Total Revenue Management: Going Beyond Room Pricing
by Berny Huber*
Revenue Management is an essential aspect of hotel operations. It allows you to sell the correct room, to the proper guest, at the right price and ideal time, for the maximum profit.
However, revenue management extends beyond just room pricing. Hoteliers now notice that it should be applied to other, if not all, departments of the hotel brand, making sure each of them can work to generate optimal revenue.
Total revenue management then consists of imagining the entire hotel facility as an asset, knowing how different departments can optimize their prices, products, and services to generate profit.
Here we will detail what revenue management is as most hoteliers know of it today, focused primarily on the yield from room pricing discrimination. Then, we will explain the concept of total revenue management and what other assets of the hotel facility can be used to better customer segmentation and increase overall earnings.
What is Revenue Management
Revenue management consists of analyzing data from previous booking patterns, creating forecasts that allow hoteliers to price their rooms at a rate that will be most profitable to the hotel.
These forecasts usually consider the weather conditions at a given time of the year, tourism tendencies and numbers, the spending habits of their target audience, and the number and duration of bookings over the past few years.
By gathering and analyzing this data, hoteliers can predict how much their potential customers will be willing to pay for a hotel room at specific times of the year, adjusting their offer accordingly. During high occupancy seasons, hotel owners charge higher rates for their rooms to profit. When demand is low, they lower the prices to those same rooms to stay competitive.
However, as stated before, the hospitality industry is now investing in applying revenue management beyond room pricing, exploring other facilities of hotels, and looking at their data. By doing so, they start to understand how they can manipulate prices and services to increase profit.
Total Revenue Management
Today, hoteliers have started taking a more holistic approach to revenue management. Instead of looking at different hotel facilities as separate entities, they've realized that they should envision them as parts of the same operating system, each contributing in their particular way to its success and functionality.
This results in a long-term view of revenue management practices instead of focusing on short-term forecasts and solutions. Total revenue management analyses total hotel earnings to identify segments that can generate more credit, expanding their analytical and forecasting practices to those segments.
This practice requires an in-depth analysis of customer behavior and spending habits, and the data collection and analysis go beyond the need to find the best room for the best price. For it to work at its best capacity, total revenue management needs experienced and perceptive revenue managers who can apply their knowledge to the conjunction of multiple departments in a business.
Also, there is the need for innovative technologies that are often unavailable to lower-income hotels, both chains and independents. At INSIDER we have solutions for all hotels regardless of the revenue.
The following are some departments where total revenue management takes the most action.
It is also essential to notice that, because of the current COVID-19 pandemic, the hospitality industry has had to restructure how some of these assets work and how they contribute to the overall management of credit.
There are short-term adaptations, like new sanitation and capacity standards. But also, long-term effects are beginning to appear, some of which will transform the industry in ways that people cannot fully predict yet. This, in turn, will mold the way hoteliers approach revenue management, learning how to make the most out of new channels of distribution.
Packages and Promotions
Today, the most common package available to customers is the room + breakfast standard. It is so typical that it is now considered a given by many people when comparing rates at different hotels.
So, a common question among hoteliers is how can packages and promotions play a new role in revenue management?
In the past, many hotels used to overpackage, offering a vast array of package deals that seemed, for the most part, identical to one another, and customers couldn't tell the difference between them. Today, hoteliers realized that less is more, and now usually offer one or two packages on things they dominate and have a reputation for.
An example is a hotel with an outstanding SPA facility, which then offers a package for a general SPA treatment and then tries to upsell onsite, maybe offering a more exclusive treatment for an extra price. This also works for hotels with good restaurants, upselling a dessert by the end of the client’s meal, for example.
In their total revenue management practices, hotels realized that they need to sell what they’re good at, building strong packages and promotions based on customer passions and desires, being delivered in a targeted way to specific audiences. They also tend to invest in localized packages, highlighting their given location's culture and local traditions and distributing it effectively to the right consumer at a profitable scale.
