Bridging the GAP between the Revenue Manager and the CFO

Having worn the different hats of GM, CFO and RM I believe has given me a unique perspective with regard to revenue management. In a nutshell, I can only describe the feeling that the RM has in those final moments when all things have come together, the strategy has worked and those last units are sold, as a combination of exhaustion, triumph and relief all at the same time! That moment of jubilation is shared with relatively few and many on the executive team don’t realize the mental exhaustion, effort and considerations that went into arriving at optimal results!

With an audience of RM’s, GM’s, CFO’s, DOF’s and DOS’s, my objective is to describe the mindset of the RM (as well as my own mindset as CFO and GM) as he/she secures as many sell out nights as are possible each week. I”ll also discuss the different considerations available in using scientific and historic studies to arrive at a final plan. Above all, it is my opinion that the RM “in the final days and hours” in which sell outs are inevitable needs to be the Maestro and in control of inventory. As in symphonies, flawless concerts cannot be produced time and again unless the Maestro has put in the necessary time, study, planning and hours that eventually lead to and create exceptional performances.

Please note that my many references throughout this piece to “Last Minute Demand or the Final Hour” are actually the two or three day periods leading up to inevitable sell out dates and should not be taken literally as the LAST MINUTE OR HOUR!

In filling any hotel and optimizing revenues, tens of thousands of dollars and more can be added to Gross Reservation Revenue when reservations are managed right down until the last rooms are sold. My philosophy as RM has always been, time is on my side so I can’t be impatient, and must use it; all of it”. i.e. – If I”m two weekends out (in this case as an oceanfront tourist destination) and SOLD OUT this far in advance, I most likely haven’t done the best job I could have. I had two more weeks in which I could have waited to fill the property; two more weeks to wait for those optimal reservations to come through. In some cases those may be with four or five night MLOS restricted sales, at higher rate combinations or a combination thereof.

“Last Minute Demand” typically has the RM more energized and focused (in that the game becomes more consequential) and I carefully planned, administered and clarified these times through written Action Plans each week in communicating with my team. High Demand, is capable of bringing in the most lucrative net results. At the same time, it can also create obstacles in which consequences are severe. An example of this might be when a single weekend night is sold out, and a high number of units remain unsold on the day before and the day after the sell out; obviously this blocks any ability to sell through with MLOS reservations. The Parity of units left to sell throughout potential sell out periods therefore, are consequential. The maestro and his/her team need to be in sync and conducting business until the last rooms are sold with a strategy that anticipates the possibility of overselling and walking reservations; every possibility is taken into consideration.

Who we walk and who we protect are predetermined. Where we walk and how they get there secured. Nothing is left to chance. When the RM walks out the door at night, a “WHAT IF” WRITTEN ACTION PLAN is in place and followed. It details what should be done as different scenarios present themselves and as the hotel approaches the inevitable sellout dates. If demand causes the hotel to fill too quickly, rate categories and/or restrictions in only the most profitable channels are adjusted to take advantage of time. In some cases less profitable channels are closed.

Revenue Management is a science. Through study, the RM can accurately forecast how many NO SHOWS will materialize and how much NO SHOW REVENUE will be generated. Because no science is perfect, there will be bumps in the road at times and occasional WALKS to comparable hotels, but the true strategist rarely deals in walks. Needless to say, the beauty of NO SHOW REVENUE is that there is no associated cost. Realizing this type of income each week means found money, higher RevPAR and higher profit. It is always icing on the cake.

Managing the parity of units available to sell (i.e. – Wednesday 88, Thursday 82, Friday 80 and Saturday 80) must be carefully administrated. At the weekend destination, we wish to keep our remaining rooms to sell from Wednesday to Saturday as CLOSE in parity as is possible while considering the demand we (through the scientific study of PACE in each channel, history and area results) are confident is coming in. We can often keep these numbers “tight” by manipulating rates, specials and restrictions on a daily basis.

The RM will know when to HOLD and when to RELEASE units for sale, if CHANNEL PACE dictates that demand will NOT BE SUFFICIENT to fill preceding week dates the strategy changes to accommodate this. The key is to constantly monitor reservations and cancellations, have daily revenue meetings and know the characteristics of your channels and how productive they can be in the short run and at what profitability.

Weekday meetings can be short and productive with shared opinions and observations around the room from all sales members. Each day’s analysis presents new opportunities on how to achieve the most lucrative course of action. Again, new opportunities can mean a change in strategy.

No bone of contention should exist between the CFO and the Revenue Manager during “Last Minute Periods” when the overall property strategy is clearly defined. Likewise, securing necessary rooms at another property for walks should never create apprehension on the part of the RM in exercising his/her strategy. WALKS are inevitable and the greatest profitability is always achieved when some SCIENTIFIC RISK is taken. The competent RM will get it right the vast majority of the time.

Communication is imperative so that there is trust between the GM, CFO, DOS and RM. A note after the weekend with results is often the best way to keep everyone abreast of the strategy outcome for the weekend.

When the overall property strategy is clearly defined the Executive Team exercises instructions to the RM as to whether policy should be conservative or aggressive (scientifically challenging). There are some that will wholeheartedly disagree with a more aggressive philosophy. Some executive teams would rather play it safe and never risk walking a guest. While that has to come with the acknowledgement that there will be empty rooms due to NO SHOWS that is a decision that is justifiable and must be observed if it is the will of the Executive Team.

The exceptional RM will make thousands upon thousands of dollars during those “Last Minutes” of manipulation, holding and releasing inventory. And when handled correctly he/she is exhausted but satisfied at the sellout, realizing optimal results have been achieved. For an RM, life is beautiful when he/she can calmly prepare for bed knowing that the plan worked and the house is full!

About Richard B. Evans

vans has been an executive hotelier for over 25 years. He obtained the following certifications: Hotel Administration, Hotel Accounting Executive, Revenue Management Executive and has completed the Advanced Cornell Revenue Management Certification. He has served hotels, condo-hotels and vacation rental companies as Asset Manager, CFO, General Manager and Revenue Director. As a leader in revenue management he

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