Mr. Parker

Revenue Management

Outsourcing Revenue Management

By Juston Parker, President & CEO, Parker Hospitality Group, Inc.

Revenue Management continues to change rapidly. The days of "right room, right person, right price at right time" have long disappeared. Keeping up with the latest trends and keeping staff well educated is increasingly expensive and difficult. Outsourcing a property's Revenue Management has become a real and viable solution.

Today's hotel guest is savvy, shopping around for the lowest-priced room. The average guest visits five Internet sites before they make their reservation. The playing field has evened out, creating a greater challenge for the Revenue Manager in how they manage inventory and rates. The ability to maintain parity becomes paramount in a successful Revenue Management strategy.

Revenue Managers also present challenges for a property. What is their role? What does their job consist of? In the industry, most Revenue Managers really are Reservations Managers handling the duties of both jobs. This, of course, takes away their focus from both managing revenues and managing reservations. Not exactly a win-win situation.

Now, factor in the ability to compensate and retain a skilled Revenue Manager. While the concept of Revenue Management has been around for a while, the true discipline is less than 10 years old. Yield management of the past has given way to a truly more dynamic specialty. In major markets, an experienced Revenue Manager earns upwards of $60,000 plus incentives, with many approaching $100,000. And with such young, inexperienced managers, many are job hopping with ever-increasing offers. What makes them worth so much? Studies show that a property with an effective full time Revenue Manager makes twice the profit than a property without one.

What is Revenue Management?

In order to see how outsourcing Revenue Management works, let's first drill down on Revenue Management as a discipline.

Revenue Management is the mastery of the basic laws of economics: supply and demand and price and value. When these variables are optimized, Revenue Management performs at its best. There is a finite supply of rooms in a market at any given time. Some would maintain this is not the case, with more rooms being built and others going out of service. In tracking this trend we know that supply fluctuates over a larger period of time but demand is what wildly changes on a regular basis. Demand Forecasting is a skill that looks at trends and identifies demand by segment and time, marrying them to a strategy. Many properties see forecasting as an end to a means, when it should be a means to the end.

The second law of economics we need to touch on is price and value. Everything that has a price has some sort of value. In addition, any item that someone will pay for has a value. Effective Revenue Management analyzes that subjective point where price and value meet. When that "point" is discovered, the best price can be set to meet the needs of a specific buyer. This creates increased conversion and improved profitability.

On property Revenue Managers - even the best ones - often fail to look beyond their local market to make the best decisions for their property. Doing this takes time, effort and money. In outsourcing Revenue Management, a property can benefit from a "broader perspective" on current trends as well as aggregate data from a wider array of sources. This type of information creates a strong competitive advantage in any market.

Most often, outsourcing costs less than the average annual salary of a Revenue Manager and, most of all, it gives you access to a team of experts that is always looking at the big picture.

What about Revenue Management Software?

Revenue Management software is the hot new thing. Many properties are buying into "new" technology solutions that claim to handle Revenue Management. In fact this type of software can only compliment the decisions made around revenue strategies. The price for these systems is often in excess of $100,000 not counting an additional $30,000 per year to maintain. And, since they are machines, they can only analyze the data given to them, which usually is limited to historical information. They don't have the ability to examine or analyze other trends, markets or industry nuances.

Although technology can be great at making calculations, it simply won't understand market intuition or dynamics. In fact, if you drill down to the key concepts of Revenue Management, a machine understands supply, but can't grasp the dynamics of demand. A machine understands price, but never value. And, as we all know, a machine is still only as smart as its operator. When investing in a Revenue Management software solution, remember to consider the cost and expertise of the person at the keyboard as well.

How to Outsource for a Revenue Management Solution

Giving up your rates and pricing strategy to a stranger goes against the grain of accepted industry standards. When selecting an outsourced Revenue Management solution, there are some key questions you will want to ask.

Does the provider have access to my data?

Can the systems download my data or is there a manual system in place that allows for back-up if necessary? An effective Outsourced Revenue Management solution will either directly interface, or connect through a dedicated terminal on site. In addition, there should be a manual system in place for back-up or in the case of inability to interface.

Are the Revenue Managers experienced?

How many years experience does the manager have and at what type of properties has he/she worked? An effective Outsourced Revenue Management solution should provide you work history of its analysts. The average should be 3-5 years, factoring the experience of the newer analysts with the directors' experience.

Are the Revenue Managers certified?

What is the process of certifying the managers and do they have a continuing education requirement to maintain their positions? This is a key point of difference. Any good Outsourced Revenue Management solution should require their managers be certified and in an on-going education program.

What are the guarantees?

What will the return be on my investment and how long will that take? When inquiring about an Outsourced Revenue Management solution, inquire about the guarantee they are offering. A minimum guarantee of a complete return on investment in the first year should be required.

From how many markets do they pull data trends?

What will give them the competitive edge in terms of data collection? An effective Outsourced Revenue Management solution should be able to tell you that they compile data from multiple areas and compare it to the local market. The actual number is not as important as the fact that they use the broadest source of data possible. This is a case where more really is better.

Do they look at more than just rooms?

Rooms Revenue Management is only one piece. An effective Revenue Management solution needs to look beyond rooms and provide the option to manage ancillary products as such as spa, golf, banquets For example.

How do they measure success?

Are they using the same metrics as your business does? If you are looking to improve RevPAR, will they help you look at that? With rooms only being one piece of the puzzle, an effective solution will look beyond to benchmarks such as GOPPAR.

Is outsourcing Revenue Management right for my property?

Outsourcing Revenue Management is not for everyone. It is a big step to take and you will want to analyze both the cost and savings. Calculate what you are spending and what you receive in return. After doing all this, most properties reach the conclusion that outsourcing is both a cost-effective solution and an excellent way to leverage the talents of industry experts. The days of Reservations Managers playing Revenue Managers are behind us. Outsourcing Revenue Management is a proven way to gain a strong competitive edge in the market and maximize your revenues.

Juston Parker is President and CEO of Parker Hospitality Group. He began in reservations, then moved to operations, sales & marketing, food & beverage, and banquet & conference services. Mr. Parker has a passion for creating top revenues and growing innovative revenue strategies. His approach has increased revenues, even in challenging times. As a published author on Revenue Management, Juston has been interviewed and/or quoted on CNN, Yahoo Finance, and Fox News, as well as featured in publications ranging from HSMAI, to Thailand Hospitality, University of Florida, and Event Solutions. Mr. Parker can be contacted at 303-499-2443 or Juston@ParkerHospitality.com Extended Bio...

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