8 Best Practices for Hotel Revenue Managers
Author Robert Hernandez, Chief Data Scientist, Origin World Labs, source
The 10,000 or so hotel revenue managers around the world are self-dividing into two distinct categories: those that are well prepared (or preparing) for 2024 and those that are well prepared for 2004.
Ten years ago, the global lodging industry returned to positive profit growth after three years of declining revenues. Hotels began their four year ride (2004-2008) to historic levels of revenue and profit.
In 2004, TripAdvisor, HomeAway and dozens of OTAs launched to capture the new opportunities in travel that became available in a market flush with cheap commercial and consumer capital. That perfect storm led to the explosion of the newest profession in the hospitality industry – the hotel revenue manager. Their role, primarily, was to take advantage of expanding opportunities in a growing market by getting the property well distributed through a complex web of channels which were all doing well.
Ten years later, the global travel market is very different. Growth is a lot slower and unpredictable. OTA bookings have slowed dramatically to about 1% year-over-year growth and the effectiveness of traditional promotional and discounting tactics has deteriorated. So the question then becomes, what is the role of the RM profession, that was born during easy times, in today’s more challenging business environment? I think the best way to answer that question is to look at how the best revenue managers have redefined their job description. From my interactions with hundreds of RMs, this is what I notice that the most sophisticated are now doing.
1. From Rooms to Relationships
The biggest change in RM revolves round the shift in focus from rooms revenue to the overall revenue created by each guest. Guest-centered revenue managers know that every guest interaction is a opportunity to promote or disrupt spending. The best RMs, therefore, have expanded the focus of their analysis to include every touchpoint that affects a guest’s relationship with the hotel. From the conversion rate of the hotel’s branded website to the spend patterns of a guest that has interacted with the concierge, interpreting the value of these customer contacts is now the domain of the best RMs.
2. From Myth to Math
The best RMs have become their hotel’s “Myth-Busters.” They use data and analysis to challenge every destructive assumption that permeates the decision making process of an industry where evidence-based decision making is only just beginning to emerge. They live by Edward Deming’s credo, “In god we trust, all others bring data.” I worked with one RM that used data to help the hotel’s marketing department reduce the number of packages and promotions that they had been selling for a decade from a list of 84 to 4, just because she was the only one who ever bothered to check if these offerings where making any money, an analysis that was the sole domain of the marketing department.
3. From Silos to Systems
The previous point leads me to this one. The best RMs understand that the silo behavior, where each department kept tight control over their data and decisions, no longer works. They see the entire hotel’s decision making process as an ecosystem that has to be balanced or else the whole suffers.
Every department’s decisions affects another and the smartest RMs have positioned themselves as the referee that sorts out strategic conflicts. These RMs are involved in every type of analysis and every discussion that has an impact on profit. Furthermore, the best of the best RMs have unfettered access to the data generated by every department so that they can always have a full view of the entire system.
4. From Organized to Optimized
For the last decade, the role of RM has been very clerical. They’ve had to work with more systems than any other profession in any industry. Unreliable extranets, bad integrations and clumsy PMS systems meant that the RM had to be very disciplined and organized about their responsibilities or the property might lose an opportunity to reach potential guests. Many of these technological issues have disappeared (albeit not all) to the point where the RM’s clerical ability is not as critical as it was.
The best RMs have recognized this trend and have shifted the focus of their job to optimization. They have set themselves up as the thought leader in profit generation through data and analytics. They know that this will be the main responsibility of the best paid RMs in the next decade.
5. From Discounts to Drivers
Creating profit through discounting just doesn’t work. The best RMs have shifted their attention to discovering the true drivers of profit throughout their hotel. They now focus on shinning a light on those activities and products that create value while eliminating those that destroy financial performance. That is a very different approach than discounting as it shifts the attention to “value” and it makes the RM a creator of brand value rather than a destroyer.
6. From Planning to Predicting
Other than subtraction and a little addition, you don’t have to use much math to make a hotel budget. You can just guess that your growth will be X% and extrapolate and capture-rate yourself to a full P&L. This is planning, and most hotel budgets use this methodology. Whether this plan is feasible or not is predicting.
The best RMs have dumped the “one version of the future” planning approach for the more statistically-driven “range of possibilities” predictive approach. They have left traditional budgeting to the folks in accounting and have stepped into the role of the informed soothsayer. True, predicting requires a little more math than planning, but it sets the RM up to have a better set of tactics ready regardless of what the market delivers.
7. From Data to Decisions
Many RMs are responsible for creating and distributing reports that hold as much data as possible about the performance of channels, markets, rate codes. etc. Many of these reports are remnants from the early 2000’s when executives where thrilled that they had any reports at all. The best RMs have removed themselves from these “clerical” obligations by focusing on delivering only the data that actually drives decisions. For years, one of my clients was sending out a deck of 20 reports on a weekly basis because his predecessor had done the same. My suggestion to him was to stop sending them and then to wait to see if anyone would ask for them. Nobody did. Now he focuses on analysis for decision making instead of reporting for reporting’s sake.
8. From Business to Better
Let’s face it, many properties around the world have a simple, three-part strategy: location, location, location. At these properties, there is not much going on insofar as strategy because, as long as they keep smiling and putting out fires, they’ll make a predictable amount of profit. Business, as usual, is just fine for them. Some of the most creative RMs that I have ever met work for these types of hotel companies, but they do not allow themselves to be infected with the complacency bug.
These RMs are not sitting around waiting for their property to become more proactive about profit. They are taking the lead in creating better processes and discovering intelligence that drives conversations about the potential impact of changing tactics and the ineffectiveness of tired approaches.
The role of the revenue manager will never be static. That’s because the profession sits at the crossroads of dynamic forces like technological innovation, economics and strategy. Those that adapt their job description to future trends will always do well. While those that stay stuck in the realities of a market that does not exist will struggle to stay relevant.
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