New Ways to Increase Revenue Besides Heads in Beds
By Lily Mockerman Founder, Total Customized Revenue Management | March 17, 2019
The synchronized autonomy within the travel and hospitality industries, along with the tremendous evolution over the last several decades, have created a dynamic mindset among leaders in the industry. While the idea and principles of Revenue Management are still relatively new in the history of hotel and lodging, it is safe to say that in the short time since its inception, we are now at a point where we can differentiate between Revenue Management and Revenue Strategy.
Revenue Management has always included balancing inventories, adjusting rates, managing group blocks, and changing hotel policies. Revenue Strategy takes that a step further by implementing data analysis to forecast and plan for future outcomes, as well as recognizing the impact of digital marketing to gain increased exposure on multiple channels, widening a hotel's distribution pathway.
The knowledge of world media and the impact of other industries become important in understanding the thought process of the consumer and all markets. While there has been much positive movement, there are still several misconceptions regarding the way hotels strategize, which influence the ways they operate. Revenue Strategists are leaders in the industry, utilizing a deeper connection to propel corporate, operations, and strategy to critical asset status in any market and industry.
The three segments to a hotel's performance, or the KPI pyramid, are occupancy, average daily rate (ADR), and revenue per available room (RevPAR). Each leg of this three-sided triangle is critical to congruent growth. When one angle grows too sharply, the other two experience declines. Contrary to the belief that focusing on occupancy will lead to more success, the modern field of Revenue Management now takes a more dynamic approach in growing a hotel's performance. The three popular misconceptions are 1) occupancy should be the target for maximization, 2) occupancy should be the sole forecast metric, and 3) occupancy should be the indicator and trigger for price adjustments.
By utilizing occupancy as the target for maximization, the opportunity of acquiring higher-rated business is missed. Higher occupancy is only beneficial if it can offset the drop in ADR. One must also account for operational expenses such as housekeeping and utilities. By adjusting strategy to filling rooms, there is often the opportunity to acquire higher-profit reservations, which is critical in high demand periods. Revenue strategists analyze the extensive coding and types of reservations that go through the system to determine patterns and trends that can help a hotel achieve higher revenues, thus balancing the KPI pyramid.
If we take, for example, a hotel that has 200 rooms with a rate of $100, the maximum revenue a hotel can achieve is $20,000, not including fees associated with commission and operational expenses. By utilizing a dynamic approach, a hotel can use different rates, in accordance with the profitability by rate code from on the books and historical information, to adjust discounted inventory, modify rate pricing, and accept or refuse group business so that the hotel is operating at maximum efficiency.