How can revenue be maximised? This is a problem that has existed for a long time for hotel owners and managers. In fact, optimising revenue is a difficult challenge. Hence, this resource portal will cover all information about this specific financial aspect for hotel businesses.
Revenue management is the art of maximising income from your fixed number of hotel rooms. Ultimately, it is about being able to sell the right room, for the right price, at the right time without displacing a guest who would have been willing to pay more is the key.
For a long time, revenue management was all about filling empty rooms with paying guests. Specifically, the revenue manager may have only looked at the room revenue from the guest rather than the overall spend.
The traditional way of viewing seasonal pricing involved dissecting the year into blocks and charging prices accordingly – for high season, shoulder season, and low season. Other old-school revenue management strategies are:
Consequently, hotels in the competitive set and others will share information based on Average Rate rather than other information that could set the hotel apart from the rest.
All in all, these approaches fail to factor in the cost of doing the business and the overall spending in a hotel by market segment, channel, or individual guest.
Revenue forecasting accuracy tends to be a case of “quality over quantity” rather than “the more, the merrier.” Additionally, put consistent processes in place that staff can follow to help improve data accuracy.
The role of the revenue manager has never been more important. Revenue managers, in addition to having specialised skills and knowledge, need to ensure the solution generates maximum benefits. Hotels should hire data scientists to evaluate all collected data and refine pricing models based on that data.
The best revenue management solution allows hotels to consider the contribution margins and capacity constraints of not just guest rooms but also other ancillary revenue streams. Moreover, it includes capabilities specifically focused on optimising meetings and events revenue and driving profitability.
The pricing recommendations and market insights generated by revenue managers can be valuable across multiple functions of the organisation, particularly for marketers in charge of demand generation activities.
Hotels need to customise the direct booking engine within the CRS or channel manager with revenue decisions and automate channel-specific offers via the call centre and other channels. Moreover, channel management integration ensures that room rates and inventory availability update quickly and accurately across all booking channels.
A revenue management strategy is a blueprint for improving financial performance over a specific period of time. It should incorporate all of the revenue streams from across all parts of the hotel.
The strategy should be built upon a solid foundation of revenue goals using targeted RevPAR, GOPPAR and other relevant metrics for tracking progress.
The proliferation of online travel agencies (OTAs) with differing pricing and commission structures and a whole lot of other factors has given rise to the demand for an intuitive revenue management system. If you are looking for a revenue management solution for your hotel business, consider the following questions.
The questions and tips below help decision-makers like you determine the revenue solution that best fits their needs with minimal risk and expense.
Revenue managers require tools that will enable them to answer all of their day-to-day pricing questions. These questions may be voluminous, and some may be difficult to always know in advance.
Tip: Compile a comprehensive list of pricing questions and verify that the solution will be able to address these questions in a straightforward manner.
Delving into the data, testing different if/then scenarios, and collating actual results requires a high degree of flexibility.
Tip: Verify that the solution has flexible key functionalities, including custom reporting, and be sure to validate all of the vendors’ claims. If customised reporting is possible, find out what is involved in the process of filtering and sorting data according to a specified set of parameters.
As with any technology solution purchase, reputation and customer satisfaction are important factors in the decision-making process.
Tip: Find out what performance issues may arise by talking to existing clients, ideally, ones that are similar in size and existing technology infrastructure. Ask about the product roadmap to understand the provider’s plan for future features and functionality.
Decision-makers should have clear expectations of customer support and problem resolution as well as the training that may be needed to get front desk employees and other staff up to speed on the new system.
Tip: Make sure that problems will get resolved timely. Some solution providers will go so far as to guarantee response and case resolution times.
Nowadays, the need to progressively improve hotels revenue management capabilities as a strategic imperative worthy of garnering ever-increasing amounts of attention and resources, given the opportunity to improve financial performance in highly predictable ways.
In addition, the basic approach to pricing guest rooms has evolved from a technique that uses “best available rate” (BAR) pricing to one that uses dynamic pricing based on data-driven demand forecasts. That is the next-generation revenue management – making dynamic pricing and distribution decisions based not on BAR, but rather on real-time analysis of multiple data sources.
At a minimum, these data sources generally include the hotel’s own historical data, booking site data, competitor pricing data and competitive set, and digital review data, much of which is available within the revenue management solution from third-party providers.
