The Bigger Bang for the Buck: Getting the Most Out of a Revenue Management System

How hotels can use existing technology to develop a total revenue management strategy, by Infor Hospitality’s Calum McIndoe.

It seems that whenever revenue by room growth decelerates, hoteliers instinctively turn first to investigate their revenue management systems. Thereafter, attention shifts to the revenue manager and finally, “the RevPAR Index,” which indicates whether the hotel got its fair share of the available demand in the market, lost share to its competitors, or stole share from them. Only after few of these investigations do hotels then face the fact that, no matter how they made out in the Index, RevPAR growth is going down for everybody.

As a result, hotels start to ask themselves the question, “Why are we only looking at rooms?” Even properties with plenty of diverse revenue streams may find they’ve focused too much on one type of revenue. The thinking is often, “If you get rooms right, everything else will follow.” However, the good news is that by looking beyond just the primary revenue source of just rooms, a “total revenue management” approach can boost hotel profitability even in the face of flagging growth. And the really good news is that it can be done with existing technology.

Total Revenue Management: start with the interfaces

A total revenue management approach can have several components: ancillary revenue, forecasts, capacity planning throughout the property and contribution margins. However, the very same revenue management system hotels rely on for RevPAR could be executing a total revenue management approach, but may not have been configured to do so. Rather than wait until RevPAR not only stops growing but starts sliding, hotels should ensure their systems are well prepared for a total RM approach.

The first stop on this journey is to ensure the revenue management system talks to the property management systems, in the same language. We’ve all heard the saying “rubbish in, rubbish out” when it comes to data and IT systems. But PMS-RMS interfaces can sometimes take it to a new level. Before a hotel embarks on a total revenue management approach, it needs to work with PMS and RMS providers to eliminate any interface hiccups.

Identifying Buckets

Revenue buckets, which typically feature in a property management system, are groupings of multiple of revenue codes. Why group? Because a full service hotel’s PMS revenue codes can number in the hundreds, if not thousands. And compounding the complexity, revenue codes differ in how much revenue they contribute. They can be some of the least standardized points of data, thanks to the industry’s fragmented owner/operator structure and the frequent comings and goings typical of many hotel portfolios.

Most property management systems allow users to define sets of revenue buckets, as many as 15 or 20, which can be used to take those hundreds of revenue codes and combine them into more meaningful categories. They are often hiding behind default values of “Room, Food & Beverage, and Other.”

These buckets can be critical. A hotel may use a system that provides a 360-degree view of the guest, detailing his past stays and spending totals by categories based on these broad groupings. This is certainly great for general guest valuation, but is practically useless for getting to know more about the guest’s interests, and how to target future offers.

Marketing and revenue managers have yet another opportunity to align their goals by defining revenue buckets that meet both of their needs. The result of this new structure should be the ability to capture a more meaningful picture of what revenue was contributed by both market segments and individual guests.

Don’t Lose the Breadcrumb Trail

When an in-house guest spends money in an outlet, but pays by cash or credit card instead of charging it to the room, hotels lose the ability to connect him or his market segment with that revenue. Point of sale interfaces can query for and display a guest profile, but usually don’t link transactions to it unless a room charge is posted.

To set up a total revenue management approach, not to mention provide better service, staff in all outlets need to be trained to ask every customer to identify himself as a hotel guest or not, right upon entering the outlet, so they can access the guest’s profile, and take advantage of whatever functionality the POS allows to open a check against it, and view the guest’s preferences to guide service.

To incentivise charging the product or service to a guest’s room, outlet staff need to be well versed on the PMS’ capabilities to create multiple folios for incidentals. They should even be able to route future similar charges to those folios automatically, so that they can assure guests that their bill can be split however they need it, as well as use different forms of payment.

Good Things Come in Packages

One definite revenue management shortcoming that ancillary revenue has is that, unlike room revenue, it is often not booked in advance. This makes it difficult for revenue management systems to use booking pace as an indicator of whether demand for that revenue type will be higher or lower than it has been historically. Some resort call centres and travel operators do a great job of booking more elements of the guest stay during the initial booking, but most hotels don’t, citing the difficulties raised when the guest modifies or cancels his reservation. And if systems are not integrated to support a single guest itinerary, this is an extremely valid concern.

But just because a facility cannot be reserved, it doesn’t mean it cannot be sold. Pre-built package rates, and the functionality booking systems offer to create packages on the fly, can help pre-sell ancillary revenue types. This is a key differentiator against OTA’s who don’t have access to book on-property amenities, and it can help prevent cancellations when a guest finds a cheaper deal. The package must be specifically defined enough for the system to know what kind of ancillary revenue to expect, and ideally on which nights of the stay. The earlier the system can get a sense of how much demand there is for certain kinds of ancillary revenue, the more accurate its forecast will be.

This is a large scale project and many properties are reticent to undertake such efforts. However, getting these practices in place today will enable properties, resorts and chains to take a total revenue management approach long before softening market conditions force more drastic measures.

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