Maximizing Function Space Revenue Management? The Time is Now!
By Sanjay Nagalia Chief Operating Officer & Co-Founder, IDeaS - A SAS Company | October 2014
The best function space revenue management system is merely a sophisticated tool, dependent on the right people and processes for maximum effectiveness. Successful deployment will involve cultural change, team training, and an updated business processes. Hoteliers seeking to gain a competitive advantage should begin evaluating their situations now, cross-training their meetings & events and revenue management staff and updating their function space business processes.
Team members will need time to become familiar with the demand patterns and baselines of utilization forecasts and other metrics before actively changing their decision-making habits. Attempting to get to a detailed pricing strategy without first understanding the demand patterns will result in dangerous decisions and a compounding of frustration among team members.
Revenue management has advanced exponentially over the past two decades, thanks to rapid technology advancements, improvements in the application of analytical concepts and increased dynamics of booking channels. Hoteliers have plenty of well-established key performance indicators for revenue management, such as RevPAR (Revenue per Available Room), occupancy and ADR (Average Daily Rate).
The trouble is these advances in revenue management have focused primarily on boosting room revenues and profits, while neglecting function space. Occupancy forecasts are an excellent illustration of the common myopia in the industry. Most hoteliers cannot imagine attempting to revenue manage their hotel without an occupancy forecast, but their meetings & events teams do it every day with function space.
Hoteliers' attempts to apply revenue management principles and practices to function space have been thwarted by the uneven, "lumpy" nature of group demand, which makes the creation of forecasting models very challenging and also requires sophisticated analytical modeling. Unlike guestrooms, function spaces can be sold in lots of configurations for different types of events, and may be sold more than once per day in different configurations to different types of clients. Each event presents a different mix of revenue types; since each revenue stream has a different profit profile, two events with the same total revenue may not provide the same boost to a hotel's bottom line.
Given that function space optimization has been hard to measure and capitalize on, the benign neglect of revenue management for function space is understandable. However, tools for applying revenue management to function space are coming online. Hoteliers should get ready for implementation by taking some simple steps with existing tools and data to learn more about function space demand patterns and pricing strategies.
To prepare for implementation of a function space revenue management system, a three-phase approach is recommended: