Hotel Profit Discovery

3 Measures Tracked by the Smartest Revenue Managers

Revenue Managers live and breathe performance measures.  From RevPAR to ADR to Comp Set Rankings, the job of RM is to manage, optimize and explain changes in these metrics. As hotel companies become better at collecting and organizing transaction data from all revenue streams, it is inevitable that the number of performance measures used by RM will also grow.  In working with hotel companies, I have found that there are three measures of performance that are used only by the smartest RMs.  Here they are.

Room Type Pace For many hotels, the time-honored Pace Report forms the heart and soul of their RM analysis.  Pace Reports are usually designed to give the reader a quick snapshot of future rooms revenue versus the previous year. Since this type of report is typically widely distributed to many functions (i.e Sales, Marketing, Executives), the data tends to be aggregated to focus on total rooms performance by market.  While this format may be useful for putting the current year’s performance in context, it contributes limited input for making the type of decisions that truly affect profit.  To be effective for RM decision making, the Pace Report has to go into deeper levels of detail.  Specifically, RM should be closely monitoring pace performance by room type, source, rate type, and guest type.  Among these, the most powerful, yet overlooked is Room Type pace.

A Pace Report by Room Type reveals patterns that give RM and Marketing insight into important market dynamics that may require further research.  For example,  your occupancy pace for a given month may be the same as last year but if the room mix is now more skewed towards lower category rooms it may be an indication that your customer’s wallets are shrinking, that your superior rooms are overpriced or that your brand is losing steam among the best potential customers.  With this information, RM and Marketing can jump into action before it is too late.

Monitoring Room Type Pace also prevents you from making catastrophic pricing decisions.  Say you only look at total rooms pace and for a given month you are pacing ahead of last year in total occupancy, the first reaction may be to increase rates to take advantage of the higher demand.  Many RMs would increase the BAR rate and all the other room type rates would be increased by a static markup.  Upon closer examination of your Room Type Pace you realize that the demand for the lower category room types are driving the higher occupancy.  Therefore, your decision to increase the BAR rate may not have been optimal.  What you have effectively done is that while you probably yielded the BAR rate correctly, you further eroded demand for the higher, more profitable, room types.  Therefore, while seldom done, tracking Room Type performance and pace can have a major impact on RM success.

Per Available Customer Today, businesses with the highest profit expectations are using technology and analytics to follow the customer instead of the product. They have begun the move to measure their world by predictive indicators based on Per Available Customers(PAC). Tracking performance by PAC has a profound effect on Revenue Management because it forces the RM manager to focus on all revenue streams.  By designing rate strategies to optimize total PAC performance, RM can simultaneously drive the success of F&B, Spa, Golf, and all other ancillaries. Best of all, RM can then tie the impact of yielding decisions across all revenue streams.  This improves the quality of short and long-term forecasting and therefore leads to a more predictive basis for Planning.

Now, as you know, in many hotel companies, Marketing and Revenue Management are completely disconnected, pursuing objectives that are often at odds.  While the first is focused on the motivations for booking, the latter is single-handedly trying to manipulate the mechanics of booking.  PAC measures help RM and Marketing focus on the same target.  By shining the spotlight on the customer instead of the rooms, RM can now concentrate on all the variables that help create meaningful relationships with valued guests.

Conversions Conversions is the percentage of inquiries that are converted to a booking.  I saved this measure for last because, while it can have the biggest impact on RM, it is the hardest to implement.  This is because hoteliers rarely have access to traffic data, that is, the number of rate inquiries made to any channel. First, unless you have very sophisticated phone software, it is unlikely that you will know how many potential bookings did not materialize.  Second, most PMS systems are also not setup to track rate inquiries that are abandoned.  Finally, third party websites will probably never release this information and even third party booking engines keep this data hidden in their weblogs.  In fact, it’s sad to say that, today, a home-based business selling bracelets on a website online via simple shopping carts can have access to more detailed traffic and conversion data than a 1,500-room resort using a third party booking engine. It’s hard to say if third party vendors will ever release this information to its rightful owners (the hotels), but if they do, it will have a profound impact on the way RM makes decisions.

Revenue Managers tend to focus on traditional indicators of performance.  The above measures help illuminate dark areas where inefficiencies may be hidden.  Today RM is still mostly a rooms focused function, but in the future the real impact of RM will be its ability to help drive good decision making throughout the property.  Those quality decisions can only come from following the measures that really matter.

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Robert Hernandez, Statistical Analysis and Data Mining for Revenue Growth Robert is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+


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