The Evolution from Revenue Management to Total Guest Revenue
By Tammy Farley Co-Founder & President, The Rainmaker Group | October 25, 2015
Co-authored by Angie Dobney, Vice President of Pricing and Revenue Management Services, The Rainmaker Group
As the art and science of revenue management evolve, the focus sharpens on finding custom solutions rather than selling products to hotels, resorts and gaming establishments. As sophistication grows, the target broadens to maximization of total guest revenue. This article provides a roadmap – and cites best practices -- for optimizing revenue, regardless the type, size, or makeup of a property's business.
Since revenue management dawned on the hospitality industry in the late 1980's, astute owners and operators ranging from gaming to chain to independent hotels have been adding this intelligence to the management toolbox. Those committed to revenue management have so benefited from its use that it is surprising to know, according to industry consultant STR Global, that of the estimated 164,090 hotels in existence worldwide, 90 percent have yet to employ revenue management within their operations.
Meanwhile, the other 10 percent are realizing gains ranging from 5 to 20 percent in RevPAR (revenue per available room) through use of revenue management software that can be customized to their operations and that pays for itself very quickly. And the tools that comprise revenue optimization and are applied to all aspects of a hotel operation are evolving from a focus on RevPAR to RevPOR (revenue per occupied room) to a whole new level of revenue optimization: total guest revenue that can be further understood to optimize total profit per available room night (TPPARN – no easy acronym for that though some call it totalPAR).
This quantum leap from focusing on revenue to zeroing in on profit is illustrative of just how far revenue management has come. Beginning with simple algorithms designed to match rate to predicted future occupancy, the science behind revenue management has become powerful; it has learned from experience, has been augmented by information from allied sources, and has become ever more complex and exacting even as the software has become ever more easy to use. Today, owners and operators are able to get a real time snapshot of how current and future business is trending and can fine tune strategy from their desks or on the fly with their tablets or mobile devices. And these tools are being deployed not only at the revenue manager position but beyond. They are being put in the hands, for example, of group sales managers who can use them to quote rates during site visits, maximizing revenue and conversions, even closing commitments on the spot.
Dovetailing with these developments is a mindset shift from product to solution focus. Rather than viewing revenue management tools as products to be adapted to a hotel's needs, hoteliers are seeking solutions customized to their unique operations. Soon the other 90 percent will be on board as they see the wisdom of examining their property's performance, determining the needs of their operations and learning more about how revenue management can be applied in the following areas:
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