Total revenue management is broadly defined as managing each revenue source to the highest profitability. By incorporating multiple revenue points of sale like food and beverage, banqueting and conferencing facilities, spa, retail, leisure activities, and others with room revenue management, total revenue management assists hotels in achieving their goal of increasing revenue and profitability in a competitive market.

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Total Revenue Management Is Here to Stay

Hotel revenue management has traditionally been primarily focused on optimizing and maximizing room revenue. For nearly a decade, incorporating all revenue streams within revenue management has been a much-talked-about topic in hospitality forums. So why such little progress? What are the hurdles and obstacles? Some would say it is a lack of technologies and systems, while others attribute it to the lack of knowledge and skills.

Well, those days are gone! There have been path-breaking initiatives in the hotel tech space. Our hotel revenue executives now have the right tools in their armory to assist them in making well-informed decisions.

Hotels are surveying different avenues to generate additional money, even during low-occupancy times. We, therefore, see a substantial modification in strategies that include total revenue management. Total revenue management has evolved into devising pricing strategies that optimize the hotel’s total revenue performance.

Simultaneously measuring corresponding links across revenue streams to package services or rates to elevate a hotel’s total profit margin is the main ethos of total revenue management. For example, a casino hotel regularly comps off room nights for high-rolling guests because they have measured the room cost to be far less than the amount of the bets placed!

A more straightforward tactic is upselling; an upsell to the next room category will increase ADR while allowing you to resell the lower room category. In the off-peak times, offer discounted spa treatments to increase the turnover and boost footfalls when you generally would not have the business.

Video: Total Revenue Management Explained

The Advantages

A well-rounded total revenue management strategy can help hotels achieve increased profitability, reduced costs, better alignment between departments, and improved cluster/portfolio performance. Below, you find a sum-up of all the benefits.

  • Increased revenues: Food & beverage and ancillary revenues are almost always on the back burner when managing revenues. By adopting a total revenue management strategy, hotels can guarantee that strategic decisions impact all aspects of revenue in the hotel.
  • Reduced costs: Not all income is similar in terms of profit margins. Hotels can manage staffing, purchasing, and fixed costs with a total revenue management approach.
  • Cohesive workforce: Total revenue management approach brings all departments together to achieve a single goal; increased profitability. By breaking this goal down into smaller quantifiable goals relevant to each department, the entire staff is energized to achieve their targets.
  • Asset optimization: Rooms, banquet spaces, restaurant seats, and spa treatment rooms are perishable. When there is a unified approach to fill these seats in “dead time zones”, hotels benefit by optimizing these spaces.
  • Increased productivity: When revenues increase and costs decrease, the results are immediately visible in the bottom line.
  • Improved group operations: By carrying out total revenue management across the portfolio, management displays better performances, solidifying their efforts to increase brand presence.

5 Tips to Successfully Implement Total Revenue Management

Adopting total revenue management does not necessarily have to take an enormous amount of effort or the formation of performance improvement teams to establish total hotel revenue management concepts. Here are five easy steps to help you in the initial stages of your journey:

  1. Adopt a total revenue management mentality in each decision-making, planning, meetings, and performance review.
  2. Train and educate all hotel stakeholders on the importance of total revenue management, its expectations, and the successes that can be achieved.
  3. Apply revenue management strategies and practices to all applicable departments.
  4. Establish a system and techniques to guide decisions that generate maximum revenue and profitability for the entire hotel.
  5. Invest and/or implement RMS systems, tools, and metrics for tracking, reporting, and forecasting revenue at the department and property levels.

Total Revenue Management for All Types of Properties

Total revenue management can be used for all properties, small or large, chain or independent, leisure or business-centric. Do you need to identify the market segment you are catering to? What does your customer want? Analyze your booking and source data and listen to the voice of the customer. Tailor-made packages that distinguish the requirements of a business or leisure guest will help increase profitability and guest satisfaction.

Total revenue management strategies can also help address a need or solve a problem. Are your spa therapists not too busy during specific periods of the day and eventually must refuse appointments during peak times? Offer a special “down-time discount” for the quiet hours.

