Six Reasons Why GMs Care About Revenue Management

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Tasked with overseeing all hotel operations, general managers (GMs) are well positioned to help their organizations drive profitability by achieving a strong culture of revenue management. Particularly in the age of total revenue management — optimizing revenue from all of a hotel’s available revenue streams, including rooms, food and beverage, spa, etc. — GMs have the unique ability to align team goals so that the entire organization works together to maximize demand and optimize revenue.

However, because revenue management is becoming significantly more complex and analytical today, it’s also becoming increasingly difficult for GMs to keep pace with and stay on top of developments in this important field. Despite this, it’s more critical than ever for GMs to stay vested in and proactive about revenue management.

To understand how their participation can influence their property’s competitiveness and revenue, below are six reasons why GMs care about revenue management:

  1. Price is a Key Lever in Driving Profitability in a Hotel – Research has repeatedly shown that price (in conjunction with inventory control) is one of the biggest drivers of profitability for any hotel organization. Further, recent trends and developments have shown that using analytics to make pricing decisions is becoming essential. Therefore, it’s crucial that GMs keep a pulse on revenue management activity in order to leverage analytics and optimize revenue. For properties without a revenue manager, GMs should consider investing in an automated revenue management system that takes care of complex analytics and allows them to quickly upload effective pricing and inventory decisions to all necessary distribution channels.
  2. To Drive Long-Term Growth and Performance Strategies – Revenue managers tend to be very focused on day-to-day pricing changes and inventory management, rather than their hotel’s long-term, strategic goals. However, this is where the GM can step in and make a difference by preventing the revenue manager from getting bogged down by short-term revenue per available room (RevPAR) goals. By communicating regularly with revenue managers, GMs can help drive long-term performance strategies by keeping his or her organization’s goals and objectives in mind regarding the hotel’s desired clientele, image and position in the market.
  3. To Balance Potentially Competing Interests of Other Departments – In order to meet their organization’s goals, GMs regularly communicate with the sales, operations, finance, and marketing teams. They also have close interaction with the revenue management team. Since each of these departments usually operates independently of one another, it’s up to the GM to balance potentially competing interests in order to enhance profitability. For example, the sales team is mostly volume-driven; they want to drive as much business as they can in order to fill the hotel. Meanwhile, the operations department is focused on customer satisfaction while the revenue management team is trying to optimize revenue. Ultimately, the loudest voice typically drives the direction of the hotel, which can have a negative impact on the hotel’s overall performance. The GM can coordinate across teams to elevate the importance of revenue management and ensure that everyone’s goals are aligned and profitable.
  4. To Leverage Renovations, Refurbishments and Other Investments – One of the most challenging and important tasks revenue managers face is determining the hotel’s price positioning. This is not only important amid the traditional scope of revenue management duties—such as selecting the right best available rates (BAR) and applying inventory controls—but also in the wake of major hotel renovations, refurbishments or other investments. If not managed correctly, price and inventory controls following a refurbishment may not take into account the resulting potential for increased revenues. In order to achieve a return on investment, GMs need to discuss their strategies and expectations regarding various investments with revenue managers. Doing so will help revenue managers prepare for the change by incorporating the new value proposition into the pricing and inventory decisions they make, thereby increasing the potential to maximize revenue for the new product or service.
  5. To Feed Revenue Management Forecasts into Operational and Financial Forecasts – There are three types of forecasts in a hotel—operational, financial and revenue management—and there is a difference between these that is often overlooked by hotels. An operational forecast is often used to manage resources – to work out how many housekeepers will be needed to clean rooms, how many people will need to be checked into the hotel or how many guests will visit the hotel restaurant. Financial forecasts, on the other hand, are often used to determine the end-result for a given month in order to provide owners and investors with an outlook on revenues and profitability. In contrast, a revenue management forecast is intended to estimate the expected demand for the hotel in the future so that the hotel can then manage or manipulate that demand to ultimately achieve the hotel’s objectives. Because this is an unconstrained demand forecast, it almost serves as a pre-forecast forecast, and GMs should be aware of this and ensure that there is a succinct and clear path from the revenue management forecast to the operational and financial forecasts.
  6. What Gets Measured Gets Done – Lastly, one of the simplest, most powerful reasons GMs should care about revenue management is that “what gets measured gets done.” By understanding revenue management strategies, setting clear targets and objectives, and then being involved in the analysis and decision-making process, GMs can drive their revenue managers to improved performance leading to better profitability for their organization.

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Leading the Charge

Although revenue management is becoming more complex, it’s also becoming more rewarding. Many hotels have seen double-digit revenue improvement as a result — with several organizations reporting much greater increases. This is especially true with the GM’s support because he or she can unite the entire organization to create a common revenue management culture and drive lucrative revenue management strategies.

By staying proactive about revenue management within their hotels, GMs can help their teams drive top-of-the-line revenue for the hotel and stand out as true revenue drivers within their organizations.