Revenue Management: The Most Overlooked hotel Revenue streams Measures.

Although the ultimate goal of each hotel is to generate more revenue, achieve high guest satisfactions, and high rank vs. competitors, but when hoteliers implement the revenue management concept it was an assist tools to help achieving the goals especially when it becomes not secret or a passing fad, but it is critical to maximizing a hotel’s profitability, it might be “A dark science … Combining high technology and black arts”, even though While revenue management professionals devote significant effort towards advancing strategies and tactics to optimize revenue, many revenue managers still lag when it comes to establishing and measuring agreed success criteria.

Revenue Management represents the technique that helps hoteliers to achieve highest profits by correctly identifying the customer groups that the hotel has to serve (market segments) , establishing the right (quantity of) products and services as well as setting up the optimal prices to be offered to these customers, but when it comes to measurement it is confirmed that  there is a high link between RevPAR and profitability, means if the hotel’s take any actions to increase the RevPAR this will translate into improving the hotel’s profit “ even though the key EBITDA hotels realized that RevPAR is a key driver of GOP, another hotels are using the correct data to make decisions affecting their RevPAR, and you can be  shucked when you know that only few  hotels have regular  Rev Max meetings to discuss revenue strategy.

Originally in the old days the role of the Revenue Manager is to get the right product, at the right price, to the right customer, through the right distribution channel. The diversity of online distribution, along with the implicit direct sales model of mobile, means that hotels are receiving richer data, allowing them to make One to One offers to individuals at the right place and time.

This technology is enabling the revenue management team to become deeply involved in decision making to cater to an ever-more complex sales matrix, impacting the demands for new skills to manage revenue which is not any more limited to rooms revenue.

The Revenue Managers roles are no longer optimizers of profit alone but are becoming chiefs of strategy offering analytical insights since they live and breathe performance measures, many revenue managers still lag when it comes to establishing and measuring agreed upon success criteria, often leaving revenue management professionals to defend their actions with insufficient means to a skeptical audience. From RevPAR to ADR to Comp Set Rankings, the job of RM is to manage, optimize and explain changes in these metrics. As a result, RM is now the most numbers-focused hotel function, second only to or maybe tied with Finance. In fact, few would argue that a DORM needs to have as much or more of a quantitative background than a DOF. There are many challenges in defining revenue management metrics, but the payoff is an effective optimization program.

Revenue streams Measures Challenges

An important issue facing hotel RM is the concept of Total Hotel Revenue Management (THRM) and total strategic revenue management prompted calls for a re-evaluation of some of the practice’s fundamentals, including the question of what should be measured: revenues or profits? It relates to capturing the mostly untapped revenue and profit potential associated with the non-room revenue-generating centers of the hotel, or, in the words, THRM is “managing every revenue source at every guest touch point to its maximum profitability for the entire hotel or resort asset”. For revenue manager to be truly effective in the job, devising, implementing and agreeing on “what success looks like” is, in many cases, as important as the activities themselves and will go a long way to support a revenue manager’s success story, Crucially, many revenue management professionals along with the industry professionals are still struggle when it comes to measuring and articulating the impact of their initiatives considering the methods they use to measure the impact of revenue management implementation, The Hospitality business model is characterized by high fixed-costs and variable income. Fluctuations in occupancy and room-rate demand tight cost control.

There are however, key challenges that all revenue managers face when looking to measure their success. These challenges include information overload, over analyzing data and unclear or conflicting objectives, moreover it includes:

Guest Profiles; Gathering and using guest preferences and intelligence to enable delivery of superior guest experience. Hotels are uniquely able to gather data and profile through the many sources of interaction both on and off Property.
Social Media ; How to implement and integrate new customer engagement channels, notably Social Media with contact centers for optimum efficiency? The Hotel’s reputation is created in the digital space by reviewers and Guests. Monitoring and careful intervention must be a priority for hotels.

The Demanding Customer; Every guest touch point can be a make-or-break experience, an opportunity to win or lose the repeat business that drives bottom-line performance.

Lowering Cost, Increasing Revenue; How to identify new revenue streams whilst make savings through operation efficiencies? In particular non-room revenue (e.g. banquet, spa, golf, conference rooms, and restaurants). And how is technology used to optimize staffing levels and the tool they use – including s mobile electronic devices required to do their jobs. How to use technology to streamline shift changes for maximum productivity and savings?

What to measure; Traditional vs. non-traditional measurement

Key Performance Indicators (KPI) are the selected indicators considered significant for  monitoring  hotel  performance  of  strategic  objectives, outcomes,  or  key  result  areas  absolutely  critical  and  important  to  the  success and growth of the hotel . The purpose of KPI is to provide decision makers in the hotel measurable indicators for judging the hotel performance and for measuring the achievements of the hotel objectives and goals. These KPIs can help hospitality managers in their efforts to  ensure efficient and effective management of resources and to achieve  the  main  objective  of  profit  maximization  through  stakeholders’  satisfaction. The development and use of the KPIs should form the basis  for  the  analysis  of  an  organization’s  current  performance,  its  future  requirements and the improving strategies required for ongoing success.

