If the person at your hotel in charge of room booking is singularly focused on top line revenue, there’s a chance you’re missing out on bottom line profit. As booking becomes more competitive and customer acquisition costs rise, it’s time for your revenue manager to maximize profits in a holistic way.
Jeremie Catez, former revenue manager at Accor’s Novotel Times Square and the founder of Beewake, knows a lot about this. At Accor, Catez implemented a Revenue Management culture through the entire property; not just in sales, but in the restaurant as well as at the front desk. Catez also started selling guest rooms during the day in order to maximize profitability. Now with his new company Beewake, Catez lets users book daytime space – rooms at hotels, meeting rooms for day use, office spaces, desks or coworking spaces – to make it easier for hotels to leverage underutilized guest rooms and meeting spaces for an additional revenue stream.
Here are highlights of a discussion with Catez about ways to reimagine the revenue management role:
Start with a reexamination of the name
Jeremie Catez: The biggest problem with the revenue management status quo at hotels right now might be in the name. If revenue is the sole priority, how much opportunity for profit is being missed? It makes a lot more sense to be focused on profit. Since the battle for hotel bookings and distribution has increased costs, and more hotels are being owned by private investors, it makes sense that the job description be much more focused on profit management than revenue.
Alex Shashou: That’s a great point, Jeremie. In most industries, companies have a holistic appreciation of revenues and costs. Yet hotels seem so focused on rates and occupancy, there is a lot of opportunity being missed. One hotel client of ours goes so far as to rate their guests for cleanliness. If a housekeeper can save a few minutes turning each room, there are cost savings to be had. Or, if you have two people sharing a room, spending more on F&B versus a single corporate traveller who doesn’t eat at the hotel, there is more revenue per booking to be had. Yet with revenue managers almost entirely focused on attracting bookings, who is responsible for factoring all these other revenue opportunities into the equation?
Establish a more reliable customer lifetime value for dynamic pricing
Jeremie: We have to start looking at lifetime value of our customers and adapting around this dynamically through as many data points as are available. Hotels are getting there, but there’s a way to go. Most hotels aren’t recording rich enough data in their CRMs to even begin charging dynamically around the value of the guest and their costs of service and ancillary spend on hotel services. Ideally, everyone should see different prices.
Alex: We have seen this model many times, often relating to a guest’s social status, but are yet to see hotels really push the boundaries of a CRM that is integrated into all the guest’s spending and habits.
Expand the scope beyond rooms
Jeremie: Yes, that was my personal experience and a big driver behind my founding Beewake. Too often revenue management is focused too exclusively on the room. Revenue management at a hotel should be more holistic in its scope. In addition to the room, there are the facilities, Wi-Fi provision, meetings and events and F&B, just to name a few other opportunities.
The airlines are an example of true unbundling of services for profit maximization. There’s obviously a trade-off though when it comes to customer satisfaction and the selling of every single ancillary service.
Alex: We ask this question of our hotels and the industry so often. If people can sell their extra time driving Uber or delivering Postmates, why can’t hotels sell their excess (and fixed) inventory? I have yet to see a hotel go so far as to sell their own employees spare capacity! But car parking spaces by airports, and the above examples from Jeremie are opportunities to add to the bottom line without increasing costs.
Hit the sweet spot
Jeremie: What’s not immediately obvious is that pushing occupancy isn’t a guaranteed profit generator. A higher occupancy comes with a higher cost of wear. For a hotel with 800 rooms, for example, there’s a level of occupancy you have to hit or you’ll lose money (that’s around 70-80% occupied). Beyond that though, costs rise. CPOC or Cost Per Occupied Room is the key metric here, and one that often gets overlooked.
Alex: This is a really interesting – and like you say, overlooked – point. However, it must be incredibly hard to quantify what level of occupancy leads to an optimal depreciation of the building. Moreover, it’s unlikely that any current manager’s compensation is based on saving the building, so one has to imagine that hotels should be looking at other measures.
Don’t just focus on RevPar, its outdated
Jeremie: There are some pretty compelling metrics when it comes to alternatives to RevPar, such as the following: TREVPAR (Total Revenue per available Room), TREVPEC (Total Revenue per Client), and GOPPAR (Gross Operating Profit per available rooms).
The Revenue per Hour metric is not yet an industry standard since we are not selling spaces per hour. But hopefully, in a couple of years, we will see this becoming part of the standard set of metrics.
Find the right technology
Jeremie: Revenue management is currently underserved by technology. Ideally revenue managers would have a dashboard to centralize all these diverse contextual inputs and proprietary data in real-time, which would help significantly with decision making.
Alex: Not just revenue management but all operations. This relates back to having a siloed revenue manager not worrying about operations. I would venture as far as saying that all marketing should be more aligned with operations and the best avenue to do this…technology.
Implement a revenue-driven culture
Jeremie: If an OTA-booked customer checks in, for example, help your staff know how to convert them to future direct bookers. All your employees should be aligned toward your revenue/profit goals and know how to leverage different opportunities and interactions with your guests. Plus, your staff should then be given more autonomy to execute this culture, which should free up managers’ time and improve employee morale.
Alex: Let’s note that it is very difficult to execute as hotel staff today have to juggle so many priorities and still provide great service. However, when you have your staff singing your mission and being given the authority to perform without all the red tape, you achieve what we call in startups, culture. I think Pret a Manger showed recently it can be done with their perks program. Forgetting the cumbersome challenge of loyalty, they instituted a program where staff could (and have to) give away a certain amount of free food each week. How they choose to do it is all the fun.
Do an org chart and executive role reevaluation
Jeremie: To conclude, it might make sense to introduce the role of Director of Distribution and Digital Marketing and give it more power than the traditional role of Director of Sales and Marketing, as the latter will decline in relevance. You will still have people who handle group sales, but digital is just becoming more important. Also, bring the finance role and the operations analysis closer to revenue.
About the author
Alex Shashou is President & co-founder of ALICE, a company that provides a single platform that enables hotels to connect concierge, front desk, maintenance and housekeeping, while also giving guests a new way to engage with their hotel through a mobile application and SMS. Alex received his Bachelors Degree from The University of Pennsylvania, Wharton Business School with a dual concentration in Finance and Operations and Information Management. After graduation, he took a position with Goldman Sachs in the Equity Sales division in New York, leaving in Sept 2013 to pursue ALICE full-time. Born in London, Alex grew up in the hospitality industry with his family operating 90 hotels in the UK across three hotel chains.