Mr. Mahmoud

Revenue Management

The Most Overlooked Hotel Revenue Stream Measures

By Ahmed Mahmoud, Founder, revenueyourhotel.com

Revenue Management represents the technique that helps hoteliers to achieve the highest profits by correctly identifying the customer groups that the hotel has to serve (market segments) , establishing the right (quantity of) products and services as well as setting up the optimal prices to be offered to these customers. But when it comes to measurement, it is confirmed that there is a major link between RevPAR and profitability. This means if the hotel takes any action to increase the RevPAR it will translate into improving the hotel's profit. Even though the key EBITDA hotels realized that RevPAR is a key driver of GOP, other hotels are using the correct data to make decisions affecting their RevPAR, and you would be shocked to realize that only a few hotels have regular Rev Max meetings to discuss revenue strategy.

In the old days the role of the Revenue Manager was to get the right product, at the right price, to the right customer, through the right distribution channel. The diversity of online distribution, along with the implicit direct sales model of mobile, means that hotels are receiving richer data, allowing them to make one to one offers to individuals at the right place and time.

This technology is enabling the revenue management team to become deeply involved in decision making to cater to an ever-more complex sales matrix, impacting the demands for new skills to manage revenue which is no longer limited to rooms revenue.

The Revenue Managers' roles are no longer optimizers of profit alone but are becoming chiefs of strategy offering analytical insights since they live and breathe performance measures. Many revenue managers still lag when it comes to establishing and measuring agreed upon success criteria, often leaving revenue management professionals to defend their actions to a skeptical audience with insufficient data. 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 DOF. There are many challenges in defining revenue management metrics, but the payoff is an effective optimization program.

Revenue Stream Measures Challenges

An important issue facing hotel RM is the concept of Total Hotel Revenue Management (THRM) and total strategic revenue management. This issue has prompted calls for a re-evaluation of some of the practice's fundamentals, including the question of what should be measured: revenues or profits? It relates to capturing the mostly untapped revenue and profit potential associated with the non-room revenue-generating centers of the hotel, or, in other words, THRM is "managing every revenue source at every guest touch point to its maximum profitability for the entire hotel or resort asset". For a revenue manager to be truly effective in the job, devising, implementing and agreeing on "what success looks like" is, in many cases, as important as the activities themselves and will go a long way to support a revenue manager's success story, Crucially, many revenue management professionals along with industry professionals still struggle when it comes to measuring and articulating the impact of their initiatives and methods they use to measure the impact of revenue management implementation. The Hospitality business model is characterized by high fixed-costs and variable income. Fluctuations in occupancy and room-rate demand tight cost control.

There are, however, key challenges that all revenue managers face when looking to measure their success. These challenges include information overload, over analyzing data and unclear or conflicting objectives. Moreover it includes:

  • Guest Profiles - Gathering and using guest preferences and intelligence to enable delivery of superior guest experience. Hotels are uniquely able to gather data and profiles through the many sources of interaction both on and off Property.

  • Social Media - How to implement and integrate new customer engagement channels, notably Social Media with contact centers for optimum efficiency? The Hotel's reputation is created in the digital space by reviewers and Guests. Monitoring and careful intervention must be a priority for hotels.

  • The Demanding Customer - Every guest touch point can be a make-or-break experience, an opportunity to win or lose the repeat business that drives bottom-line performance.

  • Lowering Costs, Increasing Revenues - How to identify new revenue streams while experiencing savings through operation efficiencies, in particular non-room revenue (e.g. banquet, spa, golf, conference rooms, and restaurants)? And how is technology used to optimize staffing levels and the tools they use - including s mobile electronic devices required to do their jobs. How to use technology to streamline shift changes for maximum productivity and savings?

What to Measure: Traditional Vs. Non-Traditional Measurement

Key Performance Indicators (KPI) are the selected indicators considered significant for monitoring hotel performance of strategic objectives, outcomes, or key result areas absolutely critical and important to the success and growth of the hotel. The purpose of KPI is to provide decision makers measurable indicators for judging the hotel performance and for measuring the achievements of the hotel objectives and goals. These KPIs can help hospitality managers in their efforts to ensure efficient and effective management of resources and to achieve the main objective of profit maximization through stakeholders' satisfaction. The development and use of the KPIs should form the basis for the analysis of an organization's current performance, its future requirements and improving on strategies required for ongoing success.

