Total Revenue Management: The Journey from Capacity to Profit Management
By Nicholas Tsabourakis Founder & Managing Director, Bespoke Revenue Management | November 05, 2017
Co-authored by Katia Savoca, Head of Revenue, Europcar
It is a fact that over the last years, we have seen a growing need for traditional revenue management (RM) to evolve from having sole emphasis in maximizing revenue mainly from rooms, towards adopting a more holistic view and focusing on achieving profit maximization across the whole organization.
The latest developments in technology and added pressure in the market have advanced RM to acquire a strategic and proactive planning role with emphasis in maximizing all components of the customer journey, instead of being utilized as a short-term reactive solution. This gave birth to the idea of Total Revenue Management which should be implemented as a business philosophy and strategy as its principles take into account the entire operation.
Total Revenue Management, (TRM), comprises both strategical and tactical procedures and aims to identify & optimize the customer journey. For this customer-focused role to be effective it is imperative to understand consumer behavior and patterns before, during purchase as well as throughout the product utilization in order to accurately identify and map demand forces with profit potential. TRM has remarkable potential and the main benefit of its application as a business strategy, is the formation of a mutual and clear vision that enables everyone to work towards adopting the right attitude and commercial approach while expanding knowledge and insights on factors that influence profit. Installing a Revenue culture, right from the start, is of outmost importance for successfully deploying TRM.
A Revenue culture implies that all stakeholders have a common vision of what needs to be achieved, why, and how. By having a clear understanding of what the organization stands for and the strategies & tactics used to reach set targets, it is easier to define standards of performance and establish expectations. Whilst not everyone will ultimately be responsible for achieving what is required, it is essential that relevant stakeholders will participate in the discussions and everyone is aware of decisions taken. This will improve cross-departmental communication, while having an overall view of the business will motivate and incite involvement that will give the team a sense of ownership. The implementation of a rigorous training program is mandatory to shape and instil the right mentality and guarantee a long term success. This will create an environment that celebrates opportunities, transparency and diversity.
Moreover, the role of a Revenue Manager and its position in the organizational structure will need to be re-examined and expanded to include additional responsibilities. Beyond the analytical skills, the modern RM will also need to possess character traits such as impeccable communication, influential and leadership skills. As requirements will include focus on overall profitability, current metrics will need to be re-evaluated to reflect that. While RevPAR (Revenue Per Available Room) will still play an important role, TrevPAR (Total Revenue Per Available Room) will need to be established to measure overall performance, while GOPPAR (Gross Operating Profit Per Available Room) should be adopted to measure profit. Calculating GOPPAR could prove challenging as different organizations place different cost elements before or after GOP. Therefore, a universal re-positioning in financial statements will be required for the adoption of this fundamental metric.