You may understand the essential role revenue management plays in your hotel’s operational and commercial success, but who’s paying the bills?
NB: This is an article from IDeaS
Over the past year, the global hotel industry has been locked down in survival mode. Now, as hospitality and travel show signs of recovery, hotel owners and board members are taking an increasingly active interest in how their investments are managed ahead of the pending rebound. They’re ready to get back to business as
usual never before.
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With many organizations running lean in the aftermath of COVID-19, an engaged owner approach can lead to welcome levels of property management direction and support. Or, on the flipside, it may result in revenue and general managers scrambling to justify their operational and technology practices (or desires) and communicate effectiveness to people generally focused on one thing: the bottom line.
While revenue management is not a new industry practice, it’s not always fully understood or appreciated by ownership. So, how should revenue leaders “in the trenches” demonstrate the value their practices and tools deliver to their boss—or their boss’s boss?
Revenue Management Is a Cost Saver—Not a Cost Center
Many property managers have firsthand revenue management experience and recognize the technological benefits and potential for maximizing revenue. However, there is the occasional hotel owner who still sees revenue management as an additional cost and something that’s “nice to have.”
When utilized to its fullest potential, an automated revenue management system (RMS) positively impacts efficiency and improves operational performance across an entire property. Its advanced forecasting capabilities help hotels better manage staffing levels across all departments. For example, if a hotel can anticipate accurate levels of demand, it can ensure the optimal number of staff are working and avoid under- or over-staffing during periods of higher or lower demand.
As demand levels begin to return throughout the year, it will be important that hotels are staffed appropriately to make the guest experience smooth and pleasant. Guest satisfaction is a critical driver of repeat business, reputation management positioning and brand perception—all important impacts in an asset valuation. This same principle can be translated throughout the hotel’s entire operation for better overall staffing and inventory levels. Optimized wage costs translate into savings which contribute directly to the hotel’s bottom line.
Attract the Right Guest for the Right Price
Hotel higher-ups are surely aware that not all business is good business. But hotels that don’t utilize revenue management technologies and strategies can easily fall into the trap of selling out to lower-rated business, thereby leaving money on the table from higher-rated business opportunities. Remember, a full hotel does not always make a profitable hotel (these days more than ever). Through the use of an automated RMS, hotels will better identify customers who provide the greatest long-term value.
To identify guests offering long-term revenue potential to a hotel, properties need to take a holistic view of its guests’ activities, not just their room spend. Data from transaction systems should be integrated to provide a true picture of a guest’s preferred activities and their overall value, considering all ancillary spend from online reservations to check-out, food service to spa services, guest rooms to gift shop, and more.
In addition to making more profitable decisions, this data allows hoteliers to make more informed decisions about promotions, service offerings, inventory levels and F&B options. Furthermore, this integrated behavior data supports wiser pricing decisions, supplier choices and financial strategies. Forecasting and optimization can then provide controls to ensure revenues are maximized across the entire operation.
Improve Hotel Value
The flow-through additional revenue that comes from the proper utilization of revenue technology and strategies can directly impact a hotel’s bottom-line results, making it a valuable tool in increasing a hotel’s valuation.
Increased revenue leads to higher cash flow, which has a number of benefits from giving the hotel greater day-to-day liquidity, to having money in the bank, to generating interest. By using revenue management to increase revenues on a regular basis, the amount of cash available after expenses also increases—making further reinvestment possible. This powers a positive cycle of higher revenues. To improve cash flow and grow the property value, it is truly in ownership’s best interest to ensure they lead the way when it comes to revenue management.
Additionally, for those owners or group investors with multiple properties, or those looking to expand their portfolio, setting revenue management standards across a hotel group or chain will improve the performance of the overall portfolio. Through data collection and property comparisons, hoteliers can better determine how to price a hotel chain in different countries. Accurate forecasting data, combined with market research and analysis, also makes it possible for hoteliers to carry out realistic feasibility studies for future hotels looking to join the group, refurbishment investments, or to assess future opportunities to open new hotels.
The Proof Is in the KPIs
A hotel’s revenue management performance may have traditionally been measured by average daily rate (ADR) and revenue per available room (RevPAR); however, the practice has evolved past only using these standards. New revenue management principles can be applied beyond just rooms, or even beyond a single property itself. Today, hoteliers can look at how their hotel is performing compared to the wider market. To do this, it is vital hoteliers identify the right comp set and review regularly.
Hoteliers need to look at location, product and service in addition to what guests are saying about these hotels. Once the right comp set has been identified, a hotel’s market penetration index (MPI) is determined by dividing the hotel’s occupancy by the market’s occupancy. This metric is important as it allows hotels to see their position and performance in relation to their competitors and the market in general.
While a hotel owner or board member will not need to have intimate knowledge of all hospitality industry financial measurements, it is important that all departments—sales and marketing, finance and operations—use standardized definitions and approaches so the business’s performance can be easily articulated to all owners or investors.
The year ahead is sure to be challenging, but it holds the potential to be highly rewarding for hoteliers who make smart decisions now. Hotel owners whose priorities align with property-level management on the value of investing in revenue management will not only survive but thrive in the boom years to come.