Revenue Management: Focus On Profit

Revenue Management is still a relatively new profession within hotel operations and as such, it continues to evolve. One significant trend in this area is a shift away from using revenue as the foundation to generate key performance indicators (KPIs) and to instead place the emphasis on profit. Traditionally, revenue managers have relied on total revenue per available room (TrevPAR) and revenue per available room (RevPAR) as the basis of their KPIs. Now, some revenue managers are using gross operating profit per available room (GOPPAR) as their primary KPI. This puts profit at the center of revenue management strategy, and managers are increasingly searching for new ways to increase the profitability of their hotels. Return on Investment is the objective of any hotel investment, so it is only logical that profitability and ROI will be emphasized going forward. Another trend is an expanded focus on direct hotel bookings. Revenue managers know that one way to increase profitability is to steer guests away from online travel agencies (OTAs) and book directly with the hotel. This tactic also reinforces brand identity and loyalty, and encourages repeat business. In addition, it provides a valuable platform to market the hotel directly to the customer, and to upsell room upgrades or other services to them. Another trend for revenue managers involves automation in their software programs. Revenue management systems with automation are far more desirable than those without it. Automating data entry and logistics increases efficiency, allowing managers to spend more time on formulating strategy. As a bonus, an automated system helps with aggregating and interpreting data. The October issue of the Hotel Business Review will address these developments and document how some leading hotels are executing their revenue management strategies.

This week's Top Pick...

Zoe Connolly

When the world is facing high levels of volatility, uncertainty, complexity and ambiguity (VUCA), in part thanks to fast-changing technological, social and business environments, leaders and companies must be prepared to increasingly adjust to unanticipated events. VUCA in hospitality manifests on different levels and can affect individual hotel properties, tourism and entire companies, on a global basis. Many today would assert that, given the current geopolitical climate, the world's VUCA level has again spiked to higher than normal levels. People and corporations must increasingly adjust to unpredictable events. The hospitality sector is no exception. Read on...

Trending articles this week...

Bram Gallagher

Profit maximizing is the goal of the hotel owner; however, incentives or lack of information may lead the revenue manager to revenue-maximize instead. This paper examines a theoretical model of the differences in the approaches and suggests a simple statistical model to estimate the outer bounds of premia or discounts that should be applied to the revenue-maximizing ADR to achieve profit-maximizing. The model is applied to hotel statements, and I find that the amount charged in extended stay and limited-service hotels should be higher, full-service somewhat higher, and resort hotels the same or lower to maximize profit. READ MORE

Ahmed Mahmoud

Your property's bottom line is defined and measured for success if you as the property revenue manager implement a good revenue management strategy with the help of other departments in your property. The strategy of implementing good revenue management has been tried and approved of success is true through the regular revenue management measurement, but there is another and more efficient way to influence your property's yields. We call the strategy profit management which determines a property's net revenue after taking into consideration the costs of acquisition by channel, opportunity costs, and target audiences. READ MORE

Theresa Hajko

A surefire way to drive additional revenue and profit is to include Value Add Packages as part of Hotel Revenue Strategy. Value Add Packages are a unique way to pique guest attention, provide them with an experience that is more than just your typical overnight stay and create a perception of value. Additionally, it drives guests to our own more profitable website that has fewer associated costs than an OTA or other more costly channels. The hotel not only has an opportunity to drive more occupancy, but the cost associated with the rooms is lower thus the rooms are more profitable. READ MORE

Bonnie Buckhiester

More often now the term 'revenue strategy' is being used to describe the process of creating, capturing and managing demand. It's a broader, all-encompassing expression than 'revenue management' and implies a more comprehensive approach to optimizing revenues and profit. But in changing the nomenclature, are hotels really changing the way they do business? Some are, most are not. And why is that? Well, the hard truth is that the industry faces many barriers to fully adopting a total revenue management approach; however, articulating and acknowledging those barriers is a good first step to overcoming them. READ MORE

Library Archives

Mark Ricketts

Modern-day revenue management already relies on substantial number crunching, including sophisticated predictive analyses that help determine the optimal room mix and pricing-with the goal of achieving maximal RevPAR. Now, advanced metrics are pushing the revenue management envelope even farther, focusing on determining the complete costs of acquiring any given reservation. At the same time, advanced operational benchmarks are giving revenue managers, property general managers and the entire executive team a better handle on whether a given quoted rate is supportable in the overall quest for profitability and return on investment. READ MORE

