Hotel Management - Revenue Management

For correct analysis, the Revenue Manager is dependent on tools like Segmentation of Market, Forecasting (Market competition), and Budgeting (Pricing); and accurate data.

Hotel property must have appropriate computer software known as Property Management Systems (PMS). PMS is the most convenient and user-friendly data provider to Revenue Manager.

Relative Data helps to apply the appropriate strategy to have successful management.

All these tools are individually described in topics with the same headings. Revenue Manager requires the data to simplify the various situations and helps the Hotel property to attain BEST Revenues to earn Good Return on Investment (ROI).

Digitally enabled Hotel property today can beat the competition but at the same time, better-equipped Tools to monitor the different data would always be an added advantage. Data storing and ready reckoner would always be most required practice for Revenue Manager. (Rev Mgmt. Software - Opera, Capterra, etc.)

It is compulsory for the Revenue Manager to monitor data with the help of other Hotel departments like Sales & Marketing and Channel Manager.

Revenue Management eventually revolves around the Data with the help of Tools.

Appropriate tools and data help to analyze the revenue-maximizing conditions.

(https://www.revfine.com/what-is-revenue-management/) Effectiveness of revenue management solely depends on supply and demand Data to create profitable pricing of Hotel product or room. Various other data like Historical Room Supply, Competitive Room supply Data, Buyers Room Demand, and Periodical Supply and Demand data are required as crucial data for making result-oriented Revenue Management for hotels.

Room Price creation is dependent on data with supply and demand well monitored. Good data-based Room Market value helps good pricing.

Revenue Management majorly revolves around buyers commonly called hotel guests. To simplify this can be put like this - in a given restaurant a guest may ask for a glass of water but then he further details his request “please add Slice of Lemon, also it should be in a tall glass, but no ice cubes …….”

Revenue management over here deals with such fragmented requests from buyers and try to cater to them. Broadly segmentations are putting guests in various categories.

Downtown hotel (in city) targets its business customers. Resort hotel property focuses on Holidaymakers. But nowadays only these two major groupings of hotel buyers is not only the target market.

S K Bhatnagar in his book Front Office Management describes Hotel needs to sell Rooms and F&B and targets guests accordingly. Furthermore, J A Bardi in his book Hotel FO Management mentions that categorically hotels are segmented as Full service, All Suites, Select service and Extended stays.

The orthodox approach described by P Kotler, JR Bowen and JC Makens in their book Marketing for Hospitality & Tourism that the market can be segmented by region, human age groups, Financial and lifestyle etc.

Moreover, Segmentation argued by Robert D Reid and David C Bojanic in their book must be on basis of how big by numbers, quantifiable by performance, reachable and acts upon the offer.

As per Xotels.com focusing to the proper buyers during a given period is a prime requirement. Grouping the buyers in many folds than just a single purpose buyer could easily be called Segmentation. It further explains that segmentation is put in groups of weekday buyers, weekend buyers and by an individual or group. Segmentation would also be grouped on the basis of duration of stay, booking in advance etc. (https://www.xotels.com/en/revenue-management/revenue-management-book/hotel-market-segmentation)

These segmentations are nowadays put as per property seasonality. This is monitored via data in PMS of the hotel or third-party sources.

Data from Hotel PMS would be of great help to plan hotel strategy.

Earlier limited day forecast used to be good enough to run a business of hotels. Complex market competition has led to find more accurate and elaborate forecasting as the need of an hour.

Downtown hotel usually carries out potential market demand from own PMS booking data. Whereas Revenue manager now a days keeps the detail data analysis based on other market demands from various sources.

Segmentation provide target market but who will be buying when? would be main challenge for Hotel Revenue Manager.

On the basis of period by period historical data Revenue Manager prepares the forecast. The major work of Revenue manager is forecasting mentioned by E Orkin in Cornell Quarterly (1988) quoted by J A Bardi in his book.

Revfine.com well argued the topic of forecasting as an important tool for Revenue Management leading to anticipate targeted buyers for a specific period.

