Revenue Management: Optimizing Income Streams Across All Avenues

September 01, 2015

As I write this article, we are on the heels of HSMAI ROC and HITEC here in Austin, TX. What an amazing learning experience it has been; industry colleagues discussing Revenue Management and how to take it to the next level while keeping it simple.

It used to be that revenue management was just about room revenue and how to make each distribution channel add incremental revenue to your bottom line. Now we speak in terms of revenue strategy, optimization of the entire house. Industry leaders are discussing newer terms such as: Total RevPAR, Profit RevPar or GOPPAR, Net RevPAR, Total ADR, etc. and questioning the cost of acquisition, who is tilting the scales now, where does group fall into this new landscape, etc.

The Art and Science of Revenue Optimization today is to sell to the right customer, at the right time, for the right price, through the right channel, for the right cost. There was a time when the channel and cost was not as much of a priority as heads in beds were. It was about the relationship you had with a distribution channel to get you the most volume. Even the cost of distribution was addressed as the cost of doing business. Now as we dig deeper into the P&L statements, we focus on maximizing the house through achieving the highest Total ADR we can get.

RevPAR by definition is revenue per available room. Total RevPAR focuses on entire house revenue. This includes all F&B outlets, meeting space and any leased space as well. Profit RevPAR or GOPPAR is based on gross operating profit before expenses and Net RevPAR is determining your cost of acquisition for that guest. Boy can this get complicated for strategy and ownership. At the end of the day, you report on what is important to the hotel – what is taken to the bank.

What you take to the bank is as important as how your team at your hotel helps acquire it. Does every staff member feel as if they are part of the revenue strategy? Do they realize that their contribution helps the hotel profit? Training courses like HSMAI RO2WIN and HEDNA U provide training to non-revenue mangers and staff on how they are part of the revenue team. Different companies like TSA Solutions work with your front desk personnel on identifying upsell potential as the guest has arrived. TSA Solutions works closely with the property to maximize revenue during the moment of check in, and in addition provides a full-service approach, including an ongoing process of team members training, consultation and technology to ensure the guest is matched with the room that best fits its needs. Some RMS systems like NOR1, works with your hotel to alert the guest before they arrive (via email or SMS) to see if they would be willing to pay for an upgrade; playing on the guest’s excitement for the upcoming trip.

Now that you have identified how everyone is part of your revenue team and have reviewed the tools that you have to ensure they reach their goals, we can now go back and focus on revenue strategy and optimization. First and foremost, communication across all departments and staff levels is super important. Everyone should think of themselves as an oar on the canoe and everyone needs to be paddling in sync to so you can get to your destination. Jennifer Hill, of Highgate Hotels, suggested the sales and revenue team should think of the way they interact as the catcher and pitcher on a baseball team. They rely on one another to be successful, and it is important that both positions communicate clearly and openly and work together to achieve ultimate success: winning share and beating goals. Either way, being on any type of team, means that everyone needs to understand the clear message and how every member of the team is going to help the hotel to meet its goal. Since not everyone is on the same level of understanding yield management and how it works, it’s important to know your audience and speak to them in terms that they understand.

Digital and Social marketing are the word of mouth channels of today. This is addressed over and over again. What’s your content like? What do others have to say about you? Are you on top of this? Do you know your scores? People are looking for a hotel to be a part of their experience and many times are the best advertising for you. We live in a selfie and GoPro world. Are you asking your guests to tag you on their experiences? This is a free opportunity for your establishment to get noticed. Did you know that you can join into the circle of your guests? Once you do that, your review scores will go up and you can begin to add your experience factor to your rate. Another opportunity is to have employee advocates. Consumers weigh the recommendation of a trusted source more than general advertising.

Distribution channels today are in a consolidated world. With the Duopoly of Expedia and the Priceline Group, your cost of acquisition is much higher than it was before. We are not speaking of just margins, but also of SEO and SEM. Do your 3rd party contracts protect against this? Make sure no one is bidding on your key words. While GDS and commission reservations have a cost, are they lower than your 3rd parties? Have you assessed which distribution channel also has more cancellations/ refund requests? Have you considered the cost of your staff and how much revenue they produce for you? All of these items affect your Net RevPAR.

In speaking with Shawn Williams, President and CEO of Spring Metrics, he shared with me his product. Spring Metrics provides a real time personalization solution that allows you to engage with visitors to build relationships and increase bookings. All of this sits on top of an analytics tool that’s available as well. Kathleen Cullen, SVP of Revenue and Distribution for Commune, shared during HSMAI ROC how her brand is getting more out of the customers that are coming to the site, so they can better market to them and have them convert using a different product/company that works for their brand.

Now that we have discussed how to attain increased revenue, let us approach the topic of the target market. It’s always about who is willing to spend money on travel and how they travel. Millennials comprise circa 81 M in comparison to circa 50 M Gen Xers. Establishments that have not focused on this demographic will be missing out. This is the generation that grew up with technology and is willing to pay for experiences. While they will pay for the experience, you will also benefit from the digital and social marketing they will do by tagging you as part of their experience. Where are they looking for these experiences? Mainly in your public spaces and outlets.

Next, let us discuss fences since we now have identified the market. Fences used to be focused on hurdle points to help the shoulder dates increase while slowing down demand on peak days. Today’s definition of fences also includes distribution channels and how the distribution channels use it to elude exclusive deals for their customers. Some channels such as mobile are promoted as fenced and therefore sold as being to be hidden from the public. Industry leaders like Linda Gulrajani, CRME VP, Revenue Strategy & Distribution from Marcus Hotels & Resorts believe that mobile is a just another distribution channel that is not necessarily exclusive.

Each channel, fenced or not, needs to be reviewed for cost of acquisition. More than 90% of bookings eventually end up on a mobile site. Mobile is not just our phones; it’s our tablets, chrome books, iPads. I would suggest coordinating with your website provider in making sure you are mobile optimized. Then offer the best rates through your booking channels. This after all is your lowest cost for a transient booking. All the above mainly addresses transient business, so now let us touch on group. Group business is making a comeback; we just need to focus on getting our team strong enough to be comfortable to push the Group ADR. Since pricing is based on demand, if hotels calculate demand wrong, pricing will be wrong and your optimal mix will be incorrectly tilted. Erik Browning, VP of Business Consulting for Rainmaker, shared how important forecasting demand is as the same lead can come from various sources.

How about your sales team; are they soliciting, knocking on doors, and networking to gain the best exposure of not just your rooms but also your F&B and meeting space? Let’s talk about your F&B and meeting space revenue strategy. At HSMAI ROC, Monica Xuereb, Chief Revenue Officer, of Loews Hotels & Resorts presented the concept of dynamically pricing Banquet Food & Beverage as well as Meeting Space. Similar supply and demand dynamics exist in Function Space Revenue as in Rooms Revenue which allows the opportunity to flex pricing and yield according to forecasted demand. The key is to have the right data to make these decisions and influence Total Revenue and Total RevPAR.

Steve Rubin, Founder of Tri Hospitality and adjunct professor at NYU, teaches the difference between price setting and strategic pricing which is the difference between reacting to market conditions and proactively managing them. By having the right tools, training, as well as motivating your staff to be part of the revenue management process, optimizing your revenue streams is very doable. Are you ready to grow up with revenue management as it develops in its teenage years?

Reprinted from the Hotel Business Review with permission from www.hotelexecutive.com.