As key indicators are uniform for all organizations, they assure managers  a  tool  for  benchmarking  with  other  in  order  to  improve  their  own  performance, where  The hotel performance measures used to craft RM strategy are becoming more detailed and thus are growing in quantity and scope. Whereas a few years ago the RM function performance was limited to tracking rooms revenue via Occ. % and ADR, with advance implementation of RM it is now focused on managing revenue across all hotel activities. As hotel companies become better at collecting and organizing transaction data from all revenue streams, it is inevitable that the number of performance measures used by RM will also grow. This trend is creating an exponential growth in the numbers that RM will have to follow. When this happens, it becomes harder to separate the measures that are relevant to profit and can affect strategy from those that simply describe uncontrollable events.

The importance of measuring performance cannot be over-emphasized. It is important to measure performance against both internal and external metrics and Key Performance Indicators (KPIs)., To perform a more sophisticated and micro view of the business, efficiency indicators are often very useful to measure how well individual parts of the business are performing. Each indicator provides a point of comparison for performance to be assessed against either an actual or optimal benchmark

This measurement criterion ensures the team stay focused, on track and motivated with the same end goals in mind. An additional benefit of having consistent measures throughout the business is that the revenue culture will be continually strengthened. There are many revenue streams within a hotel, so it is important to engage as many departments as possible to ensure optimal hotel revenue and profit performance.

Common measures:

• % – Occupancy percentage
• ADR – The overall Average Room Rate (ADR)
• RevPAR – Revenue per available room
• MPI – Market Penetration Index ( Hotel Occupancy vs Comp Set )
• ARI – Average room rate index ( Hotel ADR vs Comp Set )
• RGI – Revenue Generating Index ( Hotel RevPAR vs Comp Set )
• RevPASH – Revenue Per Available Seat Hour
• RevPAM – Revenue per available Square Meters ( for Conference and Banqueting)
• RevPOR – Revenue per occupied room
• GOP – Gross Operating Profit
• GopPAR – Gross Operating Profit per available Room
• TrevPOR – Total revenue per occupied rooms
• TrevPAR – Total revenue per available rooms
• TrevPEC – Total Revenue per Customer / Client
• ProPAR – Profit per Available Room

 In a hotel environment, there are a number of key performance indicators which are critical in measuring and evaluating the impact of revenue management, and we just highlighted 15 type of measurement and we go on counting, but at the minimum and highest level, every hotel should at least look at RevPAR and it’s index Performance, which in many cases is still the best indication of how a hotel is performing against its the hotel goal and against competitive set. Although widely used in the industry,

Forecasting accuracy as major impact on Revenue streams Measures

Forecasting is the process of estimation in unknown situations. All successful revenue management strategies are based on the ability to forecast demand accurately and control room availability and length of stay. The ultimate goal of the forecasting process is to be able to anticipate future demand and plan ahead accordingly. Moreover when we are forecasting we do not want to just look at the next month, rather we should be able to anticipate the next coming few months as well in order to fully adjust operational strategies.

The starting point for your forecasting plan should be the information you collected in the  Performance Management and Business Intelligence stages of this process This idea from forecasting is to review the past few months and maybe year’s performance to understand future trends, assess possible risks and opportunities. The idea will be a matter of replicate the past performance with either a plus or minus percentage of figurers or numbers with the usage of different sources of information to obtain correct data, then analyze this data to obtain knowledge in order to be a proactive revenue manager knowing the opportunities and the risk ahead.

As revenue manager a few forecasting tool you should consider which ties together all the essential elements required to prepare accurate forecast i.e current budget figures , business trend, business on the box , current room cost, ………etc , .

What is matter?

Metrics , measuring performance , KPI, and other terminology , they are all matter but making money matters most at the end of the day though, metrics only matter so much. Yes, metrics are an important part of the revenue management process. Yes, we need metrics to be able to evaluate whether one initiative, promotion or sales channel sells more rooms than others. And of course, we need metrics to prove to the management team that we are being effective. The harsh reality is this though: at the end of the day, if you’re not making money, metrics are never going to make up for that fact.

To help offset the challenges that revenue manager face when looking to measure their impact across the hotel revenue stream  it is important that agreed-upon goals are in place, as this makes it easy to define and measure what constitutes success and failure for everyone involved. Of course, there are always reasons for over performance and excuses for under performance against a particular performance goal. However, sound measurement criteria – agreed upon by everyone at the outset- make it easier to identify any potential shortcomings early enough in the cycle so that they can be rectified before it is too late.

It is therefore critical for RM managers to concentrate on measuring what really matters, and that is anything that creates significant variance in profit. The goal should not be to try to absorb as much information as possible, but to identify and focus on managing the subset of measures that can have the most immediate and long term impact on hotel performance. Obviously, this set of measures will not be the same for all hotels because corporate hotel  needs fewer performance indicators than a beachside resort. However, any measure should help you manage the future while simultaneously giving you a perspective of the past.

“Reprinted from the Hotel Business Review with permission from www.HotelExecutive.com”