6 Questions to Ask When Investing in a Revenue Management Solution

Having worked intimately with revenue management solutions, implementations and training at many different hotel portfolios such as InterContinental Hotels Group, Shangri-La Hotels, Pan Pacific Hotels and PARKROYAL for nearly two decades, I’ve experienced the effects of successful implementation and change management practices within different organizational ranks of the hotel structure.

And having worked diligently with various hotel owners and executive teams across the globe, I’ve routinely found myself in discussions around investing in revenue management technology and its tangible benefits to an entire hotel organization – be it single properties or large chains.

Below are six of the top questions for hotel owners and executives to ask before they invest in a revenue management solution for their organization:

  1. How do I know if a revenue management solution will solve my business problems? Will there be a sufficient return on my investment?

Before deciding a specific system for your hotel or organization, look for a revenue partner that will review your organization’s situation with you to help you determine which solution actually solves your business needs. I have found that a revenue management partner that takes the time to understand your business is much more likely to provide you with a solution that yields a timely and strong ‘Return on Investment.’

Most companies will share the average ROI results their customers receive, but what sets certain providers apart are their abilities to leverage a large database of results from properties implementing revenue solutions similar to your business. This insight helps estimate the benefits and ROI for a prospective property or chain with a very high degree of accuracy. This ROI calculation is a critical component when you are making the decision to invest in a revenue management system – and it is important to understand how this number has been calculated. Realistically, owners see a 3.5-5.5% increase in their room revenue, with some hotels reporting improvements as high as 14%. It is important to determine if the expectations in revenue lift are incremental and truly a result of the technology, or if you stood to gain that lift already.

  1. Everyone talks about “revenue optimization.” But what does it actually mean and why is it important when looking at a revenue management solution?

Optimizing room revenue has two significant components: the price you charge for your guest rooms and your inventory management. These two components work hand-in-hand and cannot be viewed as independently-functioning aspects of any revenue management solution. A revenue management system that does not set price should be categorized as a yield management system; a system without inventory management should be categorized as a pricing system. Only solutions with both components are called revenue management systems and fully optimize your room revenues. It’s important to recognize that solutions providing only one component or the other are giving you a partial revenue management solution.

When evaluating available solutions, drill down into the detailed approach a prospective solution takes to optimizing price and inventory. For example, here are a few of the questions I regularly advise asking potential revenue technology partners:

  • Does the solution address areas with untouched revenue potential, such as determining which room types to oversell and creating strategic upgrade paths?
  • Does the solution manage revenue and inventory for all business segments at the hotel, such as which yieldable corporate accounts to accept, or which bookings to take for certain lengths of stay?
  • Can the solution help determine if the hotel is giving away too much inventory to corporate LRA accounts or wholesale allotments?
  • Can the system validate ‘gut feelings’ with predictive and ‘what-if’ analyses that measure the impacts of making pricing and inventory decisions?

By asking these questions, you’ll quickly see why managing only price or inventory alone will not provide you with the profitable results you stand to gain by a system that manages both.

  1. Why do I need a revenue management solution? My revenue manager can handle it fine.

The current revenue and distribution environment is becoming exponentially more complex. The number of distribution channels are consistently increasing, and hotel inventory is widely available in ever more channels – especially electronic channels. Inventory and rates have to be updated in many places and this can take up a large part of your revenue team’s working day. This leaves sparse time to think strategically and make effective decisions that drive revenue in the long term. A revenue solution that can make and implement tactical decisions will free up the time of your revenue manager tremendously – and allow them to focus on your organization’s revenue strategy. By choosing a system that automatically distributes rates and inventory controls to your distribution environment, you have removed any concerns over the potential for lost revenue opportunities.

  1. What if my revenue manager has never handled a revenue management system? How does this impact my technology selection?

By implementing a revenue management solution, your revenue manager’s world will become more complicated. This is why selecting a revenue technology partner with an extensive support network is critical in your overall decision making process. In fact, your partner support process should be in place long before you even take the plunge in investing in a solution. The initial selection process will often reflect the type of client engagement and support you can expect to receive from your partner – giving you confidence you are choosing the best solution from the best provider. As part of your decision making process, evaluate how your revenue technology provider can support you and your team during and after the installation. This helps your revenue manager become more knowledgeable and comfortable with the system – and maximize system capabilities after its installation. Look closely for this partnership approach when evaluating your options.

  1. My hotel has lots of function space, and conference and meetings revenue is a large part of our revenues. How should I consider this when evaluating a revenue management system?

Consider a solution that is scalable. Look for a system that can provide function space and group business forecasts and evaluations – and analyzes whether business should be accepted or rejected based on its profitability. Evaluations should consider group and function space requests against the business forecasted in your hotel and your function rooms. Investing in a system that optimizes both your function space and your hotel rooms ensures that you are optimizing your largest revenue streams with a well-aligned revenue strategy.

  1. What is all this talk about algorithms? How do I know the system is using the right analytics?

Algorithms are the engine in revenue management systems. They determine the best price and inventory management outputs to optimize your revenues. The complexity of the algorithms determine the capabilities of the system: low complexity algorithms will provide descriptive analytics, such as various levels of business intelligence and reporting; more complex algorithms allow for predictive analytics, which is what most pricing and yield management systems use today. These algorithms allows hotels to forecast at a total hotel level, set a selling prices and, in some cases, manage inventory with length of stay and overbooking controls.

However, only industry leading systems – using a large number of complex algorithms – can provide you with prescriptive analytics. These systems not only provide forecasts at detailed levels and pricing decisions by room type and different lengths of stays, but they will also provide an analysis of the impact of these decisions on your business. These sophisticated systems are ‘self-learning,’ meaning they always provide you with the level of detail needed to truly optimize your profits.

Access our recent article in Tnooz:
6 Questions to Ask When Investing in a Revenue Management Solution

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