Another profitable way to sell packages is to offer experiences outside the hotel, like tickets to music festivals or art expositions that will be available during a given time. Off-site package deals are often unique opportunities customers cannot find in OTAs, driving even more traffic to their booking channel.
Total revenue management data collection and analysis has shown that consumer buying behavior is moving toward experience, known as experience economy. This means that consumers want to choose across different attributes, shaping their experience in the hotel on their own, giving less value to complex and closed packages.
To adapt, hoteliers need to personalize packages based on consumer preference.
The primary aspect revenue managers need to consider regarding hotel conference rooms is how their usage will change in a post-pandemic world, and how they can adapt quickly to generate more profit.
Data analysts need to think of what they can do with the data they had before and how they are forecasting it into future operations. Because of the decrease in physical gatherings for companies, where a lot of people can now take part in a meeting virtually, hotels need to invest in hybrid solutions and new technologies, as well as a solid operating Wi-Fi.
With the dying of the office space, many people will seek hotel space to work and meet. Because of that, hoteliers need to take advantage of the situation and increase their profit margin by offering such a solution to guests, all optimized to generate the most revenue out of specific and forecasted rates. To increase revenue, hotels need to bring people together in several smaller locations, investing in technological solutions instead of massive conference rooms.
Some other essential departments to take into consideration when evaluating total revenue management are:
Hotel restaurants can upsell the guest’s packaged dining experience. Aside from that, hoteliers should pay attention to how they maximize their seating and table capacity, upgrading the occupancy of the establishment.
Studying the menu items, identifying which ones are most profitable, and training the staff to sell them are also crucial for revenue optimization.
Also, suppose the restaurant is a renowned establishment run by the hotel. In that case, it can offer special rates for those staying in one of their rooms, versus outsiders who come to dine (and that should be clearly stated in the hotel description across all distribution channels). This is another way to drive traffic to the hotel during lower seasons.
In the wellness department, which includes SPA and fitness facilities, revenue management can also be performed by looking at key ratios in the industry that are used to compare results. The RevPATI (revenue per available time-based inventory) and RevPATH (revenue per available treatment hour) are strong indicators of the wellness department's performance.
Room Revenue Add-ups
Room revenue add-ups are anything available for extra purchase inside the guest rooms. Mini fridges packed with snacks and small bottles of alcohol, coffee, Nespresso cups, SPA products, etc.
The hotel can also include some of these features in promotions and package deals, like a complimentary bottle of champagne or a box of chocolates to be delivered upon arrival.
Other extra revenue management departments include the casino, selected distribution channels, parking, gift shops, and other amenities and assets distributed around the hotel.
Going Beyond Room Pricing
Revenue management is crucial for a hotel's financial success, allowing the business to always gain the most profit in any given situation. However, most revenue management practices are limited to room pricing and availability, setting aside other amenities and departments of the hotel that can also be substantial assets in the pursuit of credit.
Total revenue management, then, is the practice of expanding customer data analysis and forecasting to other departments of the hospitality industry, like F&B, SPAs, conference rooms, and packages, optimizing all of them to extract the most revenue possible.
By applying these principles to the totality of their operations, hoteliers will see growth in profit margins. They will also adapt to new customer behaviors, tendencies, and new technologies dominating the market.
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* Berny Huber -
* Berny Huber - World travelled Swiss / Canadian business manager and consultant with over 30 years of experience. Trilingual (E, F, G). Certified Swiss Chef, Diploma from the Swiss Hotel Management school of Lucerne (SHL), Master of Business Administration (EMBA) from the university of applied science of Chur (HTW Chur), Switzerland.Senior Director Global Business Development of ICRME (International Center of Revenue Management Education), Lecturer in Revenue Management, Ecology, Investment Psychology and Quality Assurance at the Swiss Hotel Management school of Lucerne(SHL Schweizerische Hotelfachschule Luzern). Various certificates from Cornell University: Digital Marketing, Hotel Revenue Management, Advanced Hospitality Revenue Management (Pricing and Demand Strategies). Currently working on the Revenue Management 360 certificate