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Mr. van Meerendonk

Revenue Management

Revenue Management Health Check: How Does Your Hotel Measure Up?

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

It is commonly accepted today that revenue management is critical to the successful operation of any hotel. However, while the adoption of this strategic approach to pricing - and the advanced systems that support this - are becoming more widespread, there is still no industry standard for how to evaluate revenue management outcomes. This lack of universal criteria around how to assess revenue management can pose challenges in trying to sell the success of a program within a hotel, as well challenging how to accurately benchmark a hotel's revenue performance against its competitors.

A key challenge revenue managers face when developing a detailed, accurate assessment of their property's performance is sifting through an overload of information. With huge amounts of information available-and with revenue managers naturally inclined to love charts and tables-too many revenue managers attempt to understand, analyse and measure copious amounts of data, losing focus on the critical success factors for the business in the process.

Revenue managers also face major challenges in assessing performance in organisations where there are unclear or conflicting objectives. While many sophisticated hoteliers set clear objectives and critical success criteria, a surprisingly large number of businesses measure success based on more ambiguous criteria, or, in the worst case, conflicting measurements across different business lines. A typical example is a hotel's desire to drive performance in profitability; while concurrently setting corporate sales objectives, which are purely focused on volume and do not take profitability and displacement into account. A high volume room night account is often considered a "good" account, even though it might ultimately not be the optimal business to support the overall revenue goals of the hotel.

Although there may not be one set industry standard for assessing a hotel's revenue management performance today, hoteliers should consider three key objectives when evaluating their properties:

  • Financial objectives - Are you meeting your investment objectives?

  • Competitive objectives - Are you outperforming the competition?

  • Capability objectives - Do you have the capabilities to create sustainable performance?

Assessing Financial Objectives

For a hotel owner or investor, being able to accurately assess the financial performance of their hotel asset is critical. These stakeholders are interested in evaluations that focus on their return on investment, year-on-year growth and ultimately, the value of their hotel asset(s).

For those owners or group investors with multiple properties, or those looking to expand their portfolio, setting revenue management evaluation standards across a hotel group or chain will improve the measurement of the overall portfolio. Through data collection and property comparisons, hoteliers can better determine how pricing strategies impact hotel chains in different countries. Accurate forecasting data, combined with market research and analysis, also makes it possible for hoteliers to carry out realistic feasibility studies for future hotels looking to join the group, refurbishment investments, or to assess future opportunities to open new hotels.

For these same stakeholders, it is important to communicate how revenue management improves the value of their hotel asset in any review. The flow-through additional revenue that comes from the proper utilisation of revenue management systems and strategies can directly impact a hotel's bottom line results, making it a valuable tool in increasing a hotel's valuation. Increased revenue generated by advanced revenue management programs lead to higher cash flow, which can provide the hotel with greater day-to-day liquidity.

Assessing Competitive Objectives

A hotel's revenue management performance may have traditionally been measured by occupancy (Occ), average daily rate (ADR) and revenue per available room (RevPAR); however, the industry has evolved past only using these standards. New revenue management principles are applied beyond just rooms, and certainly beyond a single property itself. Hoteliers used to only look at how their hotel is performing compared to the wider market in terms of market penetration. To do this, hoteliers identified the right competitor set and were able to calculate a hotel's market penetration index (MPI), Average Rate Index (ARI) or Revenue Generated Index (RGI). These metrics are important as it allows hotels to see their position and performance in relation to their competitors and the market in general.

The practice of competitive benchmarking is an extremely helpful process in today's industry because it allows hotels to measure their performance, analyse their competitors' performance and set specific goals that will help them to meet - and exceed - the industry's top standards. It is critical, however, that hoteliers properly understand the purpose of benchmarking, the difference between benchmarking and competitor research, and align their benchmarking practices in conjunction with their hotel's overall management objectives. The latter is extremely important because some organisations may have guidelines on the inclusions of different types of data, or may retain an arsenal of data that is already available for the hotel to use.

In addition to the standard rooms-focused metrics however, the industry should be looking towards a better understanding and comparison of total revenue performance metrics. The results generated in function space, restaurants, spa and other areas of the hotel also contribute to the overall profitability. Leaving these to the side and only focusing on rooms is therefore only telling half the story. At present, there are only limited opportunities to do this effectively, largely because there are no generally accepted standards when it comes to measuring and reporting total revenue performance, total profitability or departmental revenues or profit. This is an area that the industry should be looking to address, through the relevant providers, organizations and associations. Only then will we truly be able to assess how a hotel is performing against its competitors.

