The next step in managing revenue in a hotel is moving from the traditional approach of revenue management that focus on top-line revenue to a more holistic discipline of revenue strategy that focuses on profit contribution.
Pricing and inventory adjustments can only produce marginal gains in occupancy and top-line room revenue. This focus can, however, miss the opportunity to substantially increase the profit by targeting the optimal business mix for the hotel. This is a mix of channels and segments that will yield the best net revenue and therefore the highest profit.
On average a hotel spends between 15 and 25 percent of guest-paid revenue to acquire its guests and the cost is expected to increase the next couple of years. It can only be managed by understanding the profit contribution from each segment and source.
Profitability is eroded and profits are going down. The hotel has to cut cost and reduce staff, leading to poorer service quality, bad reviews, and ultimately a smaller number of bookings and lower revenue. Lower profitability reduces the hotel's ability to make the necessary investments to stay competitive in the market.