With the help of historical data from PMS and other data sources Revenue Managers can forecast the calculations of purchases.

(https://www.revfine.com/forecasting-tips-revenue-management/)

Moreover Revfine.com suggests some tips to improve forecasting for better results like Data accuracy (Internal and External Data), Internal is Hotel History and External is Market competition as well as events etc.

The forecasting carried out by Revenue Manager is now a days done on daily basis instead of longer duration as per property based on seasonality. Segmentation and accurate forecasting lead to arranging budget to have appropriate room pricing.

Forecasting helps in planning selling price according to Supply and Demand in the market. Data analytics play great role to help Rev. Manager in forecasting.

Xotels found quoting Fildes and Lusk (1984) said, ‘no reasonable forecaster can identify the ‘best’ method from the various forecasting competitions and adopt that method for his/her specific forecasting problem ̈.

https://www.xotels.com/en/revenue-management/how-to-forecast-hotel-revenue-with-optimized-precision

Xotels.com describes that the result-oriented forecasting is not by single formula instead applying various methods. Moreover, Excel sheet making will increase the burden of Revenue Manager in place of this Hotel must use Revenue Management Software to track data and optimize the Revenue.

Xotels.com also suggests Operational approach, Financial approach and eventually Revenue Management approach of forecasting. Revenue Manager uses the approach to market the unsold room category to segmented specific buyers in turn optimizing the revenue. This approach also helps staffing control and also helps the other non- Rooms Departments to increase their revenue.

Xotels.com agrees to Revfine .com approach to improvement tips.

Patrick Landman summarizes the forecasting for Xotels.com as follows:

“The level of data aggregation that revenue management systems can provide not only complement revenue managers ́ ability to scrutinize data, but also alleviates the ever-increasing complexity of hotel distribution which without any support can become overwhelming”.

On completing the Segmentation and Forecasting Revenue Manager needs to solve the task of Budgeting. Long-term planning done for the present period versus actual performance is crucial for Revenue Manager. Budgeting is the main role of Hotel Manager along with the Revenue Manager as prevailing overheads are to be covered or controlling cost, which also has the part of ROI.

The hotel Manager and Revenue Manager must plan a strategy based on all revenue sources.

Appropriate forecasting will lead to correct pricing and targeting potential buyers. This application will lead to cover operational overheads and ROI as described by the Hubbart formula approach.

Budgeting is planning of selling price to cover staffing cost and relevant other costs. Appropriate Pricing leads to good revenue. Selling and Cost comparison is mandatory for good ROI.

Innroad.com explains that long term Financial planning is a mandatory action required by Revenue Manager. Budget planning get the impact of various circumstances for which Rev Manager must be well aware of. Major factors having an impact on Budgeting could be high and low season, events local and international and above all competition.

Nowadays one must keep natural and unnatural calamity also as factors impacting on Budgeting (like covid19). One must not depend on methods only instead utilize the technology for better data capturing which will result in better Revenues to get better ROI.

“By streamlining accessibility to important performance data, such as Average Daily Rate (ADR), Revenue Per Available Room (RevPAR), and Occupancy, operators remain in total control of daily operations with accurate financial information presented in real-time.”

https://www.innroad.com/blog/2014/08/control-hotel-budget-with-hotel-revenue-management-system/

With the help of watchful vigil on historical and market data and other available figures, RM must compare Actuals with Budget figures which also helps to make modifications to budget.

Basics of Revenue Management is all about the technological application of Segmentation, Forecasting, and Budgeting tools.

All this will lead to accurately pricing the Room for a potential buyer.

In present-day Revenue Management experts must use the best software for capturing the data and apply to segment buyers with forecasting most close to actuals.

Above topics will help learners to apply them in real-time operations.

Revenue Manager must understand TOOLS & DATA.

SEGMENTATION will target the right buyer.

FORECASTING makes the Revenue Manager to plan appropriately.

BUDGETING is dominated by Segmentation and Forecasting.