Assessing Capability Objectives

Just as the practice of revenue management has evolved, so should the evaluation of revenue management move beyond just the traditional metrics of RevPAR to take in other critical factors.

Effective revenue management and pricing can only be achieved today through the optimal alignment of people, process and technology capabilities. A hotel may have significant capabilities in one of these areas, such as the latest technologies and operational systems in place in their property, but if they don't have experienced, properly-trained staff to utilise these systems the property will not get maximum benefit. When people, processes and technology are in balance and integrated effectively into an organisation's culture, then the real potential of revenue management and a property's true financial performance can be realised.

When assessing the capabilities of a property, hoteliers need to consider if their cross-functional sales, catering and revenue management teams are aligned and working effectively. The challenge in applying revenue management across an entire hotel relates to the convergence of the traditional roles of sales, marketing and revenue management, in addition to including food & beverage, banqueting, finance and other departments. It takes an entire team - not just one department or group - to capture the right guest, at the right time, for the right price, and in the right space. Hoteliers, when undertaking their capability assessment, should look closely at the operational systems they have in place compared to what the industry standard is, how their staff is performing in their roles and if the automated technologies that support key functions like pricing and bookings are able to function effectively in an age of big data. A capability assessment is also particularly useful in determining the type of educational and training support needed for teams to successfully manage pricing and inventory decisions in a scientific and methodological way. Work Out What Success Looks Like

Revenue managers spend a significant amount of time and effort devising strategies and deploying tactics to optimise revenues. However, they are not always as proficient when it comes to establishing and measuring agreed upon success criteria. 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 hotel's success story.

No matter how many measurements of success a hotel has, it is important to remember that the value of any success criteria does not come from the absolute number alone, but the underlying factors and long-time trends which impact the final number including people, processes and technology. An evaluation of a property's revenue performance which focuses on financial, competitive and capability objectives will give hoteliers an accurate assessment of their property's value, and how it is performing in relation to its operating environment and future opportunities.

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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OCTOBER: Revenue Management: Technology and Big Data

Gary Isenberg

Hotel room night inventory is the hotel industry’s most precious commodity. Hotel revenue management has evolved into a complex and fragmented process. Today’s onsite revenue manager is influenced greatly by four competing forces, each armed with their own set of revenue goals and objectives -- as if there are virtually four individual revenue managers, each with its own distinct interests. So many divergent purposes oftentimes leading to conflicts that, if left unchecked, can significantly damper hotel revenues and profits. READ MORE

Jon Higbie

For years, hotels have housed their Revenue Management systems on their premises. This was possible because data sets were huge but manageable, and required large but not overwhelming amounts of computing power. However, these on-premise systems are a thing of the past. In the era of Big Data, the cost of building and maintaining an extensive computing infrastructure is incredibly expensive. The solution – cloud computing. The cloud allows hotels to create innovative Revenue Management applications that deliver revenue uplift and customized guest experiences. Without the cloud, hotels risk remaining handcuffed to their current Revenue Management solutions – and falling behind competitors. READ MORE

Jenna Smith

You do not have to be a hospitality professional to recognize the influx and impact of new technologies in the hotel industry. Guests are becoming familiar with using virtual room keys on their smartphones to check in, and online resources like review sites and online travel agencies (OTAs) continue to shape the way consumers make decisions and book rooms. Behind the scenes, sales and marketing professionals are using new tools to communicate with guests, enhance operational efficiencies, and improve service by addressing guests’ needs and solving problems quickly and with a minimum of disruption. READ MORE

Yatish Nathraj

Technology is becoming an ever more growing part of the hospitality industry and it has helped us increase efficiency for guest check-inn, simplified the night audit process and now has the opportunity to increase our revenue production. These systems need hands on calibration to ensure they are optimized for your operations. As a manager you need to understand how these systems work and what kind of return on investment your business is getting. Although some of these systems maybe mistaken as a “set it and forget it” product, these highly sophisticated tools need local expert like you and your team to analysis the data it gives you and input new data requirements. READ MORE

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