How Deep Can Your Hotel’s Pockets Go?

Remember that old rumor about hotels coming cheap? No? Yeah, I don’t either. Between huge capital expenditures, construction costs and ongoing reinvestment, hotels routinely find themselves making large investments and managing their fiscal operations closely to ensure their continuing existence.

For hotels (among many other businesses), the ultimate objective is to increase their value through higher cash flows and returns. This objective may shift its shape in different ways – it could take form by maximizing revenue per available room (RevPAR) or through driving operational efficiency – but the bottom line always circles back to the never-ending quest for a stronger cash flow.

So how can hoteliers get the most out of their revenue management investment and deepen their hotel’s pockets? Here are six areas of consideration to help achieve those ultimate goals:

Proactive Forecasting & Pricing

Intelligent demand forecasting, based on historical patterns (not financial projections) and accounting for expected future demand across varying market segments, lays the foundation for a successful revenue management strategy.

These forecasts enable hoteliers to make strategic decisions in different operational areas. It affords them a clearer picture of potential impacts in occupancy or demand to different segments, as well as a better management of price and inventory. Forecasts can also allow hoteliers to consider different “what-if” scenarios for potential changes in aggregate demand or increased competitor prices.

This powerful knowledge allows hoteliers to react quickly to market changes and establish strategies addressing diverse market segments, keeping long-term revenue in mind. These optimized decisions lead to higher revenue and profits, effectually translating into improved cash flow.

Optimizing RevPAR & Ancillary Revenues

Revenue management can also safeguard sustainability and help establish a solid foundation for optimizing revenue, increasing ancillary revenues and achieving market-leading RevPAR performance.

A “first come, first serve” approach might be an easy revenue management strategy for hotels to follow, but it often results in a mix of business that doesn’t positively contribute to RevPAR performance. To address this, hotels should use an accurate unconstrained demand forecast to determine their right mix of business. The right business may just end up being the highest paying, but it also might include additional considerations like length of stay, long-term loyalty and likelihood to return.

Data from all transaction systems should also be included to provide a pure picture of guest behavior and their overall value, inclusive of ancillary spending. By understanding where customers are likely to spend their money, hoteliers can make informed decisions about which guests should receive a last available room or be offered discounted restaurant or spa promotions that will help drive demand.

When the doors are opened to the most valuable customers, the optimized revenue potential will translate into greater cash flow for the business.

Operational Efficiency

Revenue management can also improve the organization’s overall operational performance. If hotels can anticipate accurate levels of demand, it can staff the optimal numbers at the right times. This positively impacts cost optimization and increases customer satisfaction – the latter being critical for repeat business, word-of-mouth marketing and future business.

Forecasting demand over peak check-in and check-out times ensures that hoteliers’ staffing levels are adequate for any “spikes” in guest volumes throughout the day. This same staffing and inventory principle can be translated throughout all of the hotel’s operations. Optimized wage costs translate into savings that contribute to…where else? The hotel’s bottom line.

Driving Better Cash Flow for a Hotel Portfolio 

Setting revenue management standards across a hotel group improves its overall portfolio performance. Data collection and comparisons between properties allow hoteliers to decide how to price their properties within different markets. Accurate forecasting data, market research and analysis also allow hoteliers to execute realistic feasibility studies for all future opportunities.

Estimating future project successes before outlaying capital investment will help the hotel group make decisions that are likely to increase its long-term cash flow and value.

Channel & Contract Optimization 

Hoteliers should clearly understand their hotel’s business channels and ensure they are represented well in each. Mutually beneficial relationships with distribution partners can generate incremental business, but it is important that hotels are not locked into inflexible long-term contracts that may lead to missed potential profits throughout their business cycle.

Hoteliers can make the most of their third party channel benchmarking information to understand where their hotel is falling short against its competition and when competitors are moving their rates. This knowledge will help the hotel position itself within the market at the right price, with the right business mix, to ensure business is maximized to drive cash flow opportunities for the hotel.

It’s important not to forget about contract optimization here. Hotels often limit their revenue management scope to yielding retail (or Best Available) rates. The real impact will come from managing all segments and business types, including corporate and leisure contracts. Evaluating whether a contract contributes positively to RevPAR performance over the long term – and then controlling that business over the short to medium terms – are essential elements of revenue management. Hoteliers that have addressed this area of revenue generation in their hotels have a finer control over their property’s potential for cash flow generation.

Integration Across the Entire Hotel

The strategies that revenue management sets needs to be strongly supported and aligned with the goals across the organization. Revenue management can help determine the most valuable customers, their individual preferences and assess the price points to attract these markets.

After that, the marketing department must implement promotions or products to attract these customers. Their efforts influence how these promotions or products are perceived. It is important that the two departments work closely together to bring in the most valuable business. Revenue managers should also work closely with the sales and finance teams to ensure that billing is implemented according to contracts, avoid outstanding payments and to keep the expected cash flow coming.

These six considerations can be significant contributors to a successful revenue management strategy, with their influence seen beyond just the immediate revenues they garner. They are also seen in their capability to generate long-term cash flow for a more valuable asset to owners and investors. If implemented and maintained successfully, a hotel might find itself delightfully incredulous at how deep their pockets are capable of going.

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