Nowadays, hotels need to be more resilient and agile than ever before. You must be prepared for anything, while focused on reducing risk as a top priority. Hoteliers need to rethink their businesses entirely, and outsourcing revenue management can be the perfect facilitator in this process.
The first question I usually ask is, do you have a lawyer or an accountant? Aren’t they external service providers as well? Why not keep this data internally as it is of a very sensitive nature?
The answer usually boils down to the fact that such expertise cannot be qualified or hired internally and because of cost reasons. The skills are very specific and it’s best to rely on specialist service providers like law and accounting firms.
For this same reasoning, revenue management would qualify to be an outsourced function within your hotel. The question actually is, ‘why shouldn’t independent hotels outsource Revenue Management?’.
Where a lot of hotels get it wrong
In general, we are willing to outsource specialist fields like legal, accounting and payroll, but are averse to getting professional help when it comes to improving our strategies to generate more income.
Why, I wonder? It seems it is more an emotional response, than one based on business requirements. Unfortunately, too many hotel managers seem to be of the opinion they can perfectly well qualify a revenue manager for their skills and strategic vision.
I beg to differ with that, based on my experiences. Objectively, how can someone qualify as a specialist, if he or she does not actually have the technical qualifications themselves? On the basis of what would you qualify as a revenue manager, if you do not know what the job really entails?
And no, it’s not just simply about changing some rates here and there, which seems to be a common misunderstanding amongst many hoteliers. Mind you, even with that, there are complexities involved on which you need to be certain that a potential revenue manager candidate has the right skills and experience.
Of course the HR manager, DOS or GM can have a great philosophical discussion about yield management and business vision. Still, it will not tell you if the person in front of you has the right experience and skills (read more: many revenue managers lack basic skills).
Talking about revenue management is actually quite easy. It’s all a bunch of mumbo jumbo theory with interesting terminology and concepts. Anyone that has done their fair share of reading can sell it. The question is, how good are the candidate’s skills and does their profile match your particular properties needs?
Especially at independent hotels, where true internal technical knowledge may be thin, this is a big challenge. Let’s be honest, how can a General Manager who has never been a revenue manager, touched a CRS, updated a channel manager, analyzed segment pick-up curves, or performed displacement calculations possibly effectively qualify a candidate for a revenue manager vacancy?
And after that comes the next challenge. How would you actually manage a revenue manager? Check the quality of their work and methodology? Trust me, this is important, as it’s easy to make small mistakes, which if go unchecked could lead to a loss of revenue. And many RM’s do not have the tendency to audit their own work.
How will you deal with this if you do not know what your revenue manager is doing exactly? Will you simply trust they are doing the right thing? Do you want to rely on the judgment of just one person, of whom you are not sure what he/she really does in the first place?
And how will you help your revenue manager to further develop their skills? Actually, we often hear from revenue managers working in independent hotels that they feel they are not well understood, and do not have enough support internally to further grow their knowledge, insight and techniques.
So why should an independent hotel outsource Revenue Management?
- It will be hard to sufficiently qualify the skills of a potential RM candidate
- How can you manage a RM effectively if you have not been one yourself?
- It is a specialist skill for which you should rely on more than one person’s experience and views
- Turnover tends to be high as RM’s are always on the lookout to grow in their career
By the way, outsourcing is also not the correct word. It has too much of a negative connotation to it. I would rather call it in-sourcing. External RMS acn actually become an integral part of the hotel’s executive team and support them not only in revenue management and distribution but also on strategic decisions in other areas from marketing to front desk operations. They can go beyond the yield and revenue part and assist in gaining a better understanding of the hotel’s business, team performance and building their brand.
What are the advantages of outsourcing Revenue Management?
External RMS have at their disposal a large team of hotel professionals all with different core specialities, ranging from pricing strategies, distribution management, and ecommerce to statistics and math. So based on the needs of a particular hote,l they have all the required knowledge, skills and experience available.
2. Revenue Manager scarcity and budget constraints
Finding qualified revenue management staff is not easy and definitely does not come cheap .Scarcity of revenue managers is a real issue in the industry, and especially for independent and smaller hotels, both budget and the time-consuming hiring process come into play. And, the problems do not stop there… Even once a revenue manager has joined, there is no guarantee how long it will take for this individual to leave for other opportunities. All the efforts of training will be lost once again, and valuable knowledge about your performance will walk out the door.
3. Years of knowledge from multiple angles
Moreover, revenue managers operate in teams and are again managed by revenue managers. This allows for the proper checks and balances, and not just relying on the opinion of just one person. An independent hotel gets the same level of support as a property that is part of a large international hotel chain.
4. The disconnect of Revenue Management
We fundamentally believe that in bridging the disconnect between the level of expertise of revenue managers in general as well as true understanding by senior management of this strategic part of the hotel business. Solving this issue bridges a gap to enable higher level communication where a true understanding of a hotel´s performance can be developed by all stakeholders and real opportunities can be brought to light.
5. Staff Workload
Sadly, we see this happen across the hotel industry. Usually, it is the Front Office or Room Division Manager taking on the position of “Revenue Manager” besides his full-time function.
Unquestionably, assigning what is always already at least one full-time position (FTE), assures the manager´s ability to perform his day-to-day responsibilities is impaired. This unfortunately works as a two way street, not only reducing the capability to effectively run the front of house, but also the hotel´s extent to drive revenue. Essentially, depriving the hotel of opportunities to make money in the worst ways possible.
Revenue management decision-making is influenced by many different factors, making it such a complex speciality. Most independent hotels are missing out revenue typically including untapped potential on more than one of the following aspects:
- Rate opportunities (e.g. hotel type, season, lead time, segmentation, type of rooms, day of week patterns, review score)
- Ancillary revenue (F&B, MICE, Spa etc.)
- Market and economic fluctuations
- PMS/POS/CRS opportunities
- Organizational challenges & structural change
- And many more…
7. Unmatched Financial Performance
Finally, it can be hard to quantify the financial benefit of having an external revenue manager beforehand, especially considering the many factors that come into play when it comes to successful Hotel Revenue Management. However, nearly all hotels can undoubtedly profit from the right company leading its revenue management operations and strategy. Having the combined power of years of experience, trusted methodologies and best practices, analytical capabilities, and a proven track record during both economic downturns and crises, Xotels’ team is capable of constructing a rock solid approach and execution of revenue management to generate the best financial results possible.
Why traditional outsourcing might not work
Oftentimes, hotels need more than having a system or an individual just checking the figures, and require more than the occasional uninspiring generically produced reporting to truly understand how their business is performing. Without proper guidance and insights, hoteliers get lost in the essence of what being a hotel business truly is, whether it is driving revenue across the board, looking beyond KPIs such as ADR and RevPAR, or aligning all departments in effort of delivering quality output in terms of marketing, sales, and operations, all in a motivated and goal oriented environment.
Operating without an aligned approach and strategy is like having different departments working with a compass pointing in two opposite directions. When the (external) revenue manager is unable to involve and motivate other stakeholders within the hotel to reach goals, all the initial effort is lost. Automatically, the goals that have been set are in jeopardy due to the miscommunication and incompetence of the parties involved in the revenue management decision making. Especially for this reason, it is key for revenue management practices to be rolled out in parallel to other departments, keeping a bird´s eye view over trends and performance fluctuations to maximizing potential.
Going for a fully integrated methodology and essentially becoming part of the hotel team, just like how we approach outsourcing for our clients at Xotels, is the key to success of any form of externalisation under the discipline of revenue management.