Total Hotel Revenue Management
By Sheryl E. Kimes Professor of Operations Management, Cornell University School of Hotel Administration | October 13, 2013
Rooms revenue management (RM) has been around for the past 25 years, has been widely adopted and has led to rooms revenue increases of 3 – 5%. Rooms RM systems and practices have increased in sophistication over the years as hotel operators and consulting companies have sought to fine tune the way in which they maximize revenue.
It is not surprising that hotel RM practices started with guest rooms since rooms revenue constitute 70 – 80% of all revenue for full-service hotels. In addition, the high profit margin associated with rooms makes it a strong candidate for RM since maximizing revenue is essentially the same as maximizing profit. But, what about the other 20 – 30% of hotel revenue? Would it be possible to apply RM principles to it?
In a study I did on the future of RM in 2010, I asked respondents a number of questions including what they thought RM would look like in the future and in which other parts of the hotel they thought RM would be applied. Respondents felt that in the future, hotel RM would be more strategic in nature, would be more technology-enabled and that it would encompass all parts of the hotel. The respondents identified function space and restaurants as the most likely candidates for future applications of RM.
The key questions that arise from this are (1) is this possible to do and (2) if so, how should hotels go about doing it? The answer to the first question is a resounding YES! RM principles are essentially the same, no matter what the industry. Think about Robert Cross' classic definition of RM ("Sell the right space at the right price at the right time to the right customer" so as to maximize revenue). With guest rooms, we define space as the guest room and define price as the room rates we charge and the pricing strategies we follow. We define time as when people book their reservations and how long they stay and define Customer as the market segment. When applying RM principles to other industries, think about how these definitions would be altered.
For example, while with rooms RM we define space as the guest room, with function space, space would be defined as the number of square feet of meeting space we have to sell and with restaurants, space would defined as the mix of table-sizes and seats.
With time, rooms are typically sold for a night. Function space is usually sold by day-parts. Restaurants are a bit trickier since we don't normally rent the table by the hour, but we do know about how long customers will stay. Another issue that comes up with time is when (or if) customers place their reservation requests.