Managing Revenues: Not As Systematic As You Might Think

Everyone in travel is increasingly focused on leveraging data and delivering measurable results, and the pressure is growing to effectively harness the abundance of information and create ways to better measure and improve performance. 

Given this emphasis, it’s easy to understand why the role of Revenue Manager continues to grow in importance in the hospitality industry, as the never-ending demands to improve financial results and maximize yield impact everything from product design to marketing decisions.

At a recent Hotel Sales and Marketing Association International (HSMAI) event I attended in Las Vegas, there was much consternation about the rising costs the hospitality industry continues to face in doing business with OTA’s and other distribution channels. It’s fueling a need for revenue managers to look beyond the traditional measures of average daily rate and revenue per available room (RevPAR) and instead calculate a true net rate that takes into account the cost of commissions and fees associated with that room sale. After all, what good is a growing RevPAR if it doesn’t reflect the fact that the distribution costs are often outpacing the rise in room rates?

This reality is but one of many shifts in thinking that our industry needs to consider as we look to find ways to achieve optimum results for every room we sell. 

Among those attending the HSMAI event in Vegas was Patrick Bosworth who is the CEO of Duetto which offers a suite of technology products focused on revenue management. His firm has a front-row seat when it comes to the field of revenue management, and he shared with me some preliminary results from the first in a planned series of studies Duetto is sponsoring. The findings underscore that there remain many opportunities for hotels to improve their approach to yield management. (You can access a summary of the study.)

Looking to gauge the state of hotel revenue managers and their attitudes and behaviors, the study included a nearly even mix of revenue managers from individual properties and those with broader chain and management company responsibilities. And since it covered those with day-to-day responsibilities (38%), supervisory oversight (18%) and executive oversight (37%), it truly reflects a wide and varied cross section of perspectives. Just as significant, the respondents represented a total of 33,780 properties. Among the more surprising findings was that 21% of single property respondents and 30% of those with multiple properties in a single market still do not use dedicated revenue management software, and instead rely on a combination of Excel spreadsheets, reports from their property management systems and externally purchased performance reports. 

Equally surprising is that while the demands of pricing would seem to be a 24/7 challenge, only 6% of revenue managers working on the property level spend 100% of their workweek focused on revenue management, and even at the chain and multi-market property groups only 39% have staffers who spend 100% of their workweek doing revenue management.

Perhaps the most  alarming (and damning) finding from the study was that 40% of respondents who use revenue management systems (RMS) believe them to be extremely or somewhat inaccurate and 32% override their RMS forecast often, most or all of the time. 

The study also examined the way in which revenue managers were looking at data to perform their role. While 75% of respondents said they plan yield by the day, an alarming 25% plan it either by season or annually. Equally significant, about half yield channels together as a percentage off their rack rates, while the other half yields independently by channel demand. Fewer than one-fifth forecast room nights by arrival date and length of stay. And, to my earlier point about net revenues, over 75% of the revenue managers still base their bid prices on revenue rather than profit or GOPAR (Gross Operating Profit Per Available Room).

All of this would seem to indicate that many hotels are potentially leaving money on the table with solutions in sight. By better dedicating people resources, looking more closely at the methodology that they’re using, utilizing data that’s readily available, employing new technology tools and creating methods of measurement that reveal the true profits on a room, there’s an opportunity to improve yield and by so doing improve your bottom line.

Managing revenues isn’t some narrow function operating in an organizational silo—it’s our industry’s financial lifeblood. And the better it’s managed, the healthier it makes all of us in the travel business.

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1 comment about "Managing Revenues: Not As Systematic As You Might Think".
  1. Ryan Bifulco from Travel Spike , January 6, 2014 at 1:03 p.m.
    Gary, great stuff as always and agree in some ways alarming. At some larger chains they do have separate ecommerce groups or distribution planning teams that take on a lot of things and free up the revenue management folks to actually forecast, overbook and optimize. But at many individual properties the rev manager has to wear a lot of hats. As a former revenue management guy, I would like to see more attention on this discipline. Marketers can only be as good as the rest of the parts in the process.