Industry Update
Opinion Article30 January 2017

How to Get Revenue Management Right for 2017

By Ahmed Mahmoud , Founder of Revenueyourhotel.com

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Nowadays "Revenue Management "has become a buzzword in the hospitality industry. But many operations executives and owners don't know how the concept relates to them in terms of implementation and how get the most benefits out of it.

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Although revenue management doesn't have a specific definition, it is commonly known as "Selling the right product or service (Hotel rooms, F&B outlets and function space) to the right customer or segment (Individuals, corporate, groups, transient, catering, etc.) at the right time (for all booking windows, low and high demand and lead times) for the right price (Rack rates, BAR, Packages, Discount, LTO, etc.) through the right distribution channels (GDS, OTA, Social Media, Smart Phones, etc.)

The rise of the internet restructured the very foundation of hospitality, transforming the way businesses operate, catapulting independent properties to the global stage. Today, the World Wide Web has become a battlefield, devoid of any harmony that may have once existed between suppliers and distributors. Indeed, the relationship between OTAs and hotel owners has been growing increasingly fractious – especially over the last decade.

"Revenue management is the art and science of predicting real-time customer/ segment demand at the micro market level and optimizing the hotel pricing strategy and availability of products to match that demand". To make it real, yes the revenue manager is the artist controlling and overseeing the science (as being executed by the RMS). It will happen only when both two working together effectively, then a property's occupancy, ADR and RevPAR increase consistently.

As we can see there are many versions of the definition of revenue management. Some of the definitions are more technical and very broad in scope, others more specific and simple.

Although hospitality industry has come a long way in recognizing the importance and the needs of revenue management, it is not as it was a few years ago, only evolved to include a focus on progression, strategies, forward thinking and profitability. Nowadays, it becomes more involved in strategy setting for all areas of the hotel, i.e. rooms, F&B, banquets, Spa, and Golf, etc., and is a vital part of the overall hotel's success and profitability. Here it comes, the role of the revenue managers/directors that encompass strong leadership and solid communication skills with all hotel departments and has the ability to bring the hotel to the next level and truly focus on strategies and long term gain versus data collection and short term gain.

Although the way travellers look and book rooms has been changed based on new tools such as search engines, OTAs, review sites, metas and other tools, with technologies such as mobile, big data and social media now playing a key role in influencing the travel decision process. Despite this, revenue management has remained the same during my eighteen years working in the hospitality industry. Hoteliers including top revenue managers professionals are still so caught up in managing rates, availability, inventory and occupancies on a daily basis that there are a lot of opportunities that are being missed. Many are so caught up in department-driven processes that we are losing focus on critical changes happening in the world around us.

Nowadays Revenue Management involves the interaction of technology, people and business processes toward a common goal knowing that the information age is playing an increasing role in driving corporate profits. However, the movement towards an always-connected existence brings huge business opportunities for players who can differentiate themselves out of their competitors by delivering the right, intended customer experience every time with experiences that are personal, participatory and timely.

Remember that "Progressive hospitality organizations with revenue management in place that have currently heeded the warning signs that dynamic markets and the revenue management changing requirements are part of the new/normal, and have taken the time to update or invest in the right technology and training will be in better place to effectively conduct business in the marketplace in the near future.

Having a revenue management concept and culture in place, and a singular focus on rooms, it is now more about looking into the future, staying focused on strategy, and optimizing profitability, to include revenue optimization for the entire hotel and all revenue streams.

All over the industry and in order to get revenue management right, we have to break down its components, including and not limited to Market Segmentation, budgeting, forecasting, benchmarketing, pricing, distribution channels, and revenue team.

Change the way we look at the revenue management with the traditional ways, when we look at the Rate vs. Occupancy vs. RevPAR, Unconstrained vs. Constrained Demand, Displacement Cost, No Arrivals/No Departures, availability control, overbooking, space functions, etc and from there we measure our hotel performance.

In order to get the revenue management right and to be successful in implementing the tools where it requires sophistication in its resources such as revenue management technology, automation, training, team and culture.

Remember, maximizing your hotel revenues does not automatically mean increasing your prices all over without looking and reacting to the market and to your competitors to certain levels, to the uniqueness of your hotel's clientele and segments, and for sure your costs. This is how you get Revenue Management Right.

Ahmed Mahmoud

Ahmed Mahmoud has more than 18 years of international hospitality industry experience, specializing in revenue management implementation and execution. He began his career in 1992 holding a variety of management positions with such top hotel chains as Accor Hotels, Hyatt International and Starwood hotels.

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