From Revpar to Trevpar - A Guideline For Integrating Ancillaries Into a Revenue Optimization Strategy
By Stefan Wolf Senior Vice President Revenue & Distribution Strategy, Onyx Hospitality Group | October 22, 2016
Considering ancillary revenue streams can make up to 60% of hotel revenues of why would not any operator embark on the journey of total hotel revenue management? Apart from challenges related to the creation of a functioning revenue management culture the inclusion of F&B, spa and event revenue streams into that culture brings its own set of challenges. This article will explore these challenges and offer a guideline to successfully integrate additional revenue streams into a comprehensive revenue optimization strategy.
Revenue per available room or RevPAR is a measurement of the success of a balanced occupancy versus average daily rate strategy. While there are still owners - and surprisingly sometimes even operators - who favor either an occupancy ("Less than 100% is considered a failure") or ADR ("has to be the most expensive hotel in town") focused strategy, any operator, who started to build a revenue management culture will agree that profits can only be optimized if the focus is on RevPAR.
Depending on positioning, location and other factors profitability for the rooms department should be somewhere above 75%. So optimizing the revenues from a department with high profitability by having a working revenue management culture in place is vital for the financial success of the property. But what is considered a working revenue management culture?
A key element is a revenue management professional and I am purposely using the generic term professional, because that could be a director or manager, could be on property or centralized, could be reporting to the GM or to the commercial leader. What is the most important skill of a revenue management professional? Surprise, surprise it is not the ability build and analyze spreadsheets in record speed nor the ability to create dynamic 3D models of the latest booking pace by segment. In today's fast paced dynamically ever changing constantly disrupted world the number one skill in any revenue management professional should be the ability to clearly and confidently communicate. Some readers might indeed be surprised by this statement, but the most amazing math genius will not be able to get any recommended fact based strategy adopted if s/he is unable to communicate the rationale behind the recommendation especially if it involves change. And we all know how much the hospitality industry and the people working in it love change (article for another time).
Once that professional is in place there is no culture yet. I have heard people saying "Of course we have a revenue management culture - we have a revenue manager", but that is only the starting point. For a revenue management professional to start building a culture s/he needs a lot of support from either the General Manager for independent properties and from the corporate office for chain affiliated properties. Support can mean tools, guidelines, SOP's and sometimes the literal pat on the back to confirm that the culture building is on the right track. A key element of culture building is to improve the understanding of revenue management via training of all departments. And I really mean all departments (gardening, stewarding, housekeeping, engineering) and before anyone disagrees, let me point out that guest satisfaction (expressed via online review sites) and ability to raise rates without negatively impacting occupancy are correlated based on a study from the Cornell Hospitality Research Center. All departments have their role in improving guest satisfaction.
Apart from the key message that everybody should be part of a working revenue management culture the training should also focus on the neutrality of fact based decision making. Whether a revenue director accepdt or rejects a group (which has been worked so hard on by the sales manager) is dependent on the balance between short term displacement and long term client value. But to communicate that properly is key to a healthy relationship between the sales and revenue departments. And we are back to communication skills.
The Hotel Business Review articles are free to read on a weekly basis, but you must purchase a subscription to access
our library archives. We have more than 5000 best practice articles on hotel management and operations, so our
knowledge bank is an excellent investment! Subscribe today and access the articles in our archives.