How to implement a proper strategy for Revenue Management in hotels?

As we mentioned in our last article about What to do to improve the average price of our hotel? (only availiable in Spanish) where we introduced the concept of hotel Revenue Management, this time we’ll talk about Revenue Management culture in general, focusing on how to implement the right step by step strategy to get the best results.

The origins of Revenue Management: Sabre

We begin with the origins of Revenue Management, which date back to the 70s-80s within the aviation industry. Revenue Management appears primarily due to two reasons:

• The deregulation of air traffic
• The appearance of the GDS (Global Distribution System).

The father of Revenue Management culture was the general director (at that time) of American Airlines, Mr. Robert Crandall. It was he who began to offer those seats that he believed would not sell at cheaper prices. What was sought was being able to compete with low-cost airlines and increase profit margins.

At the same time in the early 70s, American Airlines created Sabre, a new computerized booking system. In the middle of that decade, more than 75 travel agencies were already connected. In this way, they saved telephone and telex costs.

From that moment, and in order to compete with Sabre, United Airlines created Apollo, while British Airways, Alitalia, KLM and Swissair designed Galileo. Finally, Lufthansa, Iberia and Air France invented the system Amadeus.

Posteriormente, estos sistemas de reservas se fueron implementando en otros tipos de servicios como por ejemplo, alquiler de coches y hoteles.

What does Revenue Management mean exactly?

In short, it is management applied to the optimisation of revenue. Basically, it is a set of techniques that analyse the market, the product, the demand and seeks to influence consumer behaviour in order to maximize the benefits of the hotel.

In this section, I would like to make one comment. I would like to refer to the difference between Revenue Management and Yield Management, as these terms are often confused, so I think it is important to clarify them.

In my opinion, Yield Management is a technique (less developed) within the culture of Revenue Management. As we mentioned, the rationale of Revenue Management is simply achieving greater long-term profitability.

How? Just selling the right product to the right customer at the right price, at the right time and through the most appropriate channel.

This valuable strategy should always be focused on customer satisfaction. In this way, optimization will last longer. I would also like to add that all departments should be involved in the strategy, otherwise effectiveness will be almost non-existent.

Revenue Management strategy in hotels. Key steps.

• Analysis of the situation. The status of our establishment, our competition, demand, market or destination.
• Making decisions. After being informed of our current situation, we have to make the decision (we must know what we want).
• Strategy implementation. After setting our goal and steps to follow. We must start with implementation. It is very important to get the whole hotel team involved here.
• Assessment. Assessment must be constant, always evaluating the effectiveness of actions / strategies implemented. We must know whether we are fulfilling the goals we had set ourselves.
• Feedback. For feedback to be effective, and constantly improving, it has to happen in all directions. All equipment, regardless of rank, must be part of the process.

Key ratios used to compare results

• RevPAR. Accommodation revenue per rooms available.
• TrevPAR. Total revenue per rooms available.
• GopPAR. Gross operating profit per available room.
• RevPAG. Accommodation revenue per guests available.
• TrevPAG. Total revenue per guests available.
• RevPASH. Revenue (used in bars and restaurants) per available seat and time unit.
• RevPAM. Revenue (used in spaces dedicated to events) per square meter available.
• RevPATI. Revenue per unit of inventory. It can be used in different ways, you just have to adapt the formula.

Total Revenue Management, the right strategy

All staff should be trained, motivated and encouraged in participating in the meetings held periodically. From here, we can start talking about the total Revenue Management.

The Revenue Management should not only be applied to rooms. There are many other services and / or products to which a good Revenue Management strategy helps make a difference, as long as they positively impact on income statements.

These services and products are heavily dependent on the type of hotel in which we are working. As examples we can mention restaurants, Spas, meeting rooms, payment activities for animation teams, etc.

Finally in this section, it is important to note that when it comes to setting goals by department, we must be very careful not to create targets that may represent a conflict of interest between departments. This would have a negative impact in achieving the overall objective of the establishment concerned.

Unfortunately, the lack of involvement and training of all staff, together with the lack of an objective or conflicting goals, usually creates two scenarios, frequently seen in some hotels. These being victims of a poor implementation of the Revenue Management culture.

We hope you enjoyed this short article and hopefully it will help improve the implementation of Revenue Management culture and a better profitability of your establishment. Always thinking in your customers satisfaction and engaging / training the whole team of your hotel or resort.

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