Mario Candeias

Balanced Scorecards have been a widely used strategic management system, namely in large-scale corporations and institutions in the last 30 years. They were designed to align short-term practices with long-term vision and strategies. That alignment is a kind of cement between the corporate and operations level in any organization, holding the two levels together and increasing the organization's efficiency and effectiveness. Transparent and results-driven reward systems come as a consequence. This methodology is now ripe to go into new depths, by applying it to data-intensive and reward-prone operations, at a tactical and day-to-day level. Revenue Management qualifies perfectly! READ MORE

Yatish Nathraj

The amount of internal and external channels a hotel revenue manager has to juggle to make a profit is no joke these days. As Marriot, Hilton and Intercontinental Hotels Groups advance management tools to battle this constant operational nightmare. The franchisors need to start connecting systems that will save on expenses. Managers must manually check these systems daily and it's a daunting task to complete this all in a day. Why isn't there a computer program that will connect all revenue management tasks automatically without switching screens to increase productivity & profit? READ MORE

Kell Sloan

It's hard to imagine a time when revenue management wasn't the key to running a successful hotel. As a profession, revenue management is continuing to develop and evolve at a frantic pace with Occupancy rate, ADR and RevPAR as the most widely used key performance indicators and measures of success. However, none of these metrics actually measure business success. Profit is the reason why investors build hotels. Revenue management and hotel operations are evolving to include a focus on developing revenue strategies such as GOPPAR or Gross Operating Profit Per Available Room to measure business success. READ MORE

Brandon White

The landscape of revenue management is everchanging, and revenue managers must stay at the forefront of these changes as Key Performance Indicators (KPIs) continue to evolve. It seems like only yesterday that Revenue Per Available Room (RevPAR) was the end all be all KPI. Then came Total Revenue Per Available Room (TRevPAR) and now we review Gross Operation Profit Per Available Room (GOPPAR) as an additional metric for growth. There are many ways to maximize GOPPAR, and through proper management of your property resources, your team will find success. READ MORE

Trevor Stuart-Hill

As it has over the past three decades, revenue management will continue to evolve in the one that follows. Changes in this field are likely to be far reaching and those that prepare now will be well positioned to thrive in the future. Organizational structure, education, hiring practices, guest engagement, pricing practices and performance metrics are just a few of the areas that will be significantly impacted. This article delves into possible scenarios and issues that practitioners and others will face in the years to come. READ MORE

Sheryl E. Kimes

Revenue Management Professionals have been talking about 'Total Hotel Revenue Management' for well over a decade. There have been multiple presentations and academic articles on Total Hotel Revenue Management, yet based on the research we have conducted, our observations and conversations we have had, not too much progress has occurred. The question is why have hotels been so slow in achieving the goal of Total Hotel Revenue Management? In this article, we discuss some of the obstacles and impediments to success and offer some suggestions and proven tips for success. READ MORE

Renie Cavallari

The old thinking of hotel revenue management within the silo of revenue per available room may have been acceptable in the past, but times have changed. No longer is it adequate to measure success through key performance indicators such as RevPAR or TrevPAR. Today, hotel revenue managers must look through a different lens finding innovative ways to produce profit in all areas of hotel operations, demonstrating ROI to ownership. Creative opportunities to grow profit exist all over your property; they are just often overlooked. It's time to capture real, reachable revenue - starting now. READ MORE

Coming up in November 2019...

Architecture & Design: Biophilic Design

The hospitality industry is constantly evolving to meet and exceed guest expectations. As a result, hotels are always on the lookout for new ways to improve the guest experience, and architecture and design is an essential part of this equation. Bold design is often the most effective way to make an exceptional first impression - an impression guests use to distinguish between brands. One design trend that is being embraced worldwide has become known as "Biophilic Design." Biophilic design is based on the concept of biophilia, which is the theory that human beings have an innate tendency to seek out nature, natural elements, and natural forms. Biophilic design is more than hotels simply adding a surplus of plants; it involves incorporating specific design elements into a hotel in order to imbue it with a sense of wellness and well-being. Some of those elements include exposure to natural lighting; views of nature and rooms with a view; natural architectural patterns; salvaged or reclaimed woods of all types; reclaimed metals; sustainably sourced stone; living green walls and vertical gardens; and direct and indirect exposure to nature. Hotels that have incorporated biophilic design into their properties are reaping the benefits associated with this trend including reduced stress responses, better air quality, lower energy costs, and more positive guest reviews. Biophilic design has also been shown to improve guest moods and to satisfy consumer demand for environmental responsibility. Savvy hotel owners and managers are aware that nature-inspired elements enhance their guests' comfort and well-being, which is why this trend is becoming so prevalent. Biophilic design is just one topic in the fields of hotel architecture and design that will be examined in the November issue of the Hotel Business Review.