Industry Update
Opinion Article 4 March 2015

Five Tips to Think Differently About Your Revenue Strategy: Practicing Total Revenue Performance

By Sanjay Nagalia, Chief Operating Officer and co-founder of IDeaS Revenue Solutions

share this article
1 minComments
Nagalia

The competitive landscape in today's hospitality industry is more intense than ever. Hoteliers need new ways to differentiate themselves in the eye of the customer to provide world-class service, while still driving profitability across every segment and business unit. But despite the fact that almost every hotel manages multiple revenue streams, team members within each stream still tend to make pricing decisions based on the impact of their line of business only. To maximize revenue and profitability moving forward, hoteliers will need to make a shift toward more holistic revenue management strategy.

Advertisements

Sophisticated analytics technology is now capable of aggregating and transforming large, disparate data sets into actionable intelligence for making accurate demand forecasts and strategic pricing decisions. With this technology, hoteliers are starting to think and act more holistically about their revenue strategies. We call it Total Revenue Performance: the ability to instantly and systematically decide what business to accept across multiple revenue streams, based on which decisions deliver the greatest overall value to the hotel.

This paradigm shift indicates an exciting new beginning for the industry—and it's the key to differentiating yourself from your competitors. Here are some tips to think differently about your revenue management strategy, driving profitability more holistically with Total Revenue Performance:

Think about holistic revenue performance, not just revenue management. 

Revenue management systems do an excellent job of demand forecasting and price setting, but their focus to date has been limited to room rate optimization alone. A new way of thinking is to consider revenue streams across the enterprise as it relates to pricing decisions, integrating those revenue streams for holistic revenue performance across a property.

Optimize revenues vertically AND horizontally.

Multiple revenue streams—across departments—share an intricate and immensely complex relationship with each other. Pricing decisions made within one function directly impacts the business performance of all other functions. With each stream possessing different profit margins, booking patterns, rate resistance, demand rhythms and revenue potential—not to mention a different level of importance to the overall hotel—revenue optimization is not a matter of comparing profits. Rather, the focus should be on manipulating demand across the functions to reach an ideal mix of sales and profits. To achieve Total Revenue Performance, each revenue stream must be optimized on its own and connected to its counterparts.

Work beyond rooms: optimize overall business performance.

Automated revenue management systems have traditionally focused on rooms revenue only, but hotels generate more than half of their revenue on non-room revenue streams. Meeting and event spaces, for example, often account for 40 to 60 percent of a hotel's revenues, but critical profits can be left behind if these spaces go unsold or undersold. While rooms revenue management has traditionally functioned independently of these function spaces, another major step toward Total Revenue Performance is using advanced analytics to aggregate and synthesize all revenue streams. The result is actionable intelligence for rooms pricing, function spaces and beyond.

Align and unify your mission.

Oftentimes, supporting Total Revenue Performance means making decisions that may seem counterintuitive or even unprofitable – especially for a decision maker focusing on a single stream of revenue. Demanding the highest room rates during a peak season may alienate, for example, potential participants of a business conference who would otherwise have paid a lower room rate and spent more at restaurants, spas, golf courses, function spaces or other on-site activities. Total Revenue Performance looks at the big picture to optimize overall revenue, even if that means compromising coveted metrics like Average Daily Rate (ADR) in the near term. The entire team must be aligned on this new mission, and systems must be in place to allow for visibility and control across revenue streams.

Analyze multiple revenue streams simultaneously, both individually and as a group.

Consider how a graphic equalizer impacts the sound produced by an audio system. In the same way a listener adjusts one lever up or down to manipulate the various frequencies of sound, the savvy hotelier uses the practice of Total Revenue Performance to adjust pricing levels for various streams to achieve the overall business objective. Lowering prices in one function may change the profitability of another, and with Total Revenue Performance, all optimized revenue streams are in harmony and maximize profitability for a hotel.

We are just entering this exciting time of change and innovation for the industry, and there is much potential ahead to think more holistically about Total Revenue Performance. Technology and cultures are aligning and the silos are breaking down, making internal cohesiveness critical to success. Driving better revenue today means evaluating the relationship that exists across revenue streams, and tomorrow will mean maximizing those streams for increased profitability and exemplary guest experiences.

Sanjay Nagalia

With over 20 years of experience in product development and operations, Sanjay Nagalia rejoined IDeaS in 2012 and serves as Chief Operating Officer. Prior to joining IDeaS, Sanjay co-founded and held the position of Chief Operating Officer for Apex Decisions, a retail revenue management company. Previously, Sanjay co-founded IDeaS and served as VP of Products and Services from 1989 to 2001.

    More from Sanjay Nagalia

    About IDeaS

    IDeaS, a SAS company, is the world's leading provider of revenue management software and services. With over 30 years of expertise, IDeaS delivers revenue science to more than 11,000 clients in 129 countries. Combining industry knowledge with innovative, data-analytics technology, IDeaS creates sophisticated yet simple ways to empower revenue leaders with precise, automated decisions they can trust. Results delivered. Revenue transformed. Discover greater profitability at ideas.com.

    Contact
    Tim Nelson
    Haberman for IDeaS Revenue Solutions
    Phone: +1 612 436 5543
    Send email
      Advertisements