Revenue Managers, You and Your Upcoming Budget

By.  Ahmed Mahmoud 31st Oct 2009

Good budgeting is the foundation for great rate management. Integrating of many factors i.e. positioning your hotel, market segmentation, rate parity along with the assumption of demand periods, laid out on a daily basis, will provide the opportunity to establish a realistic goal of revenues and expenses.

Many times, specially in good timing when the performance is high in terms of GOP , the budgeting process is based on increasing revenues by a percentage year over year, as an example. That approach leads to disaster as many factors have to be considered to accurately project revenues and expenses. Taking the time to budget revenues for each day and incorporating rooms sold and average rates per segment creates a solid foundation for rate management that allows for wise management if corrections/adjustments need to be made, as well the F&B revenue, outlets and banquets needless to mentioned the average check .

2009 is about to end, and this is the time, if not started already, to think and plan for the next year budget. But with the tough time and economic recession, planning for the next budget should be difference than other periods of budget planning before.

According to PKF Hospitality Research, when the industry suffers through a slowdown, the accuracy of hotel budgets deteriorates dramatically. Under poor market conditions, hotels have missed their profit targets by as much as 20 percent.

Accordingly the process of budgeting tends to be much less complex in optimistic times than in times of slowdown. Normally what happened during our industry reporting high and good performance in terms of revenues, investments are achieving their desired results. Lenders are collecting their debt service; investors are receiving their returns, management companies are earning their incentive fees, and lodging stocks are climbing.

This is why over the last few years and it is still increasing, the number of people involved in the budging process has grown. Historically, the budget process was virtually the exclusive domain of the operations department, i.e. front office, housekeeping, food & beverage ……….but In recent years, however, owners, investors, lenders, and others have begun to exert their influence on the budget process.

The negative side of including more people in the budget process is that they sometimes have an agenda that de-emphasizes budget accuracy and reality. More over the optimistic numbers are sometimes budgeted to put off the inevitable reporting of poor operating conditions to lenders and investors. In a desire to motivate management, owners frequently insist upon pushing both revenues and expenses past what is realistically possible. Aggressive budgeting is often conducted by non-hospitality professionals who enter the business in good times just to make a fast dollar. The lack of knowledge about the lodging industry leaves them ill equipped to ride out a down cycle. Disputes between industry veterans and new temporary players delay the budget process and complicate management strategy, in big hotel chain the budget preparation takes around 3-5 months back and forth for submitting, approval, and final approval as it takes so many stages between the management, owners, and in some cases the lenders and investors.

I have always believed that open-minded and informed revenue managers are the key for the budget preparation, those managers who are constantly seeking opportunities to improve their bottom-line, this is why some hotels are doing better than others and a few hotels are actually doing quite well. And this might be the secret of our industry our industry is cyclical and the good times will return. You as a revenue manager should not give up! Use this time as an opportunity to be smart with effective revenue management strategies. Weather the down cycle and be well positioned for when the recovery arrives.

Revenue managers as a key person for the budget preparation team , need to take the next few tips into consideration within the budget process where it can help in better planning .

Future Assumptions – Political & Economical / Outlook

This is part of the qualitative data you must collect in order to arrive at the most accurate possible prediction scenario for the future demand. That current and future information where it needs to be considered are any short or long term changes of trends in the market, i.e. a sudden boost in corporate activity in town, tourism leisure activity levels, cancellation or activity of local or national events might be even internationals where it will effect in your market, major events and significant issues happened or will happened in your city effected or will effect your hotel.

Any local restaurant and banqueting activity, special F&B activities, which will affect the future, will also need to be reviewed.

Although it is not easy to collect those information, specially it needs a lot of digging in the internet and newspaper, magazines ………looking for reports and news , but without this kind of information you can’t step forward in your budget.

Historical Data

Remember “Facts are the most important thing in business. Study facts and do more than is expected of you., this might called the key facts and event happened for the current year then it is your key assumption for the next year budget “

Historical data mean, your internal data i.e. nationality reports, market segmentation, occupancy %, ADR, and Revpar ………….., those reports should be break dawn to month by month if you could break it into days , make some observation in high and low figures , remember those reports and sources shall provide you with the underlying basis for the budget process , within your analysis for those data you will be able to see your trend , it is highly recommended to take notes starting by

Why and when these months/days were high/low in occ. ADR …ETC,

What happened during this months/days , any special event in the city or in the hotel, has that impact

Is, these events will be repeated next year so in can be into consideration.

