The heat is always on hoteliers to increase profitability. From acquiring new customers to driving repeat business and loyalty, making the right operational decisions and running a hotel with optimal efficiency is an ongoing challenge for hotel executives. However, with increased focus on the best ways to drive total-hotel profitability, what exactly does the industry’s C-suite need to know about revenue strategy and profit optimization today?
Hotel revenue management used to be considered a niche function, and one that was only applied to guest-room strategies without the influence or contributions from other revenue streams. Over the years, however, hotels have recognized its benefits and enthusiastically adopted more scientific and analytical approaches to strategic revenue management—experiencing significant financial rewards in the process.
The industry has looked for ways to apply these holistic strategies to other operational areas and increase their overall profitability even further. And with both revenue and expenses for rooms, F&B, payroll and other departments on the rise, more and more hotels are seeing the benefits of extending the principles of strategic revenue management to their ancillary streams.
The goal of profit optimization is to leverage all hotel functions and maximize their profits in unison with one another. It encourages hotels to intelligently decide which business to accept across multiple revenue streams at all times based on greatest overall value to the asset. This kind of holistic approach to revenue management goes beyond guest-room rates and maximizes profit from the strategic management of all business. Hotels that adopt these principles successfully can drive profit performance to new heights across their entire property with more competitive positioning, pricing and inventory management.
Expanding revenue management beyond guest rooms into other organizational areas requires having a robust revenue culture in place, something the industry has fundamentally identified as an ideal environment for supporting initiatives that increase total hotel profits.
Today’s hotel executives are tasked with converging the traditional roles of sales, marketing and revenue management with an inclusion of other departments like F&B, banquets and finance. Focusing all departments around identifying and nurturing the most profitable business that will yield the most rewarding results.
The shift from focusing solely on guest-room revenue to the adoption of an organizational culture that applies revenue management throughout various departments has also encouraged hoteliers to broaden the types of metrics they use for performance evaluation. Traditionally, hotels relied solely on KPIs such as occupancy, average daily rate and revenue per available room to evaluate the revenue performance of their properties. While these are still important metrics of performance measurement, the industry has gravitated toward other standards that represent their wider spectrum of operations.
Aside from standard rooms-focused metrics, hotels need to shift toward a comprehensive understanding and comparison of total-revenue performance metrics like total revenue per available room. Hotel meetings-and-events space, onsite restaurants, spa services and other hotel revenue streams all make significant contributions to overall profitability. When these revenue streams are not properly measured and evaluated, the hotel’s big picture view of its overall profitability misses critical pieces that metrics like gross operating profit per occupied room can fulfill.
Establishing KPIs that measure areas beyond rooms to meetings-and-events space (also commonly referred to as function space) is typically the best place for organizations to start. Emerging KPIs in function space revenue management, including space utilization, revenue conversion, attendee density, revenue per attendee and revenue per square foot/meter, are quickly becoming the industry standard metric in evaluating function-space performance.
Making a concerted effort to track these types of performance metrics within an organization, in addition to having the right technology and processes in place to capture, measure and optimize these KPIs, will help establish a baseline for hotel teams to work toward improving and elevating their business performance. Although the industry has not widely adopted a standard KPI to account for total-revenue performance and profitability, it is an area of focus steadily gaining traction.