Let's Talk About Revenue Management

According to an interesting article I read recently, it stated that across all industries:-

The revenue management market size is expected to grow from USD 9.27 Billion in 2015 to USD21.92 Billion by 2020.”

For the hotel industry specifically, there is a lot of good information around at the moment regarding the subject of revenue management.  

It seems that now Revenue Management (RM) and Revenue Management System (RMS) are finally becoming fashionable to the masses and everyone has something to say on the subject.

During my seven-year tenure at SiteMinder I have been lucky enough to meet some of the legends of the RM industry and I have attended some , informative and well run RM events and RMS workshops.

Described as a cross between science and art there’s a lot to learn 

Like many who have been in the hospitality industry for a while, I have also seen the spawning of a plethora of very reasonably priced new RMS cloud based products.

There is more choice now than ever before

Of course there are still the premium “Rolls Royce” RMS systems, but suddenly taking the analogy further the biggest problem is that too many people simply don’t know how to drive. Or if they do drive they only want automatics because they don’t understand how to change gears, It seems you can pick up a "Mercedes" for a lot less money than you used to.

To quote Confucius “Real knowledge is to know the extent of one’s ignorance”

While some hotels and hoteliers have been using RMS for many years as part of their overall pricing strategy, unfortunately too many hotels and hoteliers have been very slow to come to the party.

The Pricing landscape has changed

With the explosion of online distribution, social media, smartphone technology and the whole web based booking ecosystem, rates are now "living and breathing things" - they are no longer static prices in a brochure like they used to be.

This in itself has created some problems though. Many hotels with no planned RM strategy see random discounting as the only tool in the tool box.

Understand The Opportunity

This evolution of the landscape has created a new world of amazing opportunities for hoteliers to fully utilise “dynamic pricing.”

Most well run hotels understand they need to use a channel manager such as SiteMinder these days to manage dynamic rates and availability. Many hotel utilise the benefits of integrating the channel manager to their property management system and the profit handsomely from doing this.

Sadly, harnessing this opportunity effectively by using proper revenue management techniques and revenue management system has been what is has been lacking.

So how do does a hotel prepare for this new wave of the revenue management revolution?

Create a Revenue Management culture

Amazingly many hoteliers do not even have basic financial benchmarking in place. It sounds obvious but by keeping a close eye on the financial metrics within your business it will allow for an even more considered revenue management strategy.

The challenge is to create a culture where all arms to the business are aligned to common goals and metrics. Create a business that is open to change and opposed to conflict – with a shared common goal.

As one article on "linkedin" noted recently:- "Revenue Management should allow users to drill down and identify problems, solutions, threats and opportunities – but without passion and a desire to change it may be ineffective”.

“Total Revenue Management will help you and your teams become better business people, better colleagues, better deal makers and better hoteliers.”

Understand the Concepts of Revenue Management

In Essence a hotel room is a highly perishable product. Unlike for example a television, where you can always sell it tomorrow, once a certain date has passed a hotel room cannot be sold again. The revenue is therefore irretrievably lost.

The skill comes in finding the measure of responsiveness of demand to a change in the price. In other words understanding the “price elasticity.”

Ostensibly if you are in a market where you have customers with a different willingness to pay, revenue management should make an impact.

Price too low and you will sell too quickly and be less profitable, but price too high and you may not sell enough and it will achieve the same result.

Understand your demand cycle too– for example concerts, a grand-prix and school holidays may generate more demand.

Develop the Disciplines Needed

Be prepared to Learn

Learn to be PATIENT

Learn when to say "NO" to business.

Understand the balance between pricing, your supply and your demand.

Understand when to change your pricing to match the market environment Understand the market segments of your hotel and what they cost and what they spend (Wholesale/Corporate/ Groups/ Walkins etc)

Understand that pricing decisions must be based on knowledge not on “gut feel” or "intuition."

Understand the metrics you want focus on

Therefore understand what your objectives are. Here are some examples of some of the things that will need to be understood:-

GoPAR      Gross operating profit per available room

RevPAR     Revenue per available room

NetPAR     Net rate per available room

ProPOR     Profit per occupied room

NREVPAR   Net Rooms Revenue per available room

TREVPEC    Total Revenue per Client

History - the final and critical point to remember

History repeats itself and is therefore something that also helps when forecasting the future.

Analysing and using true historic data is an absolutely crucial part of the whole revenue management process.

Therefore any true, reputable and credible RMS must have a direct integrated connection to hotel’s property management system.

In conclusion

A recent report it from Xhotels summed it up nicely :- 

“Revenue management is a science and an art. The science part will be as strong as the knowledge you can develop on your clients. The art part will be successful as much as the time you can spend on analyzing and setting strategies. Revenue management is nothing without forecasting. Revenue management is day by day strategies. Share a same vision with your team and colleagues: how strong will be the demand? When the objectives and the risk taking are rewarded, it is a great team accomplishment.”  

And as Maria Robinson once said “ Nobody can go back and start a new beginning, but anyone can start today and make a new ending.”

Keep Calm and Prepare to Evolve! 

But most of all – Enjoy the ride!