How to drive ancillary revenues and increase profits by creating polivalent spaces
Revenue management is not only about rooms. When it comes to Catering and Banqueting Revenue (CBR) there are plenty of opportunities to maximise revenue and profits, by implementing the same techniques applied to the rooms.
For CBR, the revenue management culture and implementation is not widespread yet and many hotels still use to work in the traditional old way; e.g., a fixed price listing with limited or non existent price flexibility on the room rental and banqueting quotations. The limit is set by a conservative approach due to the resistance towards a revenue management culture and evolution, but also to the insufficient business intelligence and data, most of the times due to data integrity issues.
For data integrity, we intend a common and shared process of recording guest and revenue statistics either on the property management system or on the different technology providers.
A rational and shared process of data recording is necessary to make this kind of information useful in order to implement strategies based on reliable data. In CBR there are different stakeholders involved in the data integrity process, as such it is crucial to define a clear process map and align every department involved in the data collection, in the way the information should be recorded.
When data integrity issues have been solved, the next step is to collect significant business intelligence allowing the hotel to implement the right strategy towards the CBR segment and potentially:
- discover new untapped revenue opportunities coming from unused spaces
- convert specific areas such as rooms, restaurants, halls into CBR venues
The following CASE-HISTORY has been taken as an example to explain how the conversion of a room into a function space, brought increased revenues and opened a new CBR revenue opportunity for the property:
- BASE CASE: Small Hotel with one suite offering huge terrace space.
- OPPORTUNITY: Create a new product by converting the terrace into a function space.
- CRITICAL FACTORS TO CONSIDER:
- Potential displacement of rooms revenue
- Competitive landscape in the CBR space
- Pricing and Profitability combined, by selling the space as both rooms revenue and function space
PHASE 1 – PRODUCT
- Definition of product types: what kind of BCR functions could be setup in the terrace, table setup, service and maximum number of attendees per function type.
- Base F&B to be included in the price vs extra revenue to be added on top of the base price. Product components:
- Basic product: F&B + Rental Fee
- Extra product: Open Bar + Wine
- Product seasonality
PHASE 2 – PRICING
- Menu Price: It is the price per person for the F&B menu. It can be only Food or it can include Beverage depending on the product. Therefore, the price is calculated bottom-up based on costs.
- Selling Price: It is the final price per person. It will be the same as the FMV when no extras are added on top of the Basic Product.
- Fair Market Value (FMV): It is the market price per person for the Basic Product (no extras such as Wine or Open Bar). The difference between the Menu Price and the FMV is the Rental Fee. Consequently, the Rental Fee is calculated top-down and it takes into account the competition and value – value is considered from the customer’s standpoint.
- Pricing Logic:
PHASE 3 – CREATION OF A PRICING CALCULATOR
The pricing calculator has been implemented as an Excel file, to provide the Banqueting Manager with a user friendly tool to be enquired for the quotations.
This project delivered in 6 months a +34% revenue increase in the CBR revenue of a Hotel with limited function spaces and by solely converting a specific space into a multifunctional area.
Data integrity and business intelligence matters, no matter what the Hotel size. Turning underutilized spaces at Hotels into spaces as polivalent as possible, will drive ancillary revenue opportunities and it will boost Total RevPAR.
Contact us at firstname.lastname@example.org if you need any assistance!
This article was written in cooperation with Javier Esteban, a brilliant mind I had the pleasure to work with for 2 years in my past experience and to roll out successful projects together. Before that, he worked 5 years as a business consultant working in projects about Customer Experience, Pricing, Segmentation, Corporate Strategy and many others. He then moved to Hospitality where he held various positions ranging from the most operational (F&B, Housekeeping) to the most strategic (Revenue, Management) in companies such as Marriott and Starwood. Now, he is currently covering the role of Hotel Deputy Manager at Hotel Formentor, Mallorca.