What if Hotels were measuring their success on Total Revenues?

This article was posted by  on LinkedIn on May 17th, 2017. I have had the pleasure of working with Hanna during my first years in Starwood. Hanna is currently working in Finland as a successful Revenue Management Consultant and is the founder of the first Nordic Revenue Forum taking place in her country on April 20th, 2018. Enjoy the reading and follow Hanna for precious Total RM insights:

Total Revenue Management – Are we there yet?

 

Ever since I joined the revenue management community in 2001 I remember hearing that we should focus on ”Total Revenue Management”. However, as the recent study on ”The Future of Hotel Revenue Management” by Sheryl E. Kimes Ph.D. from Cornell University found, Total Revenue Management continues to be ”the new kid on the block” kind of idea or “work in progress”. Something everyone thinks and wants to do, yet few have implemented so far.

Two things interested me in ”The Future of Hotel Revenue Management” survey. The first one was how the industry globally continues to be challenged by the same issues as already 10 years ago and secondly that only a few have been able to take the leap from Room Revenue Management to Total Revenue Management. Especially, as the RM professionals forecast back in 2010 that the Revenue Management will ”likely be applied to function space, and may also include such revenue streams as spas, restaurants, and golf courses”.

Since realizing this was not just a Finnish or Nordic phenomena I started to think why hoteliers have not taken as serious steps with Total Revenue Management as they once did with Rooms Revenue Management.

I believe there are several reasons for this, yet the top three in my view are the following: The first one is, what I call, ”You get what you measure”. This certainly is true for some of the larger organisations where annual goals for RMs usually include RGI and nothing to measure Total Revenues. The second important reason I believe is the lack of technology in this area. This is hindering the development of Revenue Managers in the direction of Total Revenue Management. I often hear that due to lack of synchronized technology ”it’s too much work” and ”we don’t have time for it” which are among the top answers for why hoteliers are not following their Total Revenues on a daily basis. Thirdly, while we have a growing community of skillful room revenue managers there is lack of skilled revenue managers to lead the organisational change required to run Total Revenue Management for hotels with several revenue streams.

”You get what you measure”

Nearly each hotel in larger market uses market share reports to follow how their sales and revenue strategies have succeeded. The KPIs on the other hand are measuring success in room KPIs; RevPAR, Average Rate and Occupancy. This does not encourage to spend precious time and resources to develop the Total Revenue Management strategies.

What if hotels were measuring their success on Total Revenues? What shape would the decisions take if their performance was measured against Total Revenue per Available Room (TRevPAR) or Total Revenue per square meter (RevPAS)? Since there are a growing number of hotels signing up for the Benchmarking Alliance Hotel Trends+ measuring Total Revenue KPIs, I wonder what will happen to those hotels that continue to measure the room KPIs only? Will there be times where the hotels focused on Total Revenues will make decisions where they may take a ”hit” on room revenues? Will this then give a ”false” RGI increase for those hotels that continue to focus on RevPAR? Or will the focus on Total Revenues actually offer so much more value for the customers that they will bring big wins for RevPAR too – which would obviously be one of the goals too.

The leadership to Total Revenue Management goes directly to the top management, where the focus for the organisation goals must shift from Room Revenue KPIs to Total Revenue KPIs. If your goals are set for success in rooms’ KPIs and your organisation does not support the Total RM approach then we cannot expect the Total RM become anything but a talking point in meetings.

 


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