Revenue Management, Revenue Managers, Revenue Strategy

THREE THINGS REVENUE MANAGERS WANT YOU TO KNOW AND ONE THING THEY DON’T

Kelly McGuire Managing Principal, Hospitality, ZS Associates and HSMAI Americas Board of Directors

Over the last few decades, revenue management has moved from an innovation to a must-have. Once relegated to the basement, jammed squarely behind a screen full of Excel spreadsheets, revenue management now has a seat at the executive table. It plays a key role in both day-to-day and long-term revenue and profit maximization, group pricing and placement decisions, marketing promotion planning, budgeting and forecasting, and even hotel valuation.

Despite the visibility and scope of revenue management activities, it remains both a relative newcomer to hospitality, as well as a data-heavy and deeply analytical — and therefore somewhat opaque — function within hospitality. This can lead to misunderstandings, or missing information, about the role and how it all works.

What It Entails, Revenue management sits at the intersection of complex data and analytics, hotel operations, and consumer behavior. We have systems with sophisticated mathematical algorithms that forecast demand, calculate price sensitivity, account for the impact of competitor pricing on your demand, and optimize all that to determine the pricing and inventory controls that will maximize revenue.

However, the recommendations need to be implemented considering operational conditions at the hotel. Since actual hotel capacity is a key component of pricing, revenue managers need to understand things like renovation and maintenance schedules, labor scheduling, housekeeping protocols, and property service levels.

Finally, guests ultimately access the price through their preferred channel and evaluate it in the context of the entire market. They consider the property’s quality, their location and amenity needs, their loyalty affiliation, and competitors’ prices.

So, if you don’t understand this buying behavior, that room you’ve beautifully priced with your perfect algorithms and deep operational knowledge will sit on the shelf unsold.

Because of these interdependencies, revenue management has many stakeholders across the hotel, from operations teams to sales and marketing to the general manager — not to mention owners and asset managers, corporate leadership and even the information technology (IT) team, all intersecting with revenue management according to their own needs. This creates a wide variety of demands on revenue managers’ data, skills and time.

THEY NEED MORE TIME TO ACTUALLY MANAGE REVENUE

In a recent study with the Hospitality Sales and Marketing Association International (HSMAI), we asked revenue managers how they spent their time. We found they devote less than half their time to generating revenue.

The rest is taken up with highly manual, non-value added tasks like moving data around to facilitate reporting, configuring or manually updating various systems and tools, and logging in and out of multiple systems. That includes check-in calls and emails from sales and marketing, requests to reformat a report for the owner, and making updates to the website or central reservation system (CRS).

Even these small activities add up to big distractions for revenue managers. Every minute they can save from all this manual, non-revenue generating work is a minute they can rededicate to making you money. So, if a revenue manager asks for a productivity tool, you should probably listen. And if they push back on a request, you should consider whether what you’re asking will make you money. If it won’t, ask someone else to do it.

BUDGETING AND FORECASTING WASTE TOO MUCH TIME

The same study found that revenue managers, across chain scales and portfolio sizes, spend nearly 12 full time weeks (yes, weeks) during the year generating forecasts and producing budgets.

In fact, the length and intensity of budget season has become something of a joke in revenue management circles, but it’s also a serious problem. And while these activities are important to owners and operations, they don’t produce revenue or profits.

The root cause of all this time wasted is twofold. It takes lots of manual effort, for example, to perform these activities – using antiquated tools — at a high (and often unnecessary) level of granularity. Constant iterations, i.e. when key stakeholders who already know their desired end state keep asking revenue managers to give 5 percent more, don’t help either.

Stakeholders (we’re looking at you, owners and general managers), should take a hard look at the budget and forecasting process and see if there’s an opportunity for investments in tools or changes in workflows, frequency, or detail level that will cut some of this manual, back and forth time. I often wonder: Is anyone pricing the hotels during these 12 weeks? Isn’t that a scary thought?

TECHNOLOGY'S ROLE IN HOTEL BUDGETING

This includes historical performance metrics, real-time market trends, guest behaviors, and more. By analyzing this data, teams can create more accurate and informed budgets and forecasts. Advanced analytics tools can even identify patterns and trends that may not be immediately apparent, helping to predict future performance with greater precision. While there are traditional tools, such as Excel, new technology is entering the market.

Another key consideration, regardless of hotel type or size, is the implementation of an RMS and/or BI tool. The RMS can use advanced algorithms and now, some systems use machine learning to analyze market data, booking patterns, and other variables to generate more accurate forecasts. These systems simplify the forecasting process by automating complex calculations and providing easy-to-understand reports with data-driven insights.

Many hotels are also using a financial BI solution alongside a commercial BI tool. This allows the revenue manager to do a deep dive into the data and push it directly into the commercial BI for a holistic picture. Recently, Dragonfly Strategists sat down with Montage International. They told us, “Our goal has been to move us away from Excel, and this is the first year we’ll be completely Excel-free in our budgeting process.” They also noted that their revenue directors were able to complete their budgets in just a few days, and any changes they make now seamlessly integrate back into their finance system; showing technology advancements in the market.

THE REVENUE MANAGEMENT SYSTEM (RMS) IS A NECESSARY AND POWERFUL TOOL

At its highest level, an RMS is a decision support system. It constantly monitors trends and business conditions at your property and creates a forecast for each date into the future. Through that forecast, the RMS determines the best price and restrictions (e.g., hurdles, length of stay controls) for those future dates as well as that moment in time.

Those trends and business conditions may change the next day, or even hour and, those changes may be so small you don’t even notice them – but the RMS will. This change will drive the RMS to update its forecast and reprice.

This constant reevaluation and reforecasting is a huge part of the system’s value proposition. It’s monitoring trends 24/7, across a much longer horizon than the revenue manager can. However, the forecast and price is only as good as the data the RMS consumes, and it can only “see” what’s reflected in the data. The more often it sees something, the better it becomes at predicting and pricing it.

Therefore, revenue management systems are best at pricing routine dates, not identifying and managing exceptions. That’s what the revenue manager is for. Investing in a system makes your revenue

NOT EVERYONE WANTS CHANGE

Here’s something that revenue managers probably don’t want their stakeholders to know, but I’m going to tell you anyway. Some revenue managers are uncomfortable with the way the discipline has evolved and are a bit stuck in the past. They may not admit it, but they like that basement office where their Excel spreadsheets are their best friends. They aren’t as comfortable with the storytelling and executive presence that today’s revenue managers should have.

Well, that’s too bad for them. Times have changed and revenue managers need to change, too. Technology is taking the place of the tactical pricing actions that RMs used to manage with their massive spreadsheets. Excel is no longer the end-all be-all tool.

Stakeholders need a strategic, demand-focused voice at the commercial table, and that’s the obvious role for revenue management. Stakeholders should expect their revenue manager to emerge from behind the beloved spreadsheets and take on that elevated role (after receiving the proper training and development opportunities, of course), or they might want to make a personnel change.

And for all you revenue managers that resemble this remark … I implore you, get out of your comfort zone. It’ll be better for your career, your hotel, and our industry!

Author: Kelly McGuire

This article, Three Things Revenue Managers Want You to Know and one thing they don’t, is originally published by Hospitality Upgrade. You can access it here.

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