Today, with data access and technology capabilities that have evolved almost beyond recognition, hotel operators have the opportunity to achieve the ultimate promise of revenue optimisation: to sell the right space at the right price at the right time to the right guest. Moreover, the goal is no longer just about increasing guest room occupancy, with no consideration given to the pricing decisions in terms of the long-term implications.
Business and social event function space, recreational facilities, restaurants, and spas also factor into the equation. According to the Centre for Exhibition Industry Research, demand for function space is growing at up to quadruple the rate of supply, with the daily cost per attendee having increased by 4.5 per cent last year. For some hotels, function space revenue may account for more than half of the property’s total revenue.
Price refers to room rates, which can be influenced by many factors, including how far in advance the hotel is booked and what hotel competitors are charging. Revenue management now involves optimising profitability and not just revenue. It means analysing ancillary revenue streams (e.g., food and beverage as well as golf, spa, etc.) along with related cost data to understand profit contributions by guest segment. For hotels with casino operations, even the amount a player may lose during their stay can affect the pricing model.
Another criteria for factoring pricing are length-of-stay which may vary depending on the purposes, wants and needs of guests, such as business travellers or leisure tourists. Therefore, identifying customer segments is fundamental to revenue management.
Next-generation revenue management solutions allow revenue managers to focus their efforts on more strategic tasks and allow hotels to generate better business results instead of focusing on manual review of forecast reports and needs after analysing mountains of data.
Most of today’s hotel operators believe that revenue management will enable more automation and come with built-in advanced data analytics capabilities. Particularly, the ability to automate pricing and distribution decisions makes the business case an easy one from an ROI perspective. So, which technology solution is the right one? How can a hotel operator rest assured that the solution they implement will best meet the needs of the hotel and enable revenue managers to achieve optimal results?
Must-haves of a next-generation revenue management solution:
Technology integration is key to revenue management success. The PMS, the central reservations system (CRS) or channel manager, and the revenue management solution all need to seamlessly connect and share data —preferably in a real-time manner. Inventory-related data needs to flow into all distribution channels, including direct booking platforms and call centres, as well as the global distribution system (GDS) and online travel agencies (OTAs).
Revenue management is a big data challenge; hence, advanced revenue management solutions need to be able to process increasingly large volumes of data in a much shorter time. Fortunately, advanced data processing power, largely enabled by the rapid growth of cloud computing, has been enabling solution providers to develop capabilities that revenue managers have been longing for a long time.
Hotels can connect and seamlessly share data in the cloud across all parts of the property (or properties) and all hospitality solutions. Moreover, advanced processing power makes it possible to include real-time integration of customer lifetime value (CLV) into pricing and availability, model consumer behaviour from click-stream data, and integrate loyalty and total property spend data. Add to the mix competitive rate data, demand data, multi-market economic data, and even air traffic and weather predictions, if desired.
Rates and inventory information need to be reflected accurately across all systems and touchpoints, including OTAs and other partners. Otherwise, there will be discrepancies on some channels. Moreover, manually inputting room rate and availability changes can result in errors that damage the brand’s reputation and lead to revenue loss.
Based on the different needs of each user, any solution will require some degree of customisation. Moreover, flexibility in configuration is needed to mine the right data and generate actionable insights, create notifications, and define the data inputs and dashboard views based on their own priorities and display preferences.
Buyers with group business goals should check that any solution under consideration provides group sales optimisation. This means being able to evaluate group requests by forecasting the impact and displacement of transient guests while calculating ideal group rates.
Some of the solutions offered include:
Performance metrics are commonly used to track and measure success. So, below are some useful performance metrics in hotel revenue management.
The most commonly used metric for measuring how well a hotel is managing its inventory and rates is revenue per available room (RevPAR). In this context, some hotel operators still make the mistake of focusing their promotional efforts solely on increasing room occupancy, no matter that higher occupancy can, in some cases, actually lead to lower profits.
Gross operating profit per available room (GOPPAR) refers to the amount of revenue generated and the actual operational costs but does not include out-of-room revenue streams such as restaurants, casinos, parking, spas, golf courses, etc.
Therefore, this shortcoming helps explain the advent of other metrics like TRevPAR (total revenue per available room).
