What Will it Take to Overcome the Challenges in Total Revenue Management?
By Ally Northfield Managing Director, Revenue by Design | October 27, 2013
Much of revenue management's focus to date has been applied to rooms revenue optimization, with RevPAR (Revenue per Available Room) being the principal benchmark for the revenue manager to measure success.
However, over the past decade the industry has seen a proliferation in channels to market dominated by online travel agents with huge customer databases and sophisticated consumer marketing techniques, and rising operating costs, principally in the area of energy and food. However, using RevPAR as the only benchmark provides an incomplete picture of a hotel's operation since it is unable to expose underlying trends in costs that significantly impact profitability.
Commenting on the trend, Pablo Alonso, General Manager of benchmark company HotStats said, "Historically, RevPAR has been an effective and trusted indicator of overall hotel performance, however, rising operating costs and undistributed expenses plus the changing trends in customer booking behavior is widening the gap between revenues and profit and weakening this historic correlation, making it more necessary than ever to understand the underlying relationship between revenues, costs and ultimately how those revenues flow through down to profit."
RevPAR as a benchmark focuses on top line revenue generation and using this benchmark in isolation will favor pricing strategies that drive room revenues over profitability. TRevPAR (Total Revenue per Available Room) and GOPPAR (Gross Operating Profit per Available Room) are two benchmarks used to monitor performance beyond RevPAR, giving a more complete picture of the success of an operation and its overall profitability.
Alonso comments on the use of the two benchmarks; "TRevPAR is defined as Total Revenue per available room, so it is basically an extended version of RevPAR to include all other sources of income including F&B outlets, Conference space, health club and even the Golf course. It is important to remember that in the Full Service hotel space, other profit centers may account for 25% to 45% of total hotel revenues, so in any scenario, it is a very relevant piece of the cake to which we are not yet actively applying data driven, revenue management principles in order to optimize these other sources of revenue".
Says Alonso, "On the other hand, GOPPAR reflects the actual profit generated by each available hotel room after deducting all the departmental operating costs, as well as undistributed expenses (Administration & General, Sales & Marketing, Utility costs…) from the total revenues generated. This makes hotel management directly responsible for the overall profitability of a hotel and provides the ultimate measure of not just how effectively we are maximizing our revenues but how effectively we are optimizing them."