The 3 Most Overlooked Revenue Management Measures
By Michele Walters Co-Founder, Origin World Labs | September 23, 2012
Revenue Managers live and breathe performance measures. 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 DOFA. However, unlike in Finance, the 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 was limited to tracking rooms revenue, 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.
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 a roadside inn 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.
In working with hotel companies, I have found that there are three measures of performance that are rarely used, yet can have the most significant impact on RM decisions. Keep in mind that tracking these measure does require a bit higher sophistication in being able to access and extract data at a granular level. Fortunately, the technology for accomplishing this is becoming cheaper every day.
Room Type Pace
For many hotels, the time-honored Pace Report forms the heart and soul of their RM analysis. Pace Reports are usually designed to give the reader a quick snapshot of future rooms revenue versus the previous year. Since this type of report is typically widely distributed to many functions (i.e Sales, Marketing, Executives), the data tends to be aggregated to focus on total rooms performance by market. While this format may be useful for putting the current year's performance in context, it contributes limited input for making the type of decisions that truly affect profit. To be effective for RM decision making, the Pace Report has to go into deeper levels of detail. Specifically, RM should be closely monitoring pace performance by room type, source, rate type, and guest type. Among these, the most powerful, yet overlooked is Room Type pace.
Let me pause to reflect on a salient point. Our research shows that the hotel industry leaves billions of dollars on the table each year by not properly yielding different room types. It is ironic that hoteliers invest so much money in creating hundreds of room categories, yet the vast majority of hotel companies price these superior rooms using a simple and static markup over the BAR rate. Lower category rooms are yielded and only once these lower category rooms are sold out, then the higher category rooms are managed. The result is that the revenue performance of the higher category rooms bearing the most profit potential is left up to chance. This inefficiency is exacerbated by the fact that guests of superior rooms tend to be better customers and typically spend more across all hotel outlets. Unfortunately, the most popular RM systems only yield at the Total Hotel level and are therefore part of the problem.