Table: Considerations for Total Revenue Management for Different Types of Properties

Property Type and Target Market Strategic Implementation Customer Engagement and Satisfaction
Small and Independent Hotels Focus on identifying niche market segments. Implement dynamic pricing and personalized service offerings. Enhance guest experience through tailored services; leverage personal interactions for feedback and improvements.
Large Chains and Business-centric Properties Employ advanced data analytics for market segmentation and pricing strategies. Develop business traveler-focused packages and amenities. Prioritize efficiency and convenience for business travelers; utilize feedback systems for service improvements.
Leisure-oriented Properties Create leisure-centric packages, focus on experiential offerings. Use seasonality and demand forecasting. Enhance satisfaction through unique, leisure-oriented experiences and services; gather feedback via social media and guest reviews.
Specific Challenges (e.g., Spa Utilization) Implement targeted strategies like “down-time discounts” during off-peak periods to optimize resource utilization. Increase guest satisfaction by offering value-added services and addressing specific needs; use customer feedback to identify popular offerings.

KPIs Used in Total Revenue Management

An essential element of total revenue management is to adopt quantifiable performance metrics. Some important KPIs to track for a holistic hotel revenue performance are:

ROOMS:

  • Total Revenue Per Available Room (TRevPAR)
  • Gross Operating Profit Per Available Room (GOPPAR)
  • Customer Acquisition Cost (CAC)
  • Customer Lifetime Value (CLV)

FOOD & BEVERAGE POINTS OF SALE:

  • Revenue Per Available Seat Hour (RevPASH)
  • Profit Per Available Seat Hour (ProPASH)
  • Residential vs Non-residential Revenue

MEETING AND CONFERENCE FACILITIES:

  • Revenue Per Available Square Foot/Meter (RevPAF/M)
  • Revenue Per Attendee (RevPA)
  • Attendee Density
  • Inquiry Conversion Performance

SPA:

  • Revenue Per Available Treatment Hour (RevPATH)

Open Pricing Revenue Management Strategy

An open pricing model has the potential to assist with a total revenue management strategy by providing greater flexibility and scope to move away from the concept of using a fixed BAR (best available rate) as the basis for all pricing. This means bigger changes to room rates can be made based on fluctuations in demand.

When it comes to maximizing revenue, open pricing models have huge potential because they allow companies to move beyond the fixed modifiers usually used to sell rooms at a rate that makes the most sense. Rates can also be modified for each distribution channel independently, allowing for more targeted pricing.

Total Revenue Management - Open Pricing Strategy

This pricing model also helps hotel owners, marketers, and revenue managers avoid situations where promotions or distribution channels need to be closed off because they are not in keeping with the established BAR approach. Meanwhile, for customers, there is also the potential for pricing to move significantly lower than the BAR, especially when demand is low, and hotels are keen to fill rooms as soon as possible.

You can explore the concept of open pricing in further depth, including a more detailed breakdown of how it works, what the main benefits are, and how it can be implemented as part of a wider total revenue management approach by reading the “Open Pricing: Why Is It the Next Hotel Revenue Management Strategy?”

Total Revenue Management FAQs

It describes how hotels measure and optimize every element of their total income rather than specifically focusing on room sales.

Bridging different departments in order to ensure the proper flow of data is the most significant challenge. Both employees and infrastructure often need to orient to different behaviors for proper management. Staff also need to adopt a new flexibility in the face of changing market conditions.

The total amount of money generated by every sale of goods and services in a hotel before the operational expenses are subtracted. For example, room occupancy, drinks, room service, and rentals would all fall under the banner of total revenue.

Take the price of goods and services, then multiply by the quantity sold. Remember that this is more than just room occupancy, so all forms of income need to be aggregated.

Total revenue is essentially every dollar made by a hotel. Profit is what remains from that total after expenses like taxes, wages, and operating expenses are removed.

To sum up, total revenue management is not about looking at each line of business individually but as a collective package of opportunities to forecast and price optimally. To succeed, hotels must be prepared to break down silos, think in creative and radical new ways about day-to-day hotel operations, and take confident, strategic actions.

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Revfine.com is a knowledge platform for the hospitality & travel industry. Professionals use our insights, strategies and actionable tips to get inspired, optimise revenue, innovate processes and improve customer experience. You can find all hotel & hospitality tips in the categories Revenue Management, Marketing & Distribution, Hotel Operations, Staffing & Career, Technology and Software.

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This article is written by:

Martijn Barten

Hi, I am Martijn Barten, founder of Revfine.com. With 20 years of experience in the hospitality industry, I specialize in optimizing revenue by combining revenue management with marketing strategies. I have successfully developed, implemented, and managed revenue management and marketing strategies for individual properties and multi-property portfolios.