The need for a more holistic approach to revenue management

March 10, 2010 | Hospitality Industry

Revenue management of hotel inventory has long been the practice for hoteliers worldwide, both large and small, chain and independent. However, for the most part, traditional hotel revenue management is focused purely on maximizing sleeping room revenue with no regard for any other revenue associated with the hotel guest.

Revenue management of hotel inventory has long been the practice for hoteliers worldwide, both large and small, chain and independent. Hotel operators understand and accept the need to forecast customer demand at some level of detail and recommend product availability conditions that will deliver the maximum revenue based on that demand. However, for the most part, traditional hotel revenue management is focused purely on maximizing sleeping room revenue with no regard for any other revenue associated with the hotel guest.

Many companies are now realizing that there is a strong need to adopt a more holistic approach to revenue management across the enterprise. This involves two distinct components. First, there is a need to capture and track all revenue associated with hotel guests in order to segment customers more discretely based on their value—this can come from food and beverage, spa, event venues or, in the case of a casino/hotel, gaming. Second, and equally important, operators need to begin to apply the same principles of revenue management employed at the hotel to each discrete revenue source—there has been a strong push for revenue management in restaurants, spas, event venues and even on the casino floor.

It could be said that casino companies have set the “gold standard” for customer loyalty programs. There is no doubt that frequent players are strongly incented to use their loyalty cards to earn free room nights, food and beverage and a variety of other complimentary items. The “reward” to the casino companies is a wealth of data about these customers, not only what their play is like, but their frequency, recency, booking window, and countless other valuable nuggets of information. And while for casino companies the payoff for this is great, given the kind of money generated on the casino floor, the value of this customer data is no less significant for a non-gaming company. If a resort hotel has a guest who comes frequently, eats and drinks in the fine dining room, visits the spa and frequents the mini-bar, this guest is of far more value than a unidentified business traveler who simply uses the room as a place to sleep on the infrequent trip to town; and if the hotel has only one room left, it would want to identify the known guest and accept them.

While many hotel companies have implemented loyalty programs, the real opportunity lies in the ability to capture data about the customer beyond the hotel in order to truly capture the guest’s profitability, not the room revenue generated. There has been a lot of conversation lately about the move from REVPAR to GOPAR, TOTALPAR or some other such acronym; this is where those companies who practice Total Hotel Revenue Management will win, in realizing it is not about the room, it is all about the guest.

In addition to understanding the behaviors and buying patterns of the individual guest, revenue management within the group and catering segments provides tremendous value and opportunity for revenue growth. Components of group and catering revenue management revolve around establishing a measurement/value for function space; defining the total revenue contributions that a group can provide; managing robust function space and group ceilings; and providing the sales channels with the tools to understand the strategies of the hotel.

Revenue per available square foot (revpas) is a measurement of the revenue an event generates based on the square footage used compared to square footage available. Revpas can be applied to both group catering and local catering events. Another measurement that is useful compares historical day-by-day revenue generated on a particular day or in a specific function room.

Catering contribution per group room night measures the amount of catering a group produces in relation to the room nights used by the group; audio visual contribution can be included in this measurement. Additionally, tracking the amount of ancillary income a group brings to the hotel is beneficial: did they use the outlets, gift shops, parking, valet, etc.?

Establishing group ceiling parameters and dynamically pricing the parameters can increase revenue. If your ceiling is 100 rooms, can you sell the last 25 rooms at a higher price point than the first 25? Additionally, proactively managing those ceilings will help ensure inventory is accurate for transient to sell. A robust space management practice includes ensuring the space is blocked accurately to avoid dark time, performing audits of the space on a regular basis, and blocking space with straight line availability in mind as this allows for multiple day bookings.

Providing sales with the tools such as need date calendars, pricing targets, and function space F&B minimums will help them understand sleeping and catering need times, the best patterns, and when the prices will be highest. These tools will help them steer customers into the right patterns, dates and space.