Achieving Total Revenue Management with Your Existing RMS
By Bernard Ellis President & Founder, Lodgital Insights LLC | October 02, 2016
Technology is often blamed for raising the biggest barrier to embracing a "total revenue management" approach. But chances are that you have systems in place that are already up to the task, if only you would set them up to succeed. You may need to make PMS configuration changes and refine certain business practices, but it will be more than worth it.
It seems like every time RevPAR growth slows down, as it is now in the US, hoteliers instinctively turn first to investigate their revenue management systems, which surely must have blown a fuse or broken a fan belt or something. Upon finding that data was flowing, optimization was happening, channels were booking, and all was generally humming, the next in line for blame is the revenue manager. After being chided for overriding the system too much, he or she now is under suspicion of being asleep at the revenue management switch. Then out comes one of the greatest peacekeepers of all KPIs: "the RevPAR Index," which indicates whether the hotel got its fair share of the available demand in the market, lost share to its competitors presumably due to being overpriced, or stole share from them, hopefully by undercutting them just enough to attract all the bookings away like a magnet. With RevPAR Index Report in hand, the revenue manager can once and for all prove that, even though demand has fallen off for the whole market, he or she still won the game.
If the RevPAR Index didn't tell a good story, then just start over at the beginning with the RMS again. Only after few of these iterations do hotels then face the fact that, no matter how they made out in the RevPAR Index game, RevPAR growth is going down for everybody-not RevPAR--just its growth. And finally, when the sad moment arrives when RevPAR itself starts to slip, then, and usually only then, will hotels start to ask themselves the question, "Why are we only looking at rooms?" Our gaming colleagues face an analogous challenge as a new generation of players brings a much lower theoretical loss than their parents and grandparents: "Why are we only looking at theo?" Even resorts with plenty of diverse revenue streams may find they've been too enamored with one type of revenue, whether it be greens fees or lift tickets. The thinking is often, "If you get that right, everything else is gravy." That is, until you don't, or can't, then suddenly gravy becomes the new meat. Before we find ourselves mired in the unpleasantness of a mixed metaphor, let it suffice to say that "the secret is in the sauce" and has been all along. By looking beyond just the primary revenue source, a "total revenue management" approach can boost hotel profitability even in the face of flagging
What is a total revenue management approach? It can have several components:
- Don't just look at room rate when deciding what business to accept, but also at the ancillary revenue that each segment typically brings as well. When room rates start to stagnate, holding out for demand from the segments which drive more ancillary revenue is a great way to shore up profitability.
- Don't just forecast room revenue, but also other revenue categories as well. You may already be achieving optimal results during busy times, and should focus your quest for growth on shoulder nights and other slower periods.
- Don't just consider the capacity constraints on your room inventory, but also in your F&B outlets, spa, golf course, anywhere where there is more demand for a facility than you have ability to accommodate it. Do you have the ability to drive higher prices during peak times, or to siphon business to slower times through promotions, versus losing it altogether?
- Don't ignore the contribution margins of different types of revenue. Just as distribution costs should guide your room revenue strategy, so should the costs associated with delivering ancillary revenue, such as the real cost of food, spa products, and labor which are provided.
"Oh, if only our revenue management system could handle it," most hoteliers will lament. And many will be right. But many will be dead wrong, certainly the EzRMS users, not realizing that the very same revenue management system they lean on for RevPAR could be executing a total revenue management approach for them, but may not have been configured to do so amidst the whirlwind of change management that accompanied the initial implementation. Rather than wait until RevPAR not only stops growing but starts sliding, why not get ahead of this now? Here are some things you can do now to make sure you and your system are well prepared for a total RM approach.