Profit Optimization – All for one and one for all!

The more revenue opportunities your hotel has working together, the better

  • Revenue management used to be considered a very niche function
  • Hotels are seeing the benefits of extending strategic revenue management principles to their ancillary streams
  • Establish KPIs that measure areas beyond rooms to meetings and events space

Today’s hoteliers face rising pressure to increase their hotel profitability. From acquiring brand new customers to driving repeat business and loyalty, making the right operational decisions and running a hotel with optimal efficiency continues to be an ongoing challenge for top hotel executives. However, with increased scrutiny focused on the best ways to drive total hotel profitability, what exactly does the industry’s c-suite need to know about revenue strategy and profit optimization?

Revenue management used to be considered a very niche function, and one that was only applied to guestroom strategies without the influence or contributions from other hotel revenue streams. Over the years, however, hotels have recognized its benefits and enthusiastically adopted more scientific and analytical approaches to strategic revenue management—experiencing significant financial rewards in the process.

The industry has looked for ways to apply these holistic strategies to other operational areas and increase their overall profitability even further. And with a recent STR Global report indicating both revenue and expenses for rooms, F&B, payroll and other departments are on the rise, more and more hotels are seeing the benefits of extending the principles of strategic revenue management to their ancillary streams.

The goal of profit optimization is to leverage all hotel functions and maximize their profits in unison with one another. It encourages hotels to intelligently decide which business to accept across multiple revenue streams at all times, based on greatest overall value to the asset. This kind of holistic approach to revenue management goes beyond guest room rates and maximizes profits from the strategic management of other revenue streams. Hotels that adopt these principles successfully can drive profit performance to new heights across their entire asset with more competitive positioning, pricing and inventory management.

Moving revenue management past guestrooms into other organizational areas requires having a robust revenue culture in place, something the industry has fundamentally identified as an ideal environment for supporting initiatives that increase total hotel profits.

Today’s hotel executives are tasked with converging the traditional roles of sales, marketing and revenue management with an inclusion of other departments like F&B, banquets and finance. Focusing all departments around identifying and nurturing the most profitable business will result in the most rewarding results.

The shift from focusing solely on guestroom revenue to the adoption of an organizational culture that applies revenue management throughout various departments has also encouraged hoteliers to broaden the types of metrics they use for performance evaluation. Traditionally, hotels solely relied on KPIs such as occupancy (OCC), average daily rate (ADR) and revenue per available room (RevPAR) to evaluate the revenue performance of their properties. And while these are still important metrics of performance measurement, the industry has begun gravitating toward other standards that represent their wider spectrum of operations.

Aside from standard rooms-focused metrics, hotels need to shift toward a comprehensive understanding and comparison of total revenue performance like metrics like Total Revenue Per Available Room (TRevPAR).Click to Tweet | IDeaS Twitter Hotel meetings and events space, onsite restaurants, spa services and other hotel revenue streams all make significant contributions to overall profitability. When these revenue streams are not properly measured and evaluated, the hotel’s big picture view of its overall profitability misses critical pieces that metrics like Gross Operating Profit Per Occupied Room (GOPPAR) can fulfill.

Establishing KPIs that measure areas beyond rooms to meetings and events space (also commonly referred to as function space) is typically the best place for organizations to start. Emerging KPIs in function space revenue management include space utilization, revenue conversion, attendee density, revenue per attendee and revenue per sq. foot/meter, and are fast becoming the industry standard metric in evaluating function space performance.

Making a concerted effort to track these types of performance metrics within an organization, in addition to having the right technology and processes in place to capture, measure and control these KPIs, will help establish a baseline for hotel teams to work towards improving and optimizing their business performance. And while the industry does not focus on a standard KPI to account for total revenue performance and profitability, it is an area of focus steadily gaining more traction.