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Organizing the Revenue Management Function
1.Is the organization ready and prepared to potentially change
business practices and commit resources to making the project
work?
2.Who in the senior management team will be the “revenue
management champion”?
3.Who is going to take on the role of revenue manager?
4.How will the organization find out about the goals, objectives, and
deliverables of the revenue management project?
5.How is the revenue management function related to other
functions, such as sales, reservations, and marketing? What is the
organizational structure?
6.How will the revenue management function integrate with the
different distribution channels, such as the GDS, ADS, wholesalers,
OTAs, etc.?
7.Is there an incentive plan that ties revenue management to the
performance of particular segments and/or departments?
8.Are the sales team incentives linked purely to the production of
room nights and revenue or to the overall profitability of a given
piece of business?
The revenue management function should not be associated with the per
formance of any particular segment, but its sole goal should be maximizing
overall RevPAR and profit.
The first order of business in establishing a revenue management program is
to achieve a consensus among all those who will be affected by the program
as to its proper objectives and to ensure that all have a clear understanding
of its likely results.
The proper goal of a revenue management program is
not to increase aver age room rates. Neither is it to increase average occupancy rates. Revenue
management programs must focus on maximizing the product of the two, the average “revenue
per available room night,” or RevPAR, which is calculated as follows:
RevPAR = Average room rate × occupancy rate (%)
If the hotel consistently pursues this goal and seeks to maximize RevPAR,
room revenues will increase over time.
In a more sophisticated model, distribution costs are taken into account,
and the revenue management program goal is to maximize net RevPAR
(i.e., RevPAR minus distribution costs). That way, not only the revenue
but the profitability of each segment is considered. As further discussed,
ancillary revenues and other costs may also be included in the rate and
room allocation decision-making.
As the revenue management culture grows, initiatives to truly maximize
profit from all angles can be considered. For example, if it could be estab
lished that the typical profit from ancillary revenue streams (F&B, resort
activities, etc.) of demand from a particular company or channel were
greater than those from other companies or channels paying similar rates,
when demand is high, strategies to ensure that preference is given to the
demand that will capture the most profit can be put into place. This may
seem to be a very logical step to make; however, putting this systematically
into practice requires upfront investment in capturing revenue and profit
data by channel/market segment/demand stream, and then using this in
the forecasting and reservation process.
Revenue management is not only about controlling the demand
that is accepted (as happens on nights when demand is greater than
capacity), but also about the pricing strategy that is deployed in the
market at any given time. For example, the revenue management
team may be able to predict that even if all the demand that existed
was taken on a given night, the hotel would not fill; however, this
does not necessarily mean that the lowest rates should be open.
By understanding the dynamics of the marketplace as a whole, the
revenue management team may be able to determine that offering
the lower rates to stimulate demand will only, in fact, lead to a drop
in revenue and not to an increase in occupancy
Measuring the benefit/impact and return on investment of any
piece of technology requires a systematic and disciplined approach.
Measuring the impact of a revenue management system is no dif
ferent; in fact, in some cases it may be easier. As an example, if
a hotel decided to measure the benefits of installing a new
property management system, many factors would have to be
considered—for example, greater ease of use, reduced “downtime,”
more functionality, etc.; however, it can be difficult to turn these
benefits into hard currency amounts. A desired impact of deploy
ing a revenue management solution is an increase in revenue
attributable to working with the solution—that is, an increase over
and above what would have happened because of market forces.
Techniques now exist that allow revenue changes that are attrib
utable to working with a system to be isolated from changes that
have occurred because of market forces, thus allowing the tangible
impact of working with a revenue management solution to be
measured and utilized in return-on-investment calculations.
It is equally important to note that in addition to quantifiable ben
efits, revenue management system deployment can also bring a
significant number of less measurable benefits, such as improved
access to data, sharper focus on activities that bring benefit, and
reduction in the labor required to deploy restrictions in the PMS,
CRS, etc. The intangible benefits that revenue management systems
ment team to spend less time extracting and manipulating data
and more time proactively managing the business and generating
additional revenues
Primarily money management.