Your Direct and Indirect Competitors

In a tough economy your list of competitors could be longer than it is during boom times, meaning you might need to re- evaluate your competitors list, that list should includes the direct and the indirect regardless the start rating, location and facilities. As other hotels may need to steal your business in order to survive. Upscale hotels, which ignored your hotel during good times, may need to target your business now; so you need to be prepared.

There are some reports as well present the historical market conditions in which the hotel has operated, and have over view of the market in which the hotel will compete in the future, few benchmarking tools will help you getting your data , but still you have to consider that some of your Comp set does not updates there data, a result of this data will give you an indication to Set realistic benchmark goals for your RevPar .

STR Report – How is your hotel trending on a 7- and 28-day basis? If the comp set is outperforming you on any of these days, find out why and take steps to strengthen your position.

Hotelligence Reports – Compare your hotel’s arrival patterns with those of the comp set. Does the comp set enjoy strong Sunday arrivals, while your hotel does not? Find out why and work to fix it. Then look at the individual GDS channel production and how to increase production through GDS media.

From time to time you or one of your team need to call your competitors reservations departments (both local and CRO) and ask about packages and special rates. In addition, be sure to visit your competitors’ websites on a daily basis so you can be aware of rate changes and special web-only offers. Be sure to visit competitive set hotels to familiarize yourself with the product in order to price your own rooms competitively.

Sales Team and Sales Strategy

According to Bill Glazer, of GKIC, the number one mistake businesses make is that they assume everyone knows their business and knows them when the reality is, if you are not consistently in front of your customers and prospects – they won’t remember who you are or what you do! In today’s environment, competition is fierce and you want to deploy new strategies that will help you survive and thrive in this recession and beyond.

So ,what you need to do is , not only Sell to Someone Different but also sell in different ways and technique , Create More Value add ideas and sell something different.

The clear sales goals, will give the sales people the enough time to sell , remember sales people need that time to defuse their concentration on the sales effort , they do not need detailed reports and unnecessary meetings.

New Marketing Ideas

Some hotel marketing functions are best kept in-house. For others, it’s more profitable to outsource them to an outside partner., the first thing you have to think about is the untraditional plans for marketing, think less in newspaper adds, brochures, directories ……… think more in social media , network, blogs , with it’s functionality of sharing notes, news, videos, think about your website and it’s contains , with whatever related to a website of SEO work, updates and attractive contains

Pricing Strategy

Creating an optimum rate structure, and inventory yield management, good electronic channel distribution, and strong sales solicitation are all a part of revenue management. Don’t fall prey to the simplistic belief that simply reducing rates will produce long-term profit and create demand for your hotel.

A late 2004 study presented by Cornell University and Smith Travel Research, has some valid points regarding discounting the rates, i.e. discounting within your competition set may sell some rooms, but, overall, it’s a losing proposition.

You might need to position your rates higher within your competition set, rather than automatically cut rates to keep occupancy share. But are you welling to drop the Rate Integrity , and rate Parity concept , where all your customer know it as part of the revenue management pivot , the customers knows that they might pay more or less for a room depending on the time of reservation , hotel location , place and situation of occupancy. But if some of the big chain hotels start to changes there rates strategy and cut even to 50 % discount, what you will do and which strategy you will follow, especially at the end of the day you still need to fill your rooms and generate revenue.

Use as much as you could of different strategies and technique for your rates according to your trend and customers, discounting is acceptable in some cases, try in practical as well most of the Rate Parity options, Rate Integrity, Price Fencing, Early Bird booking for TA & TO , Opaque allocation and pricing for OTA , corporate accounts pricing in different concept , think about there families , and there retired employees ……… ETC

Finally, in terms of difference between reactive and proactive revenue management while building the budget , it being said that reactive opportunistic RM is often evolving around the short-term optimisation of high demand periods, where as the long-term, proactive revenue management is based on clear strategies built on more accurate demand forecasting, price integrity and profitability measurements, this is where comes your role as a key player in the budget process.

About  Ahmed Mahmoud

Ahmed Mahmoud has more than a decade of experience in the hospitality industry and business administration, Ahmed began his career early by holding a variety of management positions with such top hotel chains as Accor Hotels, Hyatt International and Starwood hotels. With decades of revenue management experience Ahmed founded the very dedicated site for revenue management news, articles,

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