As key indicators are uniform for all organizations, they assure managers a tool for benchmarking in order to improve their own performance. The hotel 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 performance was limited to tracking rooms revenue via Occ. % and ADR, the advanced implementation of RM 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. The importance of measuring performance cannot be over-emphasized. It is important to measure performance against both internal and external metrics and Key Performance Indicators (KPIs)., To perform a more sophisticated and micro view of the business, efficiency indicators are often very useful to measure how well individual parts of the business are performing. Each indicator provides a point of comparison for performance to be assessed against either an actual or optimal benchmark.

This measurement criterion ensures the team stays focused, on track and motivated with the same end goals in mind. An additional benefit of having consistent measures throughout the business is that the revenue culture will be continually strengthened. There are many revenue streams within a hotel, so it is important to engage as many departments as possible to ensure optimal hotel revenue and profit performance.

Common measures:

1) Occ.% - Occupancy percentage

2) ADR - The overall Average Room Rate (ADR)

3) RevPAR - Revenue per available room

4) MPI - Market Penetration Index ( Hotel Occupancy vs Comp Set )

5) ARI - Average room rate index ( Hotel ADR vs Comp Set )

6) RGI - Revenue Generating Index ( Hotel RevPAR vs Comp Set )

7) RevPASH - Revenue Per Available Seat Hour

8) RevPAM - Revenue per available Square Meters ( for Conference and Banqueting)

9) RevPOR - Revenue per occupied room

10) GOP - Gross Operating Profit

11) GopPAR - Gross Operating Profit per available Room

12) TrevPOR - Total revenue per occupied rooms

13) TrevPAR - Total revenue per available rooms

14) TrevPEC - Total Revenue per Customer / Client

15) ProPAR - Profit per Available Room

In a hotel environment, there are a number of key performance indicators which are critical in measuring and evaluating the impact of revenue management. We just highlighted 15 types of measurement and we could go on counting, but at the minimum and highest level, every hotel should at least look at RevPAR and it's index Performance. In many cases this is still the best indication of how a hotel is performing against the hotel goal and against its competitive set.

Forecasting Accuracy as a Major Impact on Revenue Stream Measures

Forecasting is the process of estimation in unknown situations. All successful revenue management strategies are based on the ability to forecast demand accurately and control room availability and length of stay. The ultimate goal of the forecasting process is to be able to anticipate future demand and plan ahead accordingly. Moreover when we are forecasting we do not want to just look at the next month, rather we should be able to anticipate the next coming few months as well in order to fully adjust operational strategies.

The starting point for your forecasting plan should be the information you collected in the Performance Management and Business Intelligence stages of this process. The idea from forecasting is to review the past few months and maybe year's performance to understand future trends, assess possible risks and opportunities. The idea is to replicate the past performance with either a plus or minus percentage of figures or numbers with the usage of different sources of information to obtain correct data. The data is then analyzed to obtain knowledge in order to be a proactive revenue manager knowing the opportunities and the risks ahead.

As a revenue manager there a few forecasting tools you should consider which tie together all the essential elements required to prepare accurate forecast, i.e., current budget figures, business trends, business on the box , current room costs etc.

What Matters the Most?

Metrics, measuring performance, KPI, and other terminology all matter but making money matters the most at the end of the day. Yes, metrics are an important part of the revenue management process. Yes, we need metrics to be able to evaluate whether one initiative, promotion or sales channel sells more rooms than others. And of course, we need metrics to prove to the management team that we are being effective. The harsh reality is this though: at the end of the day, if you're not making money, metrics are never going to make up for that fact.

To help offset the challenges that revenue managers face when looking to measure their impact across the hotel revenue stream, it is important that agreed-upon goals are in place. This makes it easy to define and measure what constitutes success and failure for everyone involved. Of course, there are always reasons for over performance and excuses for under performance against a particular performance goal. However, sound measurement criteria - agreed upon by everyone at the outset- makes it easier to identify any potential shortcomings early enough in the cycle so that they can be rectified before it is too late.

It is therefore critical for RM managers to concentrate on measuring what really matters, and that is anything that creates a 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 corporate hotels need 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 2006 Ahmed Mahmoud founded revenueyourhotel.com, a premier provider of enterprise revenue optimization solutions and services. revenueyourhotel.com was created to make an immediate impact on hotel revenue and profitability through forecasting, optimization, and pricing solutions. With more than 18 years of international hospitality industry experience, specializing in revenue management implementation and set up, Mr. Mahmoud started his career in 1992 and has since held various management positions with top hotel chains including Accor Hotels, Hyatt International and Starwood hotels. In 2009 Mr. Mahmoud successfully completed a simple yet sophisticated revenue management operation manual outlining best practice methods designed to rapidly increase a hotelís RevPar and GOP. Mr. Mahmoud can be contacted at ahmed.mahmoud@revenueyourhotel.com Extended Bio...

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