In my opinion Profit Management is the future of Revenue Management within the hotel industry. It is a natural step from the path toward Total Revenue Management which many venues and chains, so rightfully so, have taken. Before I explain why, let me first list the Revenue Management practices on four different departments.
Room Revenue Management
Pricing and strategies are adapted to demand. The venue tries to find the optimal market mix (mix of client groups that give the best net result) as well as distribution mix (mix of distribution channels that give the best net result). They need to understand the total value of a customer and calculate cost of distribution in order to achieve these perfect mixes.
Conference Revenue Management
Strategies are mostly depending on demand but part of it can also be cost based when it comes to lunch and coffee breaks. Basically the application of Conference Revenue Management is quite similar to Room Revenue Management with the added challenge that various cancellation policies can be applied. A venue needs to find their most profitable requests and adapt strategies according to likelyhood of receiving the request.
F&B Revenue Management
Cost based pricing is applied where F&B outlets, in various ways, focus on the sales of their most profitable items. The challenge is to find the most profitable balance between Seat Turns and Average Check during high demand periods. To some extend Demand Based pricing is used when outlets offer discounts during the times they do not expect too much demand. Also stricter cancellation policies can be applied during high demand.
Spa Revenue Management
Basically quite similar to F&B Revenue Management but the scheduling of therapists is an added possibility as well as a challenge. So called Floor Management can be applied in order to sell the various spa-products in the best possible way.
Of course the reality is a bit more complicated as listed above, but it gives a rough picture of what Total Revenue Management is all about. The art is to combine these practices and at the same time optimize all departments.
On all four Revenue Management practices listed in this article, understanding the cost is incredibly important.
- We need to be able to calculate Cost of Sale on our distribution channels. This now is very much a hot topic when it comes to room- and F&B Revenue but will be an increasing question on the other departments as more distribution channels appear for conference and spa reservations
- For cost based Revenue Management the margins on the various products we sell are vital in order to understand which items to put our biggest focus on.
The total revenue for most hotels keep on increasing though many companies see their net result decrease. Does it not make you wonder why Revenue Managers still are just focusing on revenue streams while they actually can increase profit by a applying a more holistic approach?