in conjunction with the right tools and tactics, the yin and yang of RM and sales will balance the complex process of group business management, leading to many profitable years of hosting face-to-face events.