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How to prevent revenue leaks

18 April 2023
Recent research shows that the average company has 14.9% of revenue leaks. Of course, no specific percentage or amount represents the average revenue leak for the hotel industry, as it varies depending on factors like location, property size, and management efficiency. However, there are several familiar sources of revenue leakage in the hotel industry, and addressing these can significantly impact a hotel's financial performance.

From a hotel general manager's perspective, addressing revenue leakage requires a holistic approach, with the revenue manager playing a key role in delegating tasks and monitoring progress.

Typical revenue leaks in hotels

All hotels continuously want to improve the hotel's financial performance and customer satisfaction. Here are five examples of potential revenue leaks, who should be responsible, how to monitor and follow up, the benefits, tools/systems that could help, and a few actions that would minimize the revenue leaks.

Incorrect or inconsistent room rates

The benefit is that correct and consistent room rates will lead to increased revenue and better competitiveness. The revenue manager is responsible for setting up the rate structure in the hotel PMS and ensuring consistent pricing in all distribution channels, including the correct rate mapping from the distribution channel to the hotel PMS. The hotel needs a revenue management system (RMS) or a dynamic pricing tool integrated with the hotel PMS to minimize revenue leaks. In collaboration with the Revenue Manager, the Front Office Manager secures that the hotel charges the guest the correct room rates. The following action points should be implemented.
  • Regularly review and update room rates based on market demand, competitor pricing, and occupancy levels.
  • Analyze the effectiveness of rate adjustments by tracking average daily rate (ADR), rate spread, and booked room type compared to the stay room type.
  • Ensure consistent pricing across all distribution channels.
  • Regularly review pricing strategy, market demand, and competitor rates.

Reservation errors and overbooking

The benefit is that fewer reservation errors will lead to higher occupancy rates, improved guest satisfaction, and reduced compensation costs. The front office manager and the reservations team manage reservations and prevent overbooking. The hotel needs a PMS or central reservation system (CRS) with real-time inventory updates and user-friendly booking handling. The following action points should be implemented.
  • Implement a reliable hotel PMS and train staff to use it effectively.
  • Ensure accurate and consistent booking data across all channels.
  • Regularly review reservation processes and identify areas for improvement. Address any recurring issues in the reservation process.
  • Evaluate the impact of reservation errors on customer satisfaction, compensation costs, and potential revenue losses.

Inefficient revenue management

The benefit is that efficient revenue management will enhance profitability, higher market share, and more effective upselling and cross-selling. Hotels need several tools and systems to drive revenue management, such as a revenue management system (RMS), data analysis, benchmarking, rate shopping, and channel management tools and systems. With input from sales, marketing, department heads, and finance teams, the revenue manager is responsible for effective and efficient total revenue management. In addition, the following action points should be implemented.
  • Establish and track KPIs for revenue management, including ADR, RevPAR, and occupancy rates.
  • Optimize distribution channels, upsell and cross-sell opportunities, and monitor market trends.
  • Review and adjust revenue management strategies based on performance data and market conditions.

Unbilled or undercharged services

The benefit is that charging the correct rate and prices for all services will increase revenue without upsetting guests and customers. Hotels need integrations between siloed departmental systems, such as the POS, meetings & events, and spa with the hotel PMS to never miss to charge guests for the services they have used or products they have purchased. With assistance from housekeeping, food & beverage managers, event manager, spa manager, and other relevant departments, the front office manager is responsible for charging the guests for everything they consume during the stay. The following action points should be implemented.
  • Implement proper billing procedures for all services.
  • Train staff to use all systems effectively and ensure accurate charges for all services rendered.
  • Regularly audit bills for accuracy and consistency and address any recurring billing issues.

Fraud and theft

The benefit is that preventing fraud and theft will reduce potential financial losses. In addition, with solid processes, employees will make fewer mistakes, benefiting guests and customers. Hotels must implement security systems, surveillance cameras, strict internal controls, and audit procedures. The hotel general manager has to take full responsibility with assistance from the finance and security teams. The following action points should be implemented.
  • Implement strict internal controls, audit procedures, and security measures to prevent and detect fraud or theft.
  • Investigate any incidents and take appropriate disciplinary or legal action.
  • Review and adjust controls and procedures as needed to maintain security.
Hotels can significantly improve their financial performance, enhance customer satisfaction, and strengthen their overall market position by addressing these revenue leaks and implementing the appropriate action points. Therefore, it is essential to continuously monitor and evaluate these measures' effectiveness and invest in employee training and development to ensure long-term success.