There is more discussion than action about Total Revenue Management. Before hotels get started, they need to sort out who is accountable, which systems are available, and the impact, if any, of Total Revenue Management.
The pandemic showed that every single source of revenue counts. For some hotels, other revenue sources than room revenue improved cash and might have been the thin thread that helped the hotel survive. As a result, hotels will pay more attention to all revenue sources and focus on total revenue management. The discussion about Total Revenue Management has been vital for many years, and industry experts agree that this is the future. However, when implementing new processes, various obstacles prevent hotels from getting started.
Who is responsible for Total Revenue?
The obvious answer is the revenue manager. Total Revenue Management has been up for grabs for many years, but very few revenue managers have been able to get started. Maybe the differences between rooms, food & beverage, and other sources are too significant and challenging to understand. Traditional revenue managers understand how to manage rooms, ADR, and room revenue but are clueless about food & beverage. Another option is to let the food & beverage manager forecast food & beverage, let the spa manager predict spa treatments, and other department heads forecast their revenue. Then, the revenue manager could put everything together and be responsible for follow-up and reporting. There is also a third option. During the pandemic, hotels laid off or furloughed their revenue managers. The CFO took over the forecasting because the hotel needed to manage cash flow to secure survival. Maybe the total revenue forecasting should stay within accounting and finance. This department manages budgets, P&L, cash flow, and financial analysis and reporting. With some help from a hotel revenue manager and department heads, the CFO would surely handle Total Revenue Forecasting, adjust costs, and project cash flow. Maybe this is the way forward for Total Revenue Management.
Are there systems for Total Revenue?
Traditional revenue management systems and pricing systems focus on rooms, but some vendors recently added functions for managing revenue for meetings, events, and other sources. These systems primarily target revenue managers and require extensive training and expertise to optimize the return on investment. A cheaper but far less sophisticated and less reliable solution is to build a forecasting model in Excel. These models tend to be too simplistic and full of hidden errors but could still be a reporting tool and store the figures. The third option is to use functionality in the accounting system, such as budget and reporting modules. The CFO is used to these systems and would find a way to integrate budgets, forecasts, and actuals. However, the accounting systems usually focus on months rather than days or increments of days, which does not make them ideal for Total Revenue Forecasting.
What is the impact of Total Revenue?
Everyone seems to agree that Total Revenue Management is the future, but will the extra time spent on this payoff? There are two scenarios. The first one is when the demand is significantly higher than the supply. In this case, having a total revenue perspective could increase revenue and profits on the margin by optimizing all revenue sources instead of sub-optimizing each revenue source. However, the extra marginal revenue has to cover the additional cost for managing total revenue. Therefore, hoteliers need a thorough analysis to find the answer.
The second scenario is when demand is low and the hotel focus on finding target groups that buy additional products and services besides rooms. The hotel is actively developing attractive offerings to increase the overall revenue to optimize capacity usage to maximize profits.
The first scenario manages the flow of inquiries and will generate incremental revenue on the margin. A skilled revenue manager might be able to increase revenue by a few percent.
The second scenario creates offerings to attract high spenders. In this case, the total revenue might increase substantially and make a considerable difference in profitability.
Both cases need to be analyzed and a close follow-up to understand the impact of Total Revenue Management.