Revenue generating index (RGI), also known as RevPAR Index (RPI), looks at relative hotel revenue performance, by measuring the extent to which a hotel is achieving its “fair share” of revenue in comparison to a defined group of hotels.
Average rate index (ARI) measures the extent to which the hotel is achieving its “fair share” of average daily rate (ADR).
Most volume and depth of clean historical data related to occupancy, rate and revenue figures (including booking dates, rate codes, arrival dates, departure dates and revenue by day).
Market-level data, including publicly available competitor rate information, also ranks as a must-have data source.
Web shopping data (the number of consumers looking at and booking rooms and at what price, as well as the percentage of visitors abandoning the hotel website).
Information is collected from the travel distribution network when consumers make purchases outside of hotel websites.
“Customer worth data” on hotel rewards club members. Sources of data from consumer-generated content on social networks.
Ultimately, accuracy in revenue forecasting tends to be a matter of quality over quantity rather than the more the merrier. However, the increasing number of data sources available will lead to more noise.
Advances in intelligent pricing are changing the revenue management game, enabling hotel operators to better optimise their business.
Starfleet Research defines intelligent pricing as the science of making decisions for how to maximise room occupancy at the best possible price while factoring in all the related revenue questions in a real-time or near real-time manner.
Intelligent pricing refers to analysing demand forecasts, competitor rates, price sensitivities and various other inputs and factors, including demand drivers like seasonality, day-of-week differences and market dynamics.
Last but not least, intelligent pricing is forever evolving with new approaches to forecasting demand and dynamically pricing room rates based on expected demand and capacity.
Maximising revenue requires timely actionable information. In the absence of a data analytics solution, most revenue optimisation teams would naturally rely on Excel and Access. Such an approach will lead to many problems such as siloed and out-of-date data, limited direct access, ad-hoc reports. Therefore, data analysis is painfully slow.
Starwood Hotels and Resorts, which owns, operates and manages nearly 1,300 properties globally, heavily relies on data analytics to optimise room pricing. The investment in BI is believed to help increase their revenue-per-room by 5 per cent. Hence, analytics enables hotel chains to make informed decisions based on facts, not by gut feelings, and take bigger yet more calculated risks.
In addition, without the analytics capabilities of a Business Intelligence solution, the revenue managers would have to spend a huge amount of time looking at each hotel individually. And for each hotel, they would have to go through every single date to identify issues (overpriced dates) or opportunities (under-priced dates).
Vienna House is an Austria-based hotel chain that currently has 34 hotels under its brand. Vienna House has grown and acquired a few more hotels. Therefore, the steady growth brings in the inevitable IT challenge: the need for a revenue management system to help unify and manage all of the hotels in the group.
The problem occurred when data transferring errors were inevitable. According to Susanne Ostermann, Head of Revenue Management at Vienna House, he used traditional solutions to manage remotely, data was completely entered into Excel sheets and processed manually. This takes a lot of time to implement, so they do not have time to do detailed analysis or develop new strategies.
Infor has been Vienna House's partner for a few years. Initially, Infor Hospitality Management Solution (HMS) was implemented to automate several traditional front-office processes, such as reception. Vienna House's back-office began to use the same system in 2011 with a gradual introduction of Infor EzRMS.
The strong BI features gain data from each reservation and also take into account the numerous reports on the current market situation for rate proposals.
The data can be used in conjunction with data from the RMS system to bring the decision-makers an overall view of the market. In addition to suggesting Best Available Rate (BAR), Infor EzRMS also recommends which rates, packages and promotions should be ended or offered to the guests.
Vienna House particular benefits from the reporting capabilities. With just a touch of a button, Vienna House is immediately provided with a comprehensive picture of the situation. Forecasting, benchmarking the individual hotels and analysing is no longer complicated and time-consuming tasks for Ostermann's team. Sales and cost optimisation are enhanced, and Revenue per Available Room (RevPAR) is boosted extensively.
The needs of the Hospitality industry are unique and unable to be satisfied with generic software built for general industries.
TRG’s hospitality solutions are created to help businesses:
For more hospitality-related content, check out our dedicated content portal HERE.
The ability to automate pricing and distribution decisions makes the business case an easy one from an ROI perspective. In addition to improving RevPAR and other key performance indicators, hotels can improve marketing and sales effectiveness, generate competitive intelligence, and gain insights into occupancy trends, guest demographics, market positioning and channel profitability.
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