Industry Update
Opinion Article21 April 2017

Time is on your side in Optimizing Revenues

Time is on your side in Reaching Sell Outs

By Richard B. Evans, President of Revenue Report Card LLC & Author of “the Definitive Study of Vacation Rentals”

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"Time is on Your Side" to baby boomers is a famous song title and lyric by the Rolling Stones. It also should be the rallying cry of today's Revenue Manager.

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Ten years ago I had just taken the "revenue reins" at a new hotel and was getting to know everyone. Beginning days are often filled with pleasant hellos and polite conversations and I stayed the course! The Director of Sales at some point moseyed into my office and I could see right away that he was very excited to show me something.

After some small talk Juan took out his "reservation control report". With great pride he showed me a sold out Saturday that was 2 months away that he explained, happened primarily because of a group he brought in for this one night.

It was a proud moment for him. It was an eye opening event for me! I simply didn't have the heart to tell him. But I knew at some point I would have to pick that moment carefully and discuss TIME and REVENUE STRATEGY with him in a positive way.

With 50+ and 40+ units left to sell on the Thursday and Friday immediately preceding that sold out date and 60+ on the Sunday following (Exhibit "A")….. it was as close to a revenue management catastrophe as you could get!

In that 2 month lead-in TIME we could have managed our "unsold unit parity" from that Wednesday through Saturday and more than likely filled 3 nights and moved the mark on that Wednesday as well.. That result, of course, would have been that we better maximize our revenues and profitability.

In managing revenues when time is plentiful and before assured sell out dates that "TIME" is the equivalent of money in the bank. Those precious minutes, hours, days and weeks before sell-out dates must be guarded and "SPENT" with great care. "Over spending" in advance often equates to wasted opportunities, deficient optimization and "money left on the table".

How are you "spending" your time?!

"Spending" Options!

We have two options in "spending" our time.

  1. Holding all or most of our inventory to wait for a late expected surge to release units.
  2. Release inventory slowly and methodically over time.

Every week is unique. DEMAND is our father clock.

1) Holding all or most of our inventory to wait for a late expected surge to release units would better serve hotels during guaranteed high demand periods like special events. In south Florida the Super Bowl, the Ultra Music Festival and the Boat Show allow those in the know to use 6, 5 and 5 night minimum length of stay restrictions with solid rates from early on.

The best use of TIME involving these 3 south Florida special events would be to place the higher rate and restriction on appropriate dates one year in advance and stay the course. Some might argue this philosophy but there are times when old timer wisdom wins out over scientific equation!

2) Releasing inventory slowly and methodically over time serves weekend resorts who sell out consistently.

Here perhaps setting your "minimum length of stay" restriction one year out a little more aggressively than your "average length of stay" on that same weekend in the prior year, could serve you well. Needless to say, it's a little more complex than that, but it's good to be on offense and to set the stage early. Selling low and short early, leaves money on the table later.

I have always felt that the beauty of revenue management is that we almost can't make a mistake if we're paying attention every day. Let me explain.

For most of us it's a constant challenge "test and pull back", "test and pull back". If I'm always monitoring my demand and how I'm filling compared to prior years I can react quickly if my rates and/or restrictions are too aggressive and create resistance. But let's not forget that sometimes resistance is ok… if TIME allows the optimal to surface.

Eventually we all find our sell-out "sweet spots" for each and every weekend; the perfect blend of rate and restriction.

Unsold Unit Parity

I manage my unsold unit parity from Wednesday through Saturday and keep those dates as tight as possible. I'm applying restrictions and manipulating rates as inventory on each day rises and falls, but is kept in check by the decisions and tweaks made.

An interesting Study of time management philosophy

I've studied the metrics of some of the hotels I've had the pleasure to serve and decided to put pencil to paper to show what TIME management can mean to Gross Reservation Revenues and profitability.

In Exhibit "A.1" and "A.2" below, the hotel sells out two weeks in advance of the arrival date.

In Exhibit "B.1" and "B.2"the hotel holds back and doesn't sell out until the Friday of that weekend; using those 2 extra weeks to (in "B.1" and "B.2") wait for optimal reservations of 3 or more nights.

We know that weekends in both cases will sell out and so in both Exhibit "A" and Exhibit "B" Fridays and Saturdays are full.

Using TIME wisely allows the property in Exhibit "B" to increase sales on Wednesday and Thursday, in my estimation by 3% and 11% respectively. At the same time I show a $5, $5, $10 and $10 increase on Wednesday, Thursday, Friday and Saturday in ADR. The philosophy as we get "closer-in" to those sell out dates, and as demand creates more compression, is that both these factors rise as demand increases.

So let's take a conservative peak at these assumptions and what they could do in terms of our annual Gross Reservation Revenues and profitability.

As always I use southeast Florida as an example and here we have 13 weeks that are in-season and 39 weeks that are off-season. The hotel in the example is 125 units.

Simple Hotel in Exhibit "A" is not using good time management strategy. They have an 80.4% occupancy percentage and a $196.21 ADR.

Simple Hotel in Exhibit "B" uses better time management strategy. They have an 82.9% occupancy percentage and a $201.14 ADR.

Gross Reservation Revenue in Exhibit "A" is $7,180,225 and in Exhibit "B" $7,582,900.

This produces a $402,675 increase in Gross Reservation Revenues annually. That's a 6% increase in Gross Reservation Revenues! And if the hotel is bringing 19% to the bottom line it's $76,508 more in Net Profit! Not bad for a 125 unit hotel!

More Benefits from Time Management – Channel Mix

So far my examination of Simple Hotel is…. simple! But here's where it gets a little bit more exhilarating!

During the aforementioned 2 week TIME period (Exhibit "A" & "B"), I usually take the PACE of each revenue channel (shown in Exhibit "C" below) to determine whether they are ahead of last year's sellout PACE.

If I'm a good deal ahead in, let's say, the Website and Repeat Guest channels, I see if I can become mathematically comfortable that we can reach the sell out if I close or restrict some of the less profitable channels. I don't like shutting down channels altogether but this is always an option.

Needless to say, the earlier I can become comfortable and make this decision, the more profitable the hotel will be.

I'm bringing more to the bottom line by carefully displacing business in sellouts by pushing more business through my most profitable channels.

Channel Mix actions can push that 19% profit margin higher; 20% - 21%!?

Do you know the peeking order of channels, from lowest cost to highest at your property? These change every month!!

Hoping you "spend" your TIME wisely!! ☺

Richard B. Evans

Mr. Evans has been an executive hotelier for over 25 years. He obtained the following certifications: Hotel Administration, Hotel Accounting Executive, Revenue Management Executive and has completed the Advanced Cornell Revenue Management Certification. He has served hotels, condo-hotels and vacation rental companies as Asset Manager, CFO, General Manager and Revenue Director.

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    Richard B Evans
    President of Revenue Report Card LLC
    Phone: (954) 290 - 3567
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