From Beds to Ballrooms: Total Revenue Performance for Your Total Property
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | March 10, 2019
Get as much heads in beds as possible while optimizing your hotel's profit potential. This straightforward definition of a revenue manager's job-albeit oversimplified-probably rings true for many of us in the industry. However, if a revenue manager is solely focused on guest-room pricing, then who's in charge of enhancing revenue for the rest of your property?
As I discussed in a previous article, non-room revenue generation often gets segmented out across various departments, each overseeing their own efforts in siloed isolation. But, just as guest experience extends beyond the walls of their rooms to incorporate a bigger-picture view, so too should your hotel's concerted effort on improving total revenue performance.
Hotels can generate more than half of their revenue on non-room revenue streams-with meetings & events (M&E) business comprising the largest slice of this pie-yet traditional revenue managers and revenue management systems still take a limited "heads-in-beds" approach. So, how do we best decide what business to accept when faced with the complexities of multiple revenue stream considerations like function-space booking?
The Whole Is Greater Than the Sum
Total revenue performance is defined by IDeaS Revenue Solutions as "the intelligent calibration of demand across all hotel functions to meet overall business objectives. It is the ability to instantly and systematically decide which business to accept across multiple revenue streams at all times, based on greatest overall value to the asset."
Property-wide pricing decisions and revenue streams share an intricate and complex relationship. With each stream impacting different profit margins and booking patterns, it's important that each be considered and weighed against other functions to attain the most profitable business mix. When brought under the umbrella of one revenue manager or revenue team utilizing sophisticated analytics technology to transform disparate data sets from separate functions into actionable intelligence, total revenue performance can be effectively assessed and optimized.
With that in mind, let's take a deeper dive beyond the guest room into the next most obvious phase of total revenue performance optimization for your hotel: M&E revenue management.
Revenue Management, Supersized
Tried-and-true revenue management tactics have long helped grow guest-room profits, but applying these same parameters to your M&E space will require some necessary adjustments. Hotels have ADR, occupancy, RevPAR and even more profit-focused metrics like GOPPAR to evaluate the success of their guest-room strategy. Now, early pioneers into M&E revenue management have established some helpful benchmarks of their own. When building a strategy for M&E, here are four key metrics to help you take the next step toward total revenue performance.
1. Revenue per square foot/meter is the great equalizer, much like RevPAR is for guest rooms. Hotels can fill their meeting space with all kinds of catering business, or use their meeting space to fill sleeping rooms, but to properly measure the success of an M&E strategy, this metric is pivotal. Understanding your revenue performance, in relation to the available space, allows hotels to set benchmarks for M&E performance which leads to the effective utilization of space.
Once hotels have insights into their revenue per square foot/meter, they can compare performance by day of week, month or even by function room. This insight helps hotels understand their highest revenue-generating space and deploy pricing based on a clear picture of demand. Revenue per square foot/meter provides commercial opportunities for a hotel by knowing which space is most valuable and could possibly be underutilized.
2. Attendee density is the percentage of actual attendees in relation to the optimal capacity for the given venue. As an example, if a hotel had a small ballroom that held 100 persons and on a given day sold it to a group with 75 attendees, then the attendee density for that ballroom would be 75 percent.
Hotels establish the optimal capacity for a meeting room based on the ideal capacity in a non-theater style seating such as classroom or banquet rounds. This is because these types of seating styles generally have additional revenue, like food & beverage, tied to them. By achieving optimal density, you can begin to calculate your optimal revenue.
3. Revenue per attendee is simply the revenue for a given date range divided by the total number of actual attendees for that given period. This crucial metric helps hotels understand the relationship between how busy M&E space is (utilization) and how much revenue is being generated within that event space. As hotels begin to monitor attendee density in relation to revenue per attendee, they can identify where they have maximized their revenue opportunity and find additional opportunity where space utilization is high and revenue is low.
One may ask, why worry about the revenue per attendee if there is a minimum of $10,000 on a ballroom? If the minimum is achieved, there may be little concern if there were two or 200 attendees. While that may be true, how does a hotel establish $10,000 is the revenue minimum for the given venue?
If hotels can establish their minimum revenues for venues, and their optimal attendee density, they can calculate their minimum revenue per attendee when the venue is occupied at the optimal attendee level. Knowing this, hotels can decide when to flex their pricing based on demand so that minimums don't have to be static across different days of week, months or seasons.
In high-demand periods, you can either strictly enforce the optimal number of attendees or the resulting revenue from the optimal number of attendees. The combination of these metrics allows hotels to be more flexible and thoughtful about their demand-based pricing strategy for M&E.
4. Conversion performance is the percentage of revenue booked in relation to the potential revenue for all inquiries either booked, turned down or lost. This last metric moves away from physical venue metrics on actuals. The focus here is sales & catering performance around conversion of revenue from inquiries into definite bookings.
This metric is often illuminating to hotels. Not only can you monitor the performance of sales & catering teams, but you can prioritize bookings based on their likelihood to go definite. Conversion performance can be measured by date range, market segment, team member, event type and number of inquiries. It is critical to monitor the success of an M&E revenue strategy and provide tangible benchmarks to help improve revenue results.
Bring on the Data Science
Once you have your key metrics established, you can really begin the process of analytically managing the revenue of your hotel's M&E business. This means demand-based forecasting and dynamic-pricing decisions will start to come into play on a regular basis. These calculations, while complex enough in guest-room revenue management, can be downright labyrinthine when you take into consideration all the variables of booking M&E space. In other words, unless you're a mathematics genius who likes to burn the midnight oil and pore over spreadsheets and calculations for hours on end, you may want to explore some of the latest technology available in the realm of M&E revenue management.
Whether you choose to proceed using your own mind, the mind of the machine, or-most likely-some combination of the two, your success will depend largely on the data you collect and your ability to use that data to accurately predict the future. The better the data, the better the demand forecast and the more confidence you can instill in your sales methods. M&E salespeople often have the bad habit of booking their available space on a first-come, first-served basis without assessing the likelihood of more profitable business interest that's just around the corner. This is where demand-based pricing can really make a difference, but it takes a demand-based forecast for this strategy to work properly.
Get to know the true worth of each of your property's M&E rooms at varying levels of demand, and study your group booking patterns for all event sizes and functions. Incorporate turned-down and lost business data for a fuller picture. Ultimately, with your new-and-improved demand forecast in place, you can encourage sales to be more aggressive when pricing and booking high-demand days and be more relaxed about the low-demand days.
To Ballrooms and Beyond
Total revenue performance has always been the aspirational vision for hotels worldwide and it is becoming increasingly within reach, beginning with M&E revenue management. As hotels move toward this larger goal, incorporating more and more revenue streams into their overall revenue management operations, it is important to practice proactive change management as we transition our teams and align our resources, processes and technology to meaningfully restructure our organizations toward a common goal. How can hoteliers ensure they keep up the pace and smoothly implement these analytical revenue management approaches throughout their organization? I look forward to delving deeper into this topic in a forthcoming article.
We are just entering this exciting time of change and innovation for the industry, and there is much potential ahead to think more holistically about total revenue performance. Driving better revenue today means evaluating the relationship that exists across revenue streams, and tomorrow will mean maximizing those streams for increased profitability and exemplary guest experiences.
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