Debunking the myths about Revenue Optimisation

Recurring questions and myths

I have been working in Revenue Management for few years now and the funniest or most painful (subtle line divides the two :)) moments I share with my colleagues and teammates are always related to what we call “Myths” or “The recurring questions”. 

Our discipline is quite complex and it has been evolving fast; I have had the privilege of living through the changes that the role of the Director of Revenue/Revenue Manager has gone through over the past decade… the transformation has been huge!

 Funny enough, as it always happen, some things will never change!

 Let’s get through some of the situations we face in our job, I am pretty sure that some people will be familiar to many of them!

• “The demand is slow, let’s lower the rates to get more bookings”

How did we not consider that before?! 😉 Jokes aside, besides the fact that “we” nasty Directors of Revenue/Revenue Managers are by definition huge fans of discounting does not work; that it is a very wrong approach. Rate is the tip of the iceberg and there is a whole world besides pricing that plays a big role in revenue optimization: demand, competition, booking pattern, business mix, channel, distribution, length of stay just to name a few… 

• “We are almost full, let’s raise the rates”

Please get rid of these old school beliefs! As it is sure that when the market is compressed it is your role to maximize revenues and get the most out of it, do not forget that you are not alone out there! Keep one close eye to the competition and to what the market has to offer at that moment in time. Do not look only at the rates published but also at the additional services and room types offered by the competitive set.  Customers shop around and may choose to book elsewhere thus leaving empty rooms to your hotel at the end of the day if you don’t stay competitive… 

• “That’s a huge piece of business, we cannot turn it down to give it to the competition”

Of course we can! Volumes <> RevPAR <> TRevPAR (Total RevPAR). You may fill up easily your property but if you are not going anywhere on the Total RevPAR generation at the end of the day, you just displaced revenue and missed on market share.

• “We should put a minimum Length Of Stay restriction over the event”

I personally think that LOS restrictions are used and abused by Hoteliers. The reason is that we tend to focus on what we expect to get rather than understanding how are we getting there. Understand your booking pattern and demand, check your competition and make sure you are not restricting too heavily thus missing opportunities.

• “I cannot overbook the Hotel”

Sure you can as long as you calculate oversell and you end up with a full house. Predict the risks linked to that, the possible cost of relocation vs revenue opportunity.  Besides, remember that overbooking may not necessarily mean physically booking out a guest. If you anticipate your cancellations, you may oversell the Hotel in advance to get to a full house on the arrival day without the need of any relocation. Cancellations are unfortunately always part of the game.

• “We closed X% more than Last Year/Budget so we did great!”

Did you? Always check your compset performance before celebrating J that is the only way of knowing if you really captured and optimized all revenue opportunities that were in the market.

• “We have to fill up the Hotel”

That’s not what our job is only and all about! We are in our role to optimize revenues, that means for instance making out the most of our 90% occupancy to get top RevPAR instead of getting an average performance just to get to 100% occupancy!

 Last but not least, my favorite one in regards to demand forecasting:

“Do you have a crystal ball?”

I wish I had it, would make my job way easier!!

[Originally posted on Linkedin, May 31st, 2016]