Total Revenue Management
Total Revenue Management by Lily Mockerman
There has been increasing emphasis throughout the industry on Total Revenue Management in varying aspects, but what exactly does that mean? In many circles, when a speaker discusses Total Revenue Management, the subject focuses on ancillary revenues such as the optimization of resort fees, parking fees, wi-fi, or other secondary revenue streams in Rooms. However, while these are certainly a significant part of Total Revenue, it is important to move the topic one step further into a holistic discussion of each of the ancillary revenue centers for a hotel such as F&B, Spa, Golf, Retail and other revenue opportunities.
As revenue optimization continues to become established as an essential piece of a hotel’s management structure, many operators who are effectively maximizing these techniques find that it becomes more and more difficult to realize additional wins for their asset. In reality, these ancillary areas are ripe for the application of revenue management techniques. Looking to F&B as one example, savvy operators can begin to measure and optimize RevPASH, or Revenue Per Available Seat Hour. By breaking down the available units (seats) by the constraints of time (hours), one finds that just as with hotel rooms, restaurants experience perishable demand.
Traditionally, restaurants have sought to maximize their revenues by increasing their average check. Total Revenue Management, however, relies on the theory that at times it makes more sense to shorten the duration of a guest’s stay to serve a new guest rather than enticing the guest to linger with the addition of less profitable items.
Imagine, for instance, that servers 1 and 2 both have guests who have ordered equivalently priced appetizers ($15 average) and entrees ($45 average). Server 1 chooses to upsell the guest with dessert and coffee ($12 average), while Server 2, although not denying any guest requests, avoids the upsell, resulting in the guest leaving 45 minutes earlier than Server 1’s guest. With an average turn of 1 ½ hours when ordering only appetizers and entrees, if this pattern repeated itself throughout the day, Server 2 could serve 4 guests over a 6 hour period, while Server 1 might serve 3 guests, assuming an extra 30 minutes for the dessert course. At the end of the day, assuming the restaurant has sufficient demand to reseat without a break between seatings (“hot hours”), Server 1 will garner $216 in revenue, while Server 2, by avoiding upselling, will attain $240 in revenue.
This scenario is not uncommon for upper-scale restaurants on a daily basis. That being said, when that same restaurant is in a slower or “cold” period, Server 1’s approach could well result in more revenue being generated at the end of the night. This clearly highlights the need to train staff in definitively strategizing their approach, based on clearly defined patterns.
Although this particular scenario highlights F&B, similar metrics can be used in a number of ancillary revenue centers. For example, in Spa, the focus might be on RevPATH (Revenue Per Available Treatment Hour), or RevPAR (Revenue Per Available Round) in Golf could be measured for revenue optimization. Total Revenue Management includes a wide variety of tactics beyond these examples which measure and optimize streams of revenue throughout a holistic Revenue approach.
While most revenue management experts grasp these concepts and may even be excited at the prospect of their application, the task of rolling them out can be daunting for even the most seasoned experts. Technology does not yet widely support proper measurement of the data required for a Total Revenue program, and there can often be a significant amount of pushback from operational teams in these departments, as they may feel that they are losing control, hindering guest service, or that they lack the time necessary to attempt this type of program.
To effectively implement a Total Revenue process, hoteliers should consider the following steps:
- Education: First, the “champion” of the program, likely the Director of Revenue, should fully understand the concepts and application. This could involve available eCornell courses, extensive review of industry articles and resources, and/or hiring an expert that provides training on the topic. As a secondary step in education, the individual departments involved should be trained on the concept, purpose and potential applications of revenue management in their respective areas. A comprehensive understanding of the concepts will help the champion to gain buy-in from their team.
- Strategic Planning: Total Revenue Management is not a concept that can be taken casually, nor should it be assumed that implementation will be effective if applied haphazardly. The success of the program depends significantly on unified collaboration among the key stakeholders, and continuous commitment to focused application and attentive measurement. During the strategic planning phase, the Total Revenue team should clearly identify action steps, the timing of the rollout of each phase of the program, and KPI’s for how success will be measured.
- Application: From the strategic planning meeting, there should be a clear understanding of who will be responsible for implementation, while the champion continues to monitor progress and keep the team on track.
- Modification: It will likely be necessary to revise and update the program a few times before each team finds their stride. These adjustments, when based on data and measured over a reasonable amount of time, should be embraced to allow the team to continually grow in their new roles.
While the task of implementing a Total Revenue program can indeed be daunting, the wins for hoteliers and owners can be truly significant given the time and attention to allow the program to take root and flourish. If the benefits of these strategies are fully realized in the upcoming year, 2018 could become The Year of Total Revenue Management in the hospitality industry!
Check out how SSP can help you with your Revenue Management needs.