Best Practices for Total Revenue Management
By Lily Mockerman Founder, Total Customized Revenue Management | September 03, 2017
Total Revenue Management is growing in popularity for discussion, but there remains some ambiguity as to what this really means. Some discuss the application of revenue management principles to ancillary departments like F&B, or a narrower application of simply enhancing room sales to include additional ancillary revenue. Others focus on things like cost containment or various fees. For the purposes of this article, we will define Total Revenue Management as the concept of monetizing every area of the operation in various ways to capture the highest profits given the time-perishable aspect of a hotel's various types of inventory.
The applications of Total Revenue Management can be exhibited in many ways, but some of the primary focus areas for rolling out a new program involve applying the concepts of revenue management to your ancillary revenue streams beyond rooms, such as F&B, Spa, Function Space, Golf, and more depending on the offerings of your particular property. The end goal of any serious Total Revenue Management program is to enhance bottom line profits by maximizing both top-line revenues and the costs associated with each area. This is referred to often in the industry as Profit Optimization.
For those reading this article that may still be new to the concept of time-perishable inventory, this refers to the idea that a given product or service cannot be resold once it "expires". This is generally applied in the hospitality industry to room nights, as a hotel room night cannot be sold for a past date, say May 21st, if it was left unoccupied on that date and it is now June 1st. The same concept can be applied broadly across many areas of the hotel industry, including seat hours (F&B), treatment room hours (spa), RevPAS (Revenue per available square foot – banquet space), and many others.
Many hotels feel that because they're already doing well with their ancillary revenues, or because of the time and effort it would require pursuing this type of a program in these outlets, that it's not worth pursuing. To give a real-life illustration of the importance, however, imagine a grocery store that only adjusts pricing for its meat products. Vegetables and fruits, however, are always the same price, because they sell enough of them that they don't really need to pursue a program for adjusting the pricing. If they want to sell more apples, they simply publish a package deal in their circular that you can get a 5% discount on steak when you buy it with a pound of apples.
This is much like what you see in hotels now, when the primary revenue effort for ancillary spend is limited to packaging with rooms, giving F&B credits, etc. Certainly, these efforts are not without merit, and engaging revenue management in the outlets is not a replacement for these tactics, but a true total revenue program should far exceed these basics.
It doesn't always take a significant amount of effort to begin to pursue the concepts of Total Hotel Revenue Management. As a first step, it's important to make an effort to creatively determine what areas of the operation can be maximized through the program. There are some obvious areas, such as the restaurant, spa, golf course, banquet space, etc. A full-service or resort property, for example, has the advantage of cross-selling between departments, with restaurant staff learning about guests through polite introductory conversation, and responding with an offer to book a spa treatment or round of golf for the guest after they've finished dining.