Revenue Management: There are Two Sides to Every Story
By Bonnie Buckhiester President, Buckhiester Management Limited | October 16, 2016
The saying goes that there are always two sides to every story. In the hotel business this couldn't be truer when examining the relationship between operator and owner, or in many cases between operator and asset manager. Both want to optimize performance, but often this requires a careful balancing act between guest satisfaction and profitability. If a hotel is exceeding expectations – i.e. beating budget, surpassing last year, stealing market share – one might ask "does that mean the revenue management effort is optimal"? If a hotel is falling short of expectations, does that mean that somehow the revenue management effort is lacking? These are difficult questions to answer. And some would argue that any answer is subjective in nature. For example, does a 110% RevPAR index (RPI) mean the hotel is doing well? What if the competitive set is misaligned? Or what if the real potential is 120%?
At the end of the day, the data tells the story. But to get the whole story the revenue manager must dig into the detail and the asset manager must give the revenue manager time to do this. Which means (among other things) that the revenue manager doesn't have time to answer a question like "why didn't the hotel do better last Tuesday"? This "micro-managing" of the revenue management effort (which appears to be more and more the norm in the industry) is a ridiculous, wasteful use of time.
So how does one balance the need for the asset manager to have information and the revenue manager to do his or her job? I think the answer is in the very questions that are asked. Certainly it would be a valuable exercise if the revenue manager could stand in the asset manager's shoes for a day and vice versa. Perhaps then they could share perspectives. And hopefully there will be some of our readers willing to try that very approach. In the meantime, however, let's explore some of the questions the asset manager could ask that would not only satisfy the need to deeply understand performance, but encourage the revenue manager to look beyond the usual, typical data sets that define revenue management today.
We all know that key performance indicators are the foundation of success measurement. Occupancy, average rate, revenue, gross operating profit, net operating income, cost per occupied room, market share, ratios to revenue, etc. These are all traditional performance benchmarks. But today's complex markets demand a much deeper set of measurements. And the availability of highly detailed data makes this possible. But only if the revenue manager is looking in the right places and the asset manager is asking the right questions.
I believe that using the term revenue management is outdated. Today the revenue management discipline must be about profit optimization and this goes way beyond a Rooms-centric approach. This is about estimating the potential and then optimizing towards that potential in every aspect of the business, that is every revenue stream and every profit margin. So what are some of the deeper questions an asset manager could ask that would reveal hidden potential?
Let's begin with a more holistic, multi-faceted approach to the entire discipline – one that takes into account six key components – product alignment, competitive benchmarking, strategic pricing, demand forecasting, business mix optimization, and distribution management. What could the revenue manager be examining in each of these areas that would uncover revenue and profit potential? What are some of the lesser-known metrics and less traditional generators of incremental revenue? There isn't time or space in this article to address all these components, and the suggestions below hardly represent a definitive list of profit enhancing techniques, but certainly these are good examples of some of the "hidden" places to look for more revenue and more importantly…additional profit.
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