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Today's Revenue Management - Is There an App for That?

 

By:  Tim Wiersma – President and CEO – Revenue Generation LLC
July 19, 2011

Wouldn’t it be great if there was an app that gave us all the answers on strategy and what to do next? We are at a very interesting point in the economic cycle where any decision we make could translate into a home run or a potential meltdown. What path are you on, and how sure are you that your strategy is the right one?

The good news: Demand is back.

Great news! Demand is back and so is rate. Smith Travel Research reported an increase in all three key performance metrics for the first quarter of 2011: “The industry’s occupancy increased 5.7 percent to 54.9 percent, average daily rate rose 3.1 percent to US $99.37, and revenue per available room was up 9.0 percent to US $54.56.” Investment activity is increasing as investors find great deals and are once again able to secure financing. The pipeline for new construction is down on a year-over-year basis, which translates into a slowing of supply coming onto market. Baring any major events, this creates a much more stable environment in terms of demand growth and continued recovery of ADR and RevPAR premiums. 

What has changed over the past few years?

This is a wide open question that deserves serious attention. Do any of these apply to you?
  • You are doing more with less.
  • You have found that ownership, investors, and bankers have now weighed in on your strategy.
  • Your boss wants to see more growth in average rate.
  • Third party OTA managers want you to participate in more specials than you can handle and provide more inventories with the promise of more revenues.
  • Everyone wants and needs analysis and more analysis.
During the downturn, we faced fewer resources, funds, and time and yet the expectations increased. Owners, investors, and bankers became much more involved in the operation of hotels as they felt the crunch of making the next mortgage payment on the building. We saw rate decline significantly as demand declined and the premium customer dried up.

We continue to manage multiple inventories. We find ourselves relying more on third party channels and participating in specials that we would not have ever considered five years ago. And, yes, there is a new buzz word out there now: Everyone is talking about business intelligence and the importance of making sense of the myriad of data we now receive. Not only do we need to know our competitor rates, market share data, mix of business, but we also need to understand how to manage our reputation online and how certain ratings affect customer sentiment. 

The bottom line is this: The role of a revenue manager and the revenue team has expanded significantly. If your team is going to be successful in the future, you will need to adjust to the new realities of today and tomorrow.

So where do we go from here? Careful consideration of strategy is of utmost importance at this point in the economic cycle. This requires you to spend the time and resources necessary in order for you to be successful in the coming years ahead. 

Think of revenue managing your hotel as a little like playing fantasy football. I will be the first to admit I have not mastered the game, but nonetheless it is fun attempting to predict an outcome. History would suggest a specific player will score a certain amount of points each week, but come game day they can surprise you with a result you did not expect. With each week comes a unique set of variables that need to be considered in order to find the lineup of players that will score the highest amount of points. Finding that right lineup can be a rewarding experience.

In the hotel world, finding that right mix of customer base on any given week will make the difference in whether your hotel will make market share gains or lose its competitive edge. If we are relying strictly on historical information without taking into account the variables in the market place for a given time period, your outcome will be unpredictable. By understanding the type of demand in the market place on any given week—along with how customers will react to this demand—will enable you to push the right levers and give you better control of the outcome.
 
Three keys to being successful in today’s ever changing environment:

In today’s highly competitive and ever-changing economic environment, we need to be especially diligent and sensitive to the types of demand out there today. Taking a more holistic approach to how you approach your revenue strategy is important. If you do a good job with the following three activities, you will pave a road to future success and will increase asset value at your property.

1. Business intelligence approach: How you approach business intelligence and what you do with this information is fundamental in sound decision making. Decide early on what your key performance indicators should be. Typically your key performance indicators address the needs of your property and the areas where it is currently underperforming. Decide how you will measure this effectively and then begin to track your success. The key performance indicators should be more than just market share indices; they should also center on profitability. Recently I worked with a property that was doing well on market share by commanding a significant premium in occupancy in relation to their competitors. After sitting down with the team and analyzing the type of business they were accepting and the amount of profit that this business was generating, we decided to change strategy significantly and shift our mix. The end result was they lost occupancy share, gained significantly on rate share, maintained RevPAR share and overall profitability, and flow-thru went up significantly. What do our customers say about price versus value? Do you really take enough time to understand the different types of demand, when that business will come in, and if you are capturing the right amount of that business? Are you taking too much from one particular channel? Have you shifted your mindset to the new reality, or are you still programmed on a strategy from a year ago? If you are finding this a bit overwhelming, make sure you reach out and get some expert advice on how but to approach your business intelligence needs.

2.  Forecast proficiency: Operators have done a decent job of predicting how the next 90 days will turn out, but how much of that is a self-fulfilling prophecy? I would encourage you to ask the following question. Are your previous trends in line with your strategy, and are your previous trends dictating your future forecasts? Does your forecast take into account your most recent strategy?  These are important points. In the example given above where we shifted our mix of business, we also needed to shift our way of thinking for the future and be somewhat bold in how we forecasted the future. It would have been easy to look back at old trends, but the reality is that we changed our strategy and our forecast needed to reflect this as well. If we had let our forecast reflect old strategies, it would have the potential of becoming self fulfilling. As you forecast the future, you need to ask these questions and then begin asking yourself: what is your true potential?

3.  Team approach:  If your organization is still operating in a vacuum, you will only be marginally successful. Ensuring your team objectives are agreed upon by the revenue team and communicated on a regular basis is absolutely crucial. The team should know at any given time how effective the strategies are by looking at how they measure up against their key performing indicators. The team should also feel they can challenge one another from time to time. This sharpens the team and keeps everyone focused on their true potential.
 
The key to success in today’s environment is to truly understand the factors that drive your business. Be sure you have acquired the right business intelligence, done the right research, and defined the key performing indicators that will make your hotel great.  Once you have done this, then you can challenge each other to achieve your potential by building strategies around your potential that will point you to the road to success.


About the author:
With more than two decades of experience in the hospitality industry, Tim Wiersma is recognized as a leader in revenue management. Specializing in property and portfolio revenue management, sales, marketing, distressed-asset turnaround, and asset assessment, he consistently delivers results for properties around the world.

Before founding Revenue Generation LLC, Tim was a vice president with Host Hotels and Resorts, a Fortune 500 company and the largest premiere real estate hospitality company in the world. He has also held a vice president position at TPG Hospitality, a private equity firm with over 60 full-service hotels representing all major markets and brands. He has held other corporate-level positions with Starwood Hotels and Resorts and Canadian Hotel Income Properties and has been a key advisor for Marriott International in sales and revenue management.  Revenue Generation is a key partner with Vantage Strategy.
 
Over the course of his career, Tim has worked with all major brands and independent properties and has developed top line business intelligence tools, dashboards, and business configurations to assist hotels in driving optimal results. He thrives on finding innovative ways to turn around underperforming assets while motivating sales and revenue teams.
 
Tim holds a BA in Business Administration and Finance. He is an active member of HSMAI (Hospitality Sales and Marketing Association International) and has served on its board. As chair of HSMAI’s publication committee, he produced the book Defining Revenue Management: Top Line to Bottom Line.
 
In his spare time, Tim enjoys spending time with family, friends, and flying a Cessna 172.


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Contact:

Tim Wiersma
President and CEO
Revenue Generation LLC
Phone: 240.671.7772
Email: tim@revenuegenerationllc.com
www.revenuegenerationllc.com


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