A comprehensive approach to revenue management traditionally includes a number of different solutions from PMS, CRS, RMS, rate shopper, and business intelligence tools. But at a time when occupancy levels remain aberrantly low, what other tools, if any, should a revenue manager be aware of that can help increase revenue?
The Future of Revenue Management: Total Profit Management
This article reflects a conversation between Paul Peddrick of ROOMDEX and Oliver Geldner, CTO & Partner of Taktikon AB, revenue management and distribution consultancy and what he recommends to his clients.
If you were to look back 15 years ago, hotel IT managers were the primary decision-makers when it came to procuring software tools. After all, the options had to work within a specific technology stack and were often dictated by the PMS choice. Today, the cloud has changed the options quite a bit. New hotel tech start-ups, easy PMS integrations, free trials and SaaS billing have fostered the development and availability of a wide array of software that’s easy to test and buy. Revenue managers now drive software choices as the traditional technical barriers have been pushed aside.
Over the last 5-10 years, there has been an explosion in the development of distribution and booking tools. Revenue management tools made it easy to set room rates and maximize RevPAR based on relatively predictable demand. However, Covid dramatically altered this demand. Many of the demand and segment assumptions that these systems relied upon became unreliable.
It Took the Global Crisis for Revenue Managers to Evolve
Every hotel’s mix of business was immediately upended by the almost immediate crash in business-related travel. It has been 18 months since the start of the pandemic and occupancy levels continue to be down. While in the “good times,” hoteliers mainly concentrated on just selling rooms, revenue management is now about unearthing every revenue opportunity. Academics and consultants have been advocating for a holistic, commercial approach to the hotel business for years. But it took the global crisis for revenue managers to start to evolve from the traditional rooms-revenue model to a total revenue management approach.
“Before the pandemic struck, about 80% of properties were coasting along,” said Geldner. “Then a pandemic hit and suddenly, everything’s endangered. The main source of income – reservations acquisitions revenue – which operations had been solely focused on, abruptly has its head chopped off. Now hotels are struggling for anything. Knowledge of external income streams, which they maybe were thinking of before, but will “do this later,” is now very important. Revenue managers have been forced to get wise to effective total profit management. It’s no longer just about rooms or revenue, but customers and profit.”
Typically, the selling of ancillary services has not formed part of the actual product setup of a PMS. There is now an appreciation that hotels offer much more than just a bedroom. Revenue managers need to actively seek software solutions that can yield upselling, F&B, events and any other type of ancillary revenue.
Oliver continued, “The pandemic has shown us is that the previous trend of taking things slowly, internalizing and expanding from there has been reversed. The feeling is now, “We need to make sure we capture every piece of the market, as soon as possible. We need to think new in new ways about grabbing more business because these market conditions are not familiar.” Ancillary sales need to be included in the sales process and revenue managers need to embrace upselling tools. What may have been previously seen as a nice-to-have is now an important contributor to your total profit management. This is a completely different way of trying to run your business.”
In today’s economic circumstances hotels are clearly in need of new ways to diversify their revenue base beyond room bookings. New cloud-based software tools are the key to making it happen. Revenue managers need to pursue, test and implement a software toolset that will drive cash flow and recover the health of their hotel business.
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