Imagine a busy hotel lobby with every room occupied and a constant revenue stream.
NB: This is an article from Demand Calendar
You may believe your revenue management team has done an excellent job, but it’s possible that you’re unintentionally missing out on a significant amount of money. This may sound unbelievable, but it’s a harsh reality for numerous executives in the hospitality industry who only focus on top-line revenue and fail to recognize the untapped profits that are slipping away.
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While comforting in its familiarity, traditional revenue management is akin to focusing on the tip of the iceberg, ignoring the vast potential lurking beneath the surface. It’s time to dive deeper beyond the allure of high occupancy rates and RevPAR. Instead, it’s time to pivot our attention to the often overlooked yet critical factor: Contribution.
By shifting the focus to the contribution, which is the revenue minus the cost of customer acquisition cost (CAC), hotel executives can achieve a higher level of profitability and efficiency. This approach was previously considered unattainable with a top-line-focused strategy. What’s more, the profits you could gain are not just significant but also have the potential to be genuinely transformative.
Let’s delve into why contribution-focused management is more than just the future. It’s the ‘now’ of the hospitality industry and why sticking to the old school of thought could cost you more than you think. First, we examine how revenue management has evolved and future trends. Is your revenue manager still stuck in the 1980ties, or did you invest in developing the revenue management team, tools, and technology to capture more profit?
Why change – What’s in it for top management?
Top management must initiate and support the shift to a profit-oriented approach. To make decisions to change the way things are, you need to see the benefits.
1. Profitability: The most direct benefit of this shift is increased profitability. By focusing not just on revenue but particularly on the cost of customer acquisition, hotels can boost their bottom line. While increasing revenue is necessary, the profit ultimately keeps a business sustainable in the long run.
2. Competitive Advantage: Focusing on contribution margin can provide a competitive edge in a highly competitive industry like hospitality. By understanding and managing CAC, hotels can optimize their marketing and distribution strategies to attract customers more cost-effectively than their competitors.
