Profit Optimization is Not Just a Buzz Phrase for Room Revenue

By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | October 29, 2017

The evolution of revenue management has taken hotels from dynamic pricing of transient rates to a holistic strategy of maximizing profitability across multiple revenue streams. Revenue management has moved far beyond the Microsoft Excel expert in a small back office and now involves multiple stakeholders from several departments, all influencing overall revenue strategy with each of their key areas of function.

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.

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.