What is a Revenue Director and Do I Need One?

It was definitely not funny at the time, but years ago when my husband and I were just starting out, we bought a fixer upper of a house. On move in day, the ink was barely dry on the Purchase and Sale when the movers from NYC called to say they were running several hours early and on their way to our new home. We raced over to let them in only to discover that our water heater had burst! Furniture was moving through the front door, hot water was gushing out of the cellar. That day we did what we had to do. We maxed out what was left of our credit cards and solved the problem. 13 years later we look back at that day and laugh.

I think about that story when explaining what I believe makes a good Revenue Director. Imagine the scene above. A reasonable person would simultaneously handle both the furniture and the water problem. Likewise, a good Revenue Director needs to handle multiple priorities at once. What makes the position so hard to define (and staff) is that to fully do the job, the individual needs to have several different skill sets:

Ability to Analyze.
He/she needs to be able to analyze historical data and make basic calculations and use the results to support assumptions.
Ability to Plan for the Future.
A Revenue Director must be forward thinking, with an intellectual curiosity about how different factors such as weather, conventions, and the economy, will affect business levels.
Ability to be Creative.
Here is where I see people miss out. While it is well and good to carry out orders and interests of Senior Management, a Director should be trend spotting and coming up with innovative ideas to increase previously slow revenue streams. GDS Channel management, interesting packages, enticing offers on social media, this is Revenue Management today.
Ability to see a Total Property Perspective.

What is the point of making Rooms profitable if the hotel is losing money in the Restaurant, Spa, Banquet Spaces and Golf Course? A well-rounded Revenue Director will work with all departments and apply management principles to each area. (To ignore these profit centers would be like moving in lovely furniture – but letting the back of the house wash away in a flood!)

Sometimes I ask a Director of Revenue what their primary function is. Often they answer, “I analyze data to see if pricing/selling strategies are working, or if I need to adjust our rates.” To me, this person (or company) is missing the proverbial boat.

For eight years this was my position. In social situations, I shied away from the question, “What do you do for work?” The response to my answer was often, “Huh? What does that mean?” Then their eyes would glaze as I tried to explain.

If you have heard the term “Revenue Director” and wondered if you need one, think of my little story and keep reading this blog. If you already work with a Revenue person and still don’t know it means, read quickly before he/she sees you. If you and I met at a party, read on now that you are sober. Mom, you should read this too.

Revenue Management 101

Even in an economic recession, there are peaks when everyone seems to want your product and then there are valleys when you wonder if your telephone is broken. The trick is to level off your business, spreading out sales over time to accommodate the maximum number of buyers.

Good companies steadily plow through the seasons, making minor adjustments to their pricing, grateful for the business coming their way. Great companies give customers strong incentive to buy in times of need, marketing their product to different audiences based on demand. Understanding these principles provides the foundation of a Revenue Management professional’s training and it means a great deal to a company’s bottom line.

Here is a simple case study in room sales:

You own The Park Hotel which has 100 luxury hotel guest rooms in Chicago. All of the rooms are the same size and décor. The property is well-appointed and you keep a staffing ratio of 2 employees to each hotel room, employing 200 people. There are several ways a Revenue Director can go about selling these rooms.

Price all the rooms at $200 per night year round.

You determine you’re your hotel is a bit nicer than the City Hotel down the street, and they are charging $180. Fair enough, but sometimes your property will be too expensive for the market, and sometimes your property will seem like a steal. When you have sold all of your rooms for an evening, your Rack Rate Potential (or total earnings that you can possibly make) will be $20,000. (Perhaps you think I am over simplifying things? You would be amazed by how many GMs I have heard say, “How much is our competitor charging this week? We are worth $50 more.”)
Price rooms based on the demand in the city.This is a better choice for capitalizing on your investment. January in Chicago is freezing, while September in Chicago is lovely. Weather is one of the biggest factors in bringing tourists to a destination. People going to a place when the weather is at its best expect to pay a premium. Other demand factors such as: conventions, holidays, events in the area, or fluctuations in airfare all play a role in what you and your competitors are charging. So using this model, you might choose to charge $175 per night in January, $200 per night most of the year, but on peak evenings when there is demand you set your prices at $425. See how Rack Rate Potential can rise significantly on your projected “sold out nights?” If all rooms are bought at $425 the earnings for the evening is $42,500, more than twice the usual amount. Also, for the nights when you are priced lower than usual, you will still do better than your competition. Say you are charging $175 per night and the City Hotel is still charging $180, even though your property is better quality. You are now going to steal away business from that other hotel so although your ADR (average daily rate) for that night at the Park Hotel won’t be as high as usual, the occupancy will be better than other hotels in your competitive set.
Price rooms based on what each customer will pay.

Perhaps moving into Revenue 102, but if you got this far, you can manage one more strategy. Corporations will stay at your hotel for business no matter what the weather, economy, or other factors come into play. They might sign an agreement to buy 1,000 room nights per year. For a 100 room property, that is the equivalent of 10 sold out nights, so you want their business, but have to be ready to make some concessions. Negotiating a special rate for volume accounts is a part of doing business. Think it is unfair? Imagine you frequent a high-end store, purchasing $400 worth of merchandise every week for a month. How would you feel if every time you walked in, the same sales person looked at you like you were a complete stranger? You would most likely take your business elsewhere, where your loyalty and money is appreciated. Leisure guests coming in for weekends are very fickle. They will try a property once and then a different one next time they are in the city. Turing a onetime guest into a regular is a great, but taking care of a loyal guest is essential.

The strategies above all have the same goal, keep all 200 people working at the hotel employed and make a profit that satisfies ownership/management. There are many ways to accomplish this, but someone at the helm has to be empowered to make decisions daily. The answer to the title question of “Do I need a Director of Revenue?” is “YES!” To the next question, “Can I afford one?” I reply, “Can you afford not to?”

Training and experience for this position is currently all over the map. It is a job that continues to evolve as technology develops allowing a deeper understanding of our markets. I recommend HSMAI’s CRME (Certified Revenue Management Executive) designation as an excellent place to start. It offers a foundation in the principles that guide Revenue Management decisions. From there, time and experience will continue to guide us through this exciting and changing field.