Mr. van Meerendonk

Revenue Management

Reducing Operating Costs: How Revenue Management Can Help Avoid the Slash and Burn

By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions

In an increasingly competitive global hotel environment, it is more vital than ever that hoteliers understand industry best practice and the latest supporting technologies to drive revenue performance. As such, many are turning to revenue management for accurate and detailed forecasting, so they can make optimal pricing decisions and grow revenue as a result. However, if hoteliers make the most of forecasting data, they can not only increase revenue, but also decrease costs across a hotel's entire operations and, as a result, bolster profitably. Having the ability to account for periods of higher or lower demand enables hoteliers to make better operational and staffing decisions and match their ordering from external suppliers to ensure wastage is minimized.

Forecasting for Revenue Management and Beyond

Utilizing data and analytics should be one of the foundations underpinning a hotel's marketing, and pricing strategies as well as hotel operational decisions for the future. To do this successfully, hoteliers need to ensure they have detailed historical data and accurate forecasts going forward.

Historical data should include (at least) the number of occupied rooms and revenue broken down into market segments by day, for at least 13 months. If data is collected every day, it will allow the hotel to establish simple booking pace forecasts by segment and day of week, from which they will be able to compare to historical data. If this is done consistently, it allows for any changes in patterns to be quickly identified - i.e. a pickup or decline in demand, and from which segments. From these observations, pricing strategies can be varied accordingly.

While collecting historical data is vital to enabling effective forecasting in any hotel, how does an organization actually know if they have a good forecast? Forecast accuracy has been the traditional measure of this, and while this is a valuable metric, it is retrospective as well as narrow - only taking into account outputs. To drive better revenue performance, hotels can benefit from shifting the focus from forecast accuracy to forecast performance. This holistic measure looks at both a forecast's inputs and outputs to reveal how well the forecasting process is working as a whole. This approach allows for a more holistic and ongoing evaluation of a hotel's overall performance.

It is vital that a hotel has accurate forecasts in place that help ensure that rooms are let out at the right rate. One common mistake hotels can encounter through not having the right forecasting systems in place is to sell-out rooms with lower rated business, and then have to later turn away higher rated business. Accurate forecasting actually not only makes it easier for hoteliers to determine correct pricing, but it can also be used to save time and save costs across the entire hotel operation.

Time Saving

Without having an automated revenue management system in place it can take revenue mangers hours to collect and analyze data. While programs like excel can be used to an extent - the insights that it will produce won't come close to matching those generated by an automated revenue management system. Through a series of algorithms and calculations, revenue management systems automatically assess hotel performance on a daily, weekly, monthly and annual basis. This allows revenue managers to quickly compare rooms sold and revenue against data at the market segment and total hotel level; which frees up their time, so they can use it to make strategic decisions to improve the hotel's business performance - rather than spend time pouring through large volumes of data.

Staffing Costs

It can be a tug of war for hotels to achieve the crucial balance when it comes to staff numbers. On one hand, no one wants to be caught short-staffed and face disgruntled guests who are dissatisfied due to long wait times - which along with the short-term ramifications, can ultimately damage future business as well. But on the flipside, it is a waste of money for staff to be sitting around underutilized as a result of not having enough work to do. The focus needs to be on maximizing the guest's experience, while keeping labor costs at efficient levels.

While some managers run off gut instinct to manage staff levels, this can be hit and miss. Instead, accurate demand forecasting should be at the foundation of optimal labor scheduling. Through integrating forecasts across a hotel's operations, hoteliers can use the forecast data provided to inform their staffing decisions to account for periods of higher or lower demand.

Once this data is made available, staffing managers need to determine which staffing areas are most affected by the number of guests staying in the hotel. For example, looking at how the number of occupants will affect the housekeeping needs, the number of staff needed on the front desk to check guests in and out, and the number of servers who will be required in restaurants and valets to park cars etc.

It is not just the demand that should be looked at - but which segments the demand is forecasted to be coming from, as this can also affect staffing requirements. For example higher paying guests may be more likely to stay in a suite, which will take longer to clean than a standard room. They may also be more likely to eat at one of the hotel's more fine dining restaurants.

Check-in and check-out patterns should also be included, to make sure staff members are also working at optimal times during the day.

Next, hoteliers should also look at the levels of service required - i.e. how long is it acceptable for a guest to be queuing to check in? Or wait to be served in a restaurant? Once this has been established, general rules can be put in place for how staffing levels should be changed based on booking patterns and forecasts.

Minimize Wastage

In the same way that forecasting can be applied to achieving optimal staff levels - it can also be used to match ordering quantities from external suppliers to minimize any wastage - as well as ensuring that supplies don't run out.

Hoteliers should look at which services and perishable supplies are affected most by occupancy. For example, during peak periods, the number of sheets that need washing per day will increase. If the hotel's own laundry doesn't have enough capacity for peak periods, having accurate forecasts in place will mean hoteliers know in advance when they might need to contract out sheet washing externally to manage the overspill.

Another area where hotels can throw money down the drain is through the areas of food and beverage, especially when it comes to those items that come with an expiry date - from fresh bread to produce. Knowing when there will be periods of high and low demand - as well as from which segments - will help hoteliers ensure they order the right products at the right time.

The same applies for renovations to rooms, which should be carried out in off-peak times, or when rooms are unlikely to be booked. Looking at forecasted demand from various segments will help ensure that renovations take place at the right time, and that business doesn't have to be turned away unnecessarily, because renovations are taking place at peak times. For example, during the week, business travelers may be most likely to rent out executive suites. Looking at demand forecasts could reveal that these suites are largely free in the weekends; therefore Saturdays and Sundays could be a better time for renovations to these suites to take place, even after weekend labor costs are taken into account.

Align Goals Across the Organization

For revenue management to be put in place effectively - to maximize the rate per room - as well as to decrease operating costs across the entire hotel - it is crucial that departments are working together in alignment and towards common goals. Human resource teams, revenue managers, and catering managers can be brought together through weekly meetings where direction, strategy and expected outcomes can be discussed, and forecasts can be shared. This will ensure that the right pricing decisions are being made, that hotel operations are being optimized and that revenue management becomes part of the culture of the hotel's entire operation.

As Director of Advisory Services for IDeaS Revenue Solutions, Paul van Meerendonk leads a global team of revenue management advisors focused on hotel revenue optimization projects. Mr. van Meerendonk is responsible for global development, management and operations of the Advisory Services team. He oversees the hiring, training and management of industry-leading consultants located in London, Beijing, Singapore and Atlanta. Mr. van Meerendonk also represents IDeaS on industry thought-leadership initiatives related to trends and best practices within revenue management, including authoring a number of white papers, conducting public speaking engagements, as well as leading key client webinars with an average audience of over 200 global representatives. Mr. van Meerendonk can be contacted at +44 (0) 118-82-8100 or Extended Bio...

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