The competitive landscape in today’s hospitality industry is more intense than ever. Hoteliers need new ways to differentiate themselves in the eye of the customer to provide world-class service, while still driving profitability across every segment and business unit.
But despite the fact that almost every hotel manages multiple revenue streams, team members within each stream still tend to make pricing decisions based on the impact of their line of business only.
To maximize revenue and profitability moving forward, hoteliers will need to make a shift toward more holistic revenue management strategy.
Sophisticated analytics technology is now capable of aggregating and transforming large, disparate data sets into actionable intelligence for making accurate demand forecasts and strategic pricing decisions. With this technology, hoteliers are starting to think and act more holistically about their revenue strategies. We call it Total Revenue Performance, the ability to instantly and systematically decide what business to accept across multiple revenue streams, based on which decisions deliver the greatest overall value to the hotel.
To capitalize on this paradigm shift, here are some tips to think differently about your revenue management strategy, driving profitability more holistically with Total Revenue Performance:
Think about holistic revenue performance, not just revenue management
Revenue management systems do an excellent job of demand forecasting and price setting, but their focus to date has been limited to room rate optimization alone. A new way of thinking is to consider revenue streams – and pricing decisions – across the enterprise, integrating those revenue streams for holistic revenue performance across a property.
Optimize revenues vertically AND horizontally
Multiple revenue streams—across departments—share an intricate and immensely complex relationship with each other. Pricing decisions made within one function directly impacts the business performance of all other functions. With each stream possessing different profit margins, booking patterns, rate resistance, demand rhythms and revenue potential, revenue optimization is not a matter of comparing profits. Rather, the focus should be on manipulating demand across the functions to reach an ideal mix of sales and profits. To achieve Total Revenue Performance, each revenue stream must be optimized on its own and connected to its counterparts.
Work beyond rooms: optimize overall business performance
Automated revenue management systems have traditionally focused on rooms revenue only, but hotels generate more than half of their revenue on non-room revenue streams. Another major step toward Total Revenue Performance is using advanced analytics to aggregate and synthesize all revenue streams.
Align and unify your mission
Oftentimes, supporting Total Revenue Performance means making decisions that may seem counterintuitive or even unprofitable – especially for a decision maker focusing on a single stream of revenue. Total Revenue Performance looks at the big picture to optimize overall revenue. The entire team must be aligned on this new mission, and systems must be in place to allow for visibility and control across revenue streams.
Analyze multiple revenue streams simultaneously, both individually and as a group
Consider how a graphic equalizer impacts the sound produced by an audio system. In the same way a listener adjusts one lever up or down to manipulate the various frequencies of sound, the savvy hotelier uses the practice of Total Revenue Performance to adjust pricing levels for various streams to achieve the overall business objective, meaning all optimized revenue streams are in harmony and maximize profitability for a hotel.
We are just entering this exciting time of change and innovation for the industry, and there is much potential ahead to think more holistically about Total Revenue Performance. Driving better revenue today means evaluating the relationship that exists across revenue streams, and tomorrow will mean maximizing those streams for increased profitability and exemplary guest experiences.
Sanjay Nagalia holds over 20 years of experience in product development experience. As the head of development and operations for fast-growing global organizations, he has provided executive leadership on all aspects of product development, implementation and support. Sanjay co-founded IDeaS with Dr. Mehrotra in 1989, serving as the Vice President of Products and Services until 2001. He then co-founded and held the position of Chief Operating Officer for Apex Decisions, a retail revenue management company.