By Ahmed Mahmoud
Revenue management has developed from yield management and market analysis, where it is not secret or a passing fad, but it is critical to maximizing a hotel’s profitability, it might be “A dark science … Combining high technology and black arts”
The recent survey conducted by revenueyourhotel.com showing that there is a high link between RevPAR and profitability, indicates if the hotel take any actions to increase the RevPAR this will translate into improving the hotel’s profit. This is what is 94% of the survey statistical saying.
The survey includes some others statistics, finding out that 15% of key EBITDA hotels realized that revPAR is a key driver of GOP. Another 10% of these hotels are using the correct data to make decisions affecting their revPAR, and the shucked was only 5% of these hotels have regular Rev Max meetings to discuss revenue strategy.
The ultimate goal of each hotel is to generate more revenue, achieve high guest satisfaction, and high rank vs. competitors. When hoteliers implement the revenue management concept it was an assist tools to help achieving the mentioned goals.
Revenue Management represents the technique that helps hoteliers to achieve highest profits by correctly identifying the customer groups that the hotel has to serve (market segments), establishing the right (quantity of) products and services as well as setting up the optimal prices to be offered to these customers.
Who is the Revenue Manager?
In hotels the mission of the revenue manager is to implement revenue management strategies and processes, in order to optimize and maximize its revenues. At some point, revenue management started out as being in charge of reservations. Back then, no one really knew what Revenue Management was. ‘Since it’s to do with room bookings, so the guess was it should be with reservations.’
In those days, reservations were under front office. Suddenly people started seeing the value in the revenue management function, and they decided to put it under sales and marketing. And then the GM said this is really quite valuable and took it out of sales and marketing, not to mention the conflict between revenue management and sales.
Interestingly there is little agreement in the hospitality industry as to who the revenue manager should report to. A study undertaken by the HSMAI found that in response to the question “to whom do you directly report”
- 36 % said to the general manager
- 23 % to ‘other’ on property
- 16 % to the Corporate VP
- 16 % to the Regional Director of Revenue Management
- 9 % to the owner / CEO
Most hotels still have a revenue manager reporting to the general manager, but the problem is, I think no one really understands, or not everyone understands, what this Revenue Manager guy is doing.
However a Revenue Manager has to focus on multiple tasks during his daily work extended to the weekly tasks but some of these items have to be done every day. The results of taking these actions have a very far reaching impact on revenue generation and maximizing hotel revenue.
What is the revenue manager doing?
Few years back, the revenue manager job consisted of collecting and compiling data into Excel spreadsheets, analyzing the data to identify trends and making a decision about hotel rates. Now it’s an incredibly complex process that involves online travel agencies (OTAs), mobile marketing, hyper-interactive consumers, and direct competitors who consistently undercut their prices.
The job description and responsibilities for the revenue manager vary from chain to chain, but regardless of the hotel company, nearly all revenue managers perform multifunctional roles that extend far beyond optimizing room rates and forecasting group profitability. Revenue managers are fast becoming corporate leaders who chair rate strategy committees, train property managers in pricing strategies, and guide sales and marketing teams in the most effective positioning for their selling strategies and campaigns. Every decision they make affects hotel profitability and because of this the position demands a professional competent in their ability to manage both people as well as revenue.
Top habits and tips for highly successful Revenue Managers
1 – Last night performance:
Every hotel produces a ‘daily business report’, ‘Manager Flash report’ or ‘Manager Report’ that recaps all the activity within the last 24 hours. This daily report includes hotel statistics, like the total earnings from hotels revenue centers (eg: – Rooms, Food and Beverage outlets, Laundry, SPA, Shop rentals etc.) the report can be generated from the hotel PMS .
Figures from each revenue centers are represented in FTD (Figures today). MTD (Month to date) and YTD (Year to date), this figures are also compared with the Last year FTD, MTD and YTD figures.
Generated revenue must be compared with the budgeted figures to calculate the variance ( + / – ). This will also help revenue managers to track if these revenue centers are doing well or not and also in par with their forecasted figures.
While analysis the data, breakdown each revenue center to its performance indicator i.e. rooms (ADR, Occ. % and Revpar ) F&B ( no of covers, average check , RPAS ) ….etc
2 – Last Reservations activity made On/By:
Review all the reservations booked from yesterday. Look through them to answer some of these questions to come up with the proper strategy and actions .
A – Which market segments the reservation came from i.e. packages, corporate, retails? B – Which channel the reservation came from? C – Which days see more demand and pick up? D – What rates those reservation come in at? E – Reservation leads time.
3 – Pace report (Pick up report) Analysis:
Check the room nights and revenue picked up from last night and compare your pick up and business on the box to your Forecast & Budget of the month, to see if you still in line to meet your goal or not? If not, decide on the next step. If yes, are there patterns indicating a strong month and can you capture more revenue based on pace you are seeing? Moreover compare your pick up and actual of the day vs STLY to see if your forecast of budget was over estimated or there is no repetitive business or even drop on demand ……etc.
