Hospitality Revenue Analytics

Why Revenue Managers Should Have the Last Word

It is hard to argue with the notion that Revenue Management is now the most “mission critical” function in the hotel business. RM sits at the crossroads of the strategic and tactical decision making process for every single department in a hotel.  This is why I believe that, next to the GM, Revenue Managers should have the last word in every decision in a hotel company. In fact, the RM’s job is so close in significance to the GM’s that, in most properties with limited resources, the RM is the GM.  Today, if any hotel manager wants to make a pricing or promotion decision, they would be wise to consult with RM first, not only to validate their assumptions, but also to gain guidance on the feasibility of their plan.  The same cannot be said about any other function. Let me give you a few examples.

1. For Finance

RM has taken the bulk of the significant revenue planning responsibility away from Finance.  The DORM at most properties now has more forward looking data about demand patterns and guest behavior than the DOFA. Sure, at many properties, Finance is still off doing budgets and forecasts in a silo without the input of RM, but that type of planning is so disconnected from the everyday revenue strategy process that it is quickly becoming obsolete.  Finance now takes the lead from RM in every process involving putting together predictive information that impacts financial planning.

2. For Marketing

In a digitized channel environment, the decision of when and where to publish promotions has to be very precise.  Hotel marketing now relies on RM to dictate when a property’s demand cycle calls for promotions or additional impressions.  In recent years, RM has taken much of the punch away from marketing.  In the past, it was common to see the RM reporting into the head of Sales and Marketing.  In years to come, it may not be unusual to see Marketing reporting to RM.

3. For Group Sales

Unless the Sales department at your property has a blanket “run-of-the-house” policy, they are usually dependent on RM for guidance on offer rates, negotiation parameters, and capacity limits.  RM is now intimately involved in the Group Sales cycle since it impacts every aspect of rate setting and revenue optimization.  I don’t know of any property where Sales is telling RM what to do.  It’s always the other way around.

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“Having been through a number of RM courses, including one from Cornell, yours really explains and shows the calculations behind the RM system being used. Your concept of looking at the individual transactions opened a whole new world for me, especially how this relates to pricing.” – Ronald Hopman, Director of Revenue Management, Aruba Resort, Spa & Casino

4. For e-commerce

Those properties that are running e-commerce as a separate department are quickly learning that conversion rates on their website are almost completely dependent on the RM strategy.  While you can optimize SEO and navigation, your sites ability to create customers will ultimately depend on your pricing scheme.  In fact, at some very forward thinking hotel companies, conversion rates are becoming an additional compensation metric for RM.

5. For Food & Beverage

Any smart F&B manager will tell you that their revenue is almost 100% dependent on the type of guest that stays at the hotel.  Sure, you can try to persuade guests to make purchases with in-house marketing and discounts, but the effectiveness of those tactics is conditioned on the type of guest that RM is driving to the property with correct pricing and promotions.  The same is true when it comes to catering.  In hotels with significant group traffic, the F&B manager’s P&L will reflect the quantity and quality of groups that are delivered by the efforts of the Sales staff and the Revenue Manager’s ability to drive an optimal mix strategy.

6. For Spa, Golf, Ancillary

While local guests may contribute a significant portion of revenue to the outlets of some properties, for the vast majority of hotels it is the in-house guest that drives ancillary revenue.  Just like with F&B, other outlets and ancillary services are dependent on the decisions made by Revenue Management.  In a sense, ancillary managers have to wait to see what RM will do before they can decide what to do.

7. For Operations

The occupancy forecast is the driver for all cost-related decisions in the hotel business, and that information comes directly from Revenue Management.  From Scheduling Labor to ordering beach towels, a good estimate of the number of guests that will be present at the hotel on any day can swing the results from waste to profit.  No serious Head of Operations can begin planning without the critical occupancy and inventory forecasts that only RM can provide.

8. For the General Manager

Unless you work at a hotel that is a “labor-of-love” and the hotel owner is willing to spend any amount of money to deliver perfection, then the costs at your property are probably in line with much of the industry.  That’s because during the Great Recession, the hospitality industry did a very good job of re-organizing its costs and locking down expenses.  Therefore, if you can’t lower the river anymore, the only way to raise the bridge is through Revenue Management.

Every smart GM knows that only rooms revenue flows like honey to the GOP line.  That room revenue is completely dependent on the pricing and mix strategies set by RM.  It’s no wonder then that most RMs are GMs.  There’s only about 10,000 or so RMs for about 200,000 hotels worldwide(not including hostels, B&Bs, guest houses, and vacation homes). Therefore the vast majority of RM decisions in the world are being made by GMs or owners. That makes sense because what GM in their right mind would not want to be on top of their bread and butter?  Which goes back to my first assertion that RM responsibilities are only a slight second behind GM responsibilities.

There is no question that RM is now the central department for all hotel decision making.  RM is the center of the wheel.  In challenging times, it would be wise for hotel companies to let their Revenue Mangers have the last word.

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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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