When people join the hospitality industry, it is usually because they enjoy working with people, they like making them happy and going that extra mile to make the guests day.
However, what is not recognised is that there is another side of the business that is just as exciting and rewarding and can have a huge effect on performance, guest experience and profits: Revenue Management. Janel Clark MIH explains what Revenue Management is and how you should apply it in your hotels?
The Revenue Manager remains a relatively new role, especially for smaller businesses with less resource and quite often members of staff are moved to this position with little or no training and expected to survive. Frequently I meet Revenue Managers who come from Reservations, Front Office, even Sales who suddenly found themselves with the responsibility of pricing and channel strategies. They struggle through, following their “gut feel”, making things work by trial and error, but never really knowing if what they are doing is best practice or even correct. Not really knowing if there was something else they could be doing to improve results.
The popular definition of Revenue Management refers to the “5 Rights”:
Selling the Right product to the Right Customer at the Right time, for the Right price and through the Right channel. That all sounds great but what does it mean?
It means understanding what it is that you are actually selling (the product, the service, the experience). Knowing who you are targeting to sell to, and what is important to them to make them buy: the business traveler staying Sunday – Thursday who wants great wifi, a quick check-in/check-out process, a power shower and a grab-and-go breakfast; the ladies on a spa weekend who want large twin rooms, spa treatments and healthy breakfast and maybe a bottle of prosecco included in their package; or the family on a city break during school holiday who need larger or inter-connecting rooms, and want a personal service throughout their stay as this trip is a treat for them. These guests want to take time over breakfast and have plenty of it.
The next step is to understand their budget – each of these guests has a different willingness to buy and a different perception of value, based on their needs and expectations. They also book their stay at different times. The business traveler who is money rich but time poor may book at the last minute or even on the day, but is prepared to pay a higher rate because he needs to be at an important meeting in your location. Our responsibility is to make sure we have rooms left to sell to him at this higher rate. The family bookings, usually done by Mum, have time to research, compare options and will plan further in advance to secure a better deal. Again we need to know when they are doing this research to make sure our rooms are there in front of them at the right time and within budget to secure that booking, whether they are looking on our own website, Booking.com or Tripadvisor. Then comes the challenge of commissions. If we only have 10 rooms left – where should we sell them?
Our challenge is that we only have a limited supply of bedrooms – if I have 100 rooms I can only sell 100 regardless of how many people want to come and stay. And if I don’t sell them all, the empty rooms still cost money – they still need to be cleaned, we still have all the staff to pay, we still have business rates and insurances to pay. Rooms that stay empty today cannot be added to Saturday’s inventory when we are full because of that local concert that has suddenly brought extra people into my town.
Because there is a limited supply of hotel rooms available per night, it is key to efficiently manage price and availability to maximise revenue opportunities: sell in advance to the weekenders and families, keep rooms back for the high paying business traveler but make sure we sell as many rooms as we can at the most profitable rates we can each night.
This is where the excitement begins.
How do I know what price to set? How do I know when to sell my rooms and when to hold back? How do I know which channels to sell through and which to close out?
The obvious answer is data, but many hotels struggle with collecting the right data from their systems or being overwhelmed with the amount of data available. Get to know your data, know what is important and what to ignore, and learn how to use it.
Even with all the data, there is still an element of risk. You will make a decision three months before the day of arrival and not know until close of business on that day whether you made the right decision or not – did you sell the amount of rooms you forecasted you would – did you get the rate you projected – have you controlled the amount of commissions paid. Are all the guests happy? Here is the excitement, here is the buzz, and that’s why I believe that Revenue Management is the most exciting job in the hotel!
Janel will be delivering our revenue management workshop in Oxford in February 2019. Find out more about the workshop and book to attend using the link below or call Tracey Appleby, Professional Development Executive on 020 8661 4930.
An Introduction to the Basics of Sound Revenue Management and KPIs – 19th February 2019, Oxford
See the full list of our professional development workshops.
Janel is also presenting a webinar on 13th November 2018. Revenue Leaks – Three steps to Identify and Repair.
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