Three Ways To Upper Your Revenue Management Game
By Aymeric Erulin, Multi-Property Revenue Manager
Revenue management tools and science are evolving, and fast. It is also becoming a central function in the hotel, linking sales, marketing, e-commerce, business intelligence and operations together. Revenue management is a department which is required to evolve fast in order to keep up with the latest methods to continue optimizing the hotel total revenue. Here are a few topic to be taken into account:
1. Cancelable rate premium
In hospitality we traditionally have a discount of 5 to 15% between the flex and the non-flex rate. This compared to other industry such as the travel industry is very low. The airline industry is taking advantage of this system and can sell a cancellable fare up to 4 or 5 time the price of the non-flex fare. For hotels a secured on-the-books business is also key to fully optimize your property. Cancellation on constraint days can have an important impact on your daily revenue and, on non-constraint days, an impact on your forecast and pricing/planning strategy. Giving the flex-rate a higher fixed or dynamic premium will allow you to:
- Secure your portfolio
- Increase your no-show revenue
- Have a more attractive offer by increasing the discount
To reach the same goal a second strategy exists which consists in selling only prepaid rate with the possibility of buying a cancellation insurance for a certain premium. In this case you will get the benefits of the first strategy while adding another stream of revenue even on cancelled stays. This also gives the opportunity to reduce the choice of rate to only two offers (breakfast included and room only).
2. Think contribution
Online travel agencies certainly have an important cost for the hotel bottom line and properly restricting them can also increase your revenue. However this should not be based on a black or white strategy. In most cases, having the indirect channels open enables the revenue manager to take greater pricing risks based on a greater public reach. Pricing decision are based, among other factors, on the estimated price sensitivity of the different market segments. In this process it is mandatory to take in consideration that this sensitivity can change from a channel to another. Most of the time, the greater reach of indirect channels increases the quantity of low-price-sensible customers. The target of pricing decision should be based on a good balance between increased topline and reduced cost. This is why pricing decisions should be based on contribution (rate - distribution cost) rather than on ARR-only or lower commission-only targets. This process can only be efficient if it is based on a precise forecast per segment/channel.
3. Take advantage of technology
The qualitative RMS supply has been greatly increasing in the past years (and this is not going to stop). Today, every hotel can find the perfect software-fit for their property, business goals and RM strategy (great article to find the right RMS here). Today's trend is the development of automation, meaning the RMS is able to provide a forecast and implement decisions without a human intervention. When setting-this kind of tool it is key not to forget to adapt your organization and work methods to it. The right tool combined with the right organization can help the hotel reduce the payroll, have a better understanding of the business, a more precise forecast and ultimately achieve a better revenue.