4 – Market Segment Review:
Within the pickup report analysis check the segments you are getting the bookings from. Whether it was transient or groups, what strategy worked well and what didn’t? Based on the performance of the segments decide on what you need to do boost business or extract more out of a segment.
For each segment, create a “value proposition” and product-price positioning strategy based on that segment’s unique customer needs and characteristics.
5 – Advance hotel Inventory Control:
Check for advance days, weeks and months if necessary, if there are any advance days where an inventory imbalance is creating an availability issue, if yes, resolve it. In accepting reservations, revenue managers must consider the working inventory, which is the full inventory less stayovers.
This is also a good time to resolve oversell issues in any room types. Check for sold out dates too. Decide on the oversell limit based on expected wash and lead time.
6 – Same Day Inventory Check:
Based on hotel history of no show, last minute cancellation and early departure, Decide whether you want the hotel to sell more rooms (overbooked) or you think the hotel is right where you want it. Communicate with the Front Office to let them know what you are planning to do if you are in an oversell situation. Keep them involve in this.
7 – Pricing Analysis/adjustment:
Pricing strategies are crafted to meet specific objectives. The first two are profit and revenue maximization. Profit maximization involves setting prices as high as possible to increase short-term profits at the expense of long-term volume. Revenue and volume maximization involves setting prices as low as possible to achieve higher sales volume at the expense of short-term profits.
As much as it is complicated to set the correct pricing strategy but doing weekly pricing adjustments is very common in hotels however based on business hotel is picking up revenue manager to make sure priced appropriately are set for high activity days or days where you are not seeing enough activity maybe the rooms are priced too high.
Accordingly hotel pricing strategy and adjustment could be on daily basis and could be 3-5 time per day according to pick up, demand trend, and comp set pricing strategy, where Revenue manager to check on what hotel competition is doing. Have they changed any prices or launched new special offers you should be aware of? If there are substantial changes compare it to the activity you are seeing on those days.
8 – Distribution Channel Analysis:
Nowadays a channel manager is a key component of hotel distribution and revenue management; OTAs are a vital part of hotel distribution business. But it’s important that you use them wisely and remain in control of decisions about hotel rates and availability.
Revenue manager is to make sure that hotel inventory is available in all channels, Sometimes hotels sell out of rooms on certain days on OTA’s or vice versa, make sure you have matching inventory available across all channels to avoid rate parity issues.
Channel management is a complex task, with lots of data to manage. The challenge is to make sense of all the information in a simple, quick and convenient interface, but to also be able to implement a distribution strategy. Putting 100% of your availability across all your distribution channels is not a strategy! A fine-grained approach is what is needed if you are to remain in control of your distribution and optimize your margin.
9 – Competitive Market Share analysis:
Revenue manager make the necessary market share analysis reports to understand hotel performance versus competitors, both in terms of occupancy and average rate, checking if hotel getting it’s fair market share? Use KPI like MPI, ARI, and RGI to benchmark the results of your hotel’s revenue management performance. What is your market penetration index?
10 – Budgeting and Forecasting:
As revenue management has developed, it has become more disciplined and technical in using a variety of analytics to predict consumer demand, and to optimize the inventory and price availability to maximize revenue. The essence of this discipline is in understanding the customers’ perception of product value and accurately aligning product prices, placement and availability with each customer segment.
The budget is indeed your first forecast; the forecast will reflect the expected situation in the short term (1 to 3 months). Forecasts will be compared to the budget. New rate and selling strategies will be applied depending on the new Revenue expectations to maximize Revenue.
11 – Weekly / Monthly meeting:
A viable revenue meeting should involve four structured components, should not last longer than an hour and should include an ample dose of accountability. Once a month a fifth component should be added. Imagine these components like concentric circles on a target-the meeting starts with the outermost circle and involves relevant general information, then proceeds to move progressively to more detailed and specific property information until the meeting reaches the center of the target where strategies and tactics are finalized. The five key components include:
- Marketplace dynamics and general economic climate;
- Competitive information;
- Hotel performance trends vs. budget and vs. comp set;
- Selling strategy
Responsibility for these components should be assigned to different members of the revenue team, with marketplace information handled by the director of sales and marketing or, in a smaller hotel, the GM.
From our observations and feedback, many hoteliers still think that revenue manager job can be done by anyone, as a matter of fact the tasks list for the revenue manager can be extended up to hundred and hundred tasks between daily , weekly, bio monthly, monthly ……………. Etc, it is not only related to revenue issues but also extend to sales and marketing, moreover it is not room revenue it is the hotel total revenue.
Today’s revenue manager can play a larger role in the overall success of the hotel than ever before. For the potential of the role to be realized, the revenue manager has to take a leadership role and gain the support of others in the organization. It is not always an easy transition and may not be the direction some leaders are willing to take. Just as a revenue manager should have a strategy to achieve hotel goals, they should have a strategy to reach their potential as a leader and influencer.