Profit Optimization Is Not Just a Buzz Phrase for Room Revenue
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | February 04, 2018
True hotel profit optimization leverages multiple hotel functions to ensure goals are aligned to achieve optimal results. It encourages hotels to intelligently decide which business to accept across multiple revenue streams at all times, based on greatest overall value to the asset.
This holistic approach to revenue management goes beyond guest room rates and maximizes profits from the strategic management of other key hotel revenue streams; like sales with group bookings and meetings & events teams with catering sales.
Maximize Meetings & Events
Meetings and events are traditionally underestimated by hoteliers as they are often a secondary revenue source to bring in more rooms revenue. However, given meetings and events revenue can account for a significant portion of a hotel's top line revenue, an increasing number of hotel groups are starting to focus on the strategic management of these activities to bolster their bottom line.
Contrary to any narrow understanding of the benefits that meetings and events spaces can deliver to a hotel, these areas actually do more than just sell guestrooms. In fact, for many hotels, the profit potential of this revenue stream is so significant that it can contribute 40-60% of their total revenue.
Surprisingly, many hoteliers still aren’t leveraging their event spaces strategically today, which means they risk overlooking opportunities for substantial revenue generation. Many hoteliers fail to fully realize revenues through meetings and events due to the complex nature of the revenue streams across catering, function spaces and sleeping rooms overlapping. In addition, there are other streams of revenue like audio visual, event rentals and more that may involve a revenue share with third parties. These conditions add complexity to the overall business opportunity, which has stifled adoption of demand-based meetings & events strategy.
To better maximize revenue opportunities from meetings and events spaces, savvy hoteliers have looked to try and fold revenue management strategies into sales and catering processes. However, despite the positive evidence to support an integrated approach to sales, catering, meetings and revenue management, there hasn’t been a strong call for technology beyond sales and catering systems that function solely as a system of record. Until now.
Today there are cloud-based, visual strategy management solutions on the market that help hotels analyse and dissect their business trends and meeting space performance at their properties. Where hotels have struggled with reporting and consolidation of their sales and catering data, these systems visually display data from other sales tools to help hotel teams strategically manage meetings & events performance through demand-based pricing strategies.
Any increased focus on applying revenue management principles to meetings and events spaces also requires hoteliers to take a more holistic look at their sales and catering revenues, as decisions they make for their function spaces can have a major impact on the bottom line. To ensure that a hotel is optimizing revenues from their function spaces, hoteliers must establish and review KPIs for these spaces. They must start to think about performance measurements like space utilization, revenue per attendee and conversion metrics. Most importantly, hoteliers must also align their pricing strategy to demand indicators and forecasts to ensure that revenues from meetings and events are optimized.
To achieve optimal levels of revenue from meetings and events, hoteliers also need to incentivize their sales team on achieving quality of business, rather than quantity. Having the right forecasting, data and metrics in place may not result in optimal business without the sales team delivering the ideal piece of business with greatest profitability impact to the hotel. Sales teams therefore need to be incentivized appropriately on the right measurements, to channel their focus on quality of business, rather than on one dimensional metrics such as number of room nights or revenue. Hotels now have the data to show that all revenue is not created equal so a solution that helps identify the most profitable revenue is paramount.
Advanced solutions can also dramatically enhance hotel sales strategies for other meetings and events management like ‘free sell’ dates. The ‘free sell’ sales strategy commonly used throughout the hotel industry follows a fairly simple premise: If a meeting request for a date in the future comes in, and it has no guestrooms attached to its Request for Proposal (RFP), a catering or sales manager can’t book the business without approval or unless it’s within a certain number of days to arrival. While a designated ‘free sell’ period varies for every hotel, let’s assume a property has a current free-sell window of four weeks in the future. In this case, any meeting-only RFP looking to book three months out is likely going to be turned away or at the very least well scrutinized in the anticipation for a more profitable piece of business (often with guestrooms attached). This is an approach which asks: why fill up your space prematurely when there’s potentially better business with additional guestroom spend down the road?
But what happens when that highly-coveted business doesn’t actually end up knocking at your door? What happens if a hotel turned down a $15k meetings-only event over a typically quiet period because there weren’t any guestrooms attached to the RFP and the meeting planner inquired too far out; but in the end the hotel didn’t fill that space with more profitable business later on? Think about the potential revenue hotels are leaving on the table when they rely only on this kind of rationale.
Trend analytics, intuitive visualizations and drill-down reporting capabilities provide hotels with critical insight into group lead times by month and status. Rather than relying on blanket ‘free sell’ periods established once a year, hotels can now evaluate lead times for every individual day, week or month—reviewing both past and present years—to understand when their strongest business is booking, and when exactly they should be filling their distressed dates with other business to avoid displacement.
The revenue opportunities presented by meeting and event spaces mean that all financially savvy hoteliers need to have an integrated approach to sales, revenue management and meetings & events in place—and the right technologies to support this. Advanced cloud-based solutions can support meeting and event revenues, turning complex business challenges into opportunities for even greater hotel profits.
Make Sure Group Business is Good Business
Group bookings account for a significant portion of hotel bookings these days; for many properties it accounts for up to half of their sleeping rooms business, not to mention the additional revenue brought in from food & beverage and ancillary revenue streams. Rightfully so, many hotels have teams dedicated to selling, servicing and managing this profitable segment of business.
The challenge is that for every piece of group business that a hotel takes which adds revenue by staying over less popular nights or makes a significant food and beverage spend, there is another group booking which displaces other revenue, washes out significant rooms, or in hindsight costs the hotel profitability due to concessions. The key to ensuring group business is great business for a hotel, is to establish a strategy and make certain it integrates with the property’s broader revenue goals for all segments.
Today’s most innovative hotel revenue technology provides the ability to forecast group revenues, going so far as to help hoteliers understand demand for a given date range by visualizing booked, turned down and lost inquiries. Leading technology also generates alerts with sudden changes for specific groups (like a wedding block whose potential bookings are not converting with a cut-off date looming) so it can optimize the hotel’s strategy based on the new information before the change takes effect in other systems.
These revenue management solutions forecast group bookings based on analytically understanding historical performance, the reasons for that performance, the current market conditions and the impacts of special events to get a true picture of group demand. It’s not enough to just provide a rate for a given group in a matter of moments; hotels should have instant access to a full profitability displacement analysis of the group to ensure it is the best piece of business.
Hoteliers require more than a tool that only replaces Minimum Acceptable Rates (MARs) or Excel spreadsheets. The most powerful technology can enable multi-property evaluations for a regional or global sales representative in addition to alternate date recommendations for the flexible or budget conscious group. The goal is to present a quote that not only meets the needs of the inquirer but also is the most profitable for the hotel. In other words, maximize the demand and minimize the risk of revenue displacement.
Revenue Culture Breeds Success
It is very important that hotel executives recognize that a shift towards profit optimization means they may also need to focus on strengthening their internal culture. Moving revenue management past guestrooms into other organizational areas requires having a robust revenue culture in place across all departments, something the industry has fundamentally identified as an ideal environment for supporting initiatives that increase total hotel profits.
Today’s hotel leaders are tasked with converging the traditional roles of sales, marketing, meetings & events and revenue management with an inclusion of other departments like F&B, banquets and finance. Focusing these stakeholders around identifying, capturing and nurturing the most profitable business will result in the most lucrative results driven by a holistic approach to profit optimization.
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