Comparing Revenue Management Approaches (Part 1 of 2)
By Tracy Dong - Exclusive for 4Hoteliers.com
Thursday, 18th March 2021

Exclusive Feature: On-property revenue manager versus cluster revenue manager versus outsourced revenue management services.

The new reality of lower occupancy and limited corporate and international demand in 2021 is forcing hoteliers to rethink their commercial strategies and limit operational costs where possible.

As hotel management roles are consolidated and responsibilities expanded, many hoteliers are not only asking their staff to do more with less, but are also considering what will be the most effective revenue management approach for their property, or group, given the market outlook.

In some cases, no longer are hotel revenue managers responsible for a single property or a handful of properties within a hotel group. They are now responsible for a cluster of properties determined by location or brand and are expected to make strategic revenue decisions for up to a dozen, or more, hotels every day.

Today there are three common approaches to revenue management a hotel can implement: an ‘on-property revenue manager’ which is the traditional approach of having a dedicated revenue management professional (or team of professionals) working onsite at a hotel to drive revenue decisions and support the overall commercial function of a hotel.

Then there is the ‘cluster revenue management’ approach (outlined in the previous paragraph) and sees a revenue manager working remotely from a corporate office, responsible for the revenue decisions for a number of hotels at any given time. Finally, there is the option for ‘outsourced revenue management services’ which sees a hotel hand over the management of its room pricing decisions to a specialised partner or consultant group.

To help determine which could be the best application of revenue management for your hotel, let’s take a closer look at what is involved and the benefits of each approach.

What is the best practice for an on-property revenue manager today?

In the past when hoteliers sought to improve their property’s revenue performance, one of their first steps would be to hire an on-property revenue manager. Typical on-property revenue management roles focus on forecasting demand, adjusting pricing by channel or rate categories, managing room inventory in direct and third-party channels, evaluating group bookings, and participating in annual budget process and monthly review.

However, given the rapid pace of change within the industry, on-property revenue managers today should be elevated and form part of a hotel’s leadership team or executive committee.

Many hoteliers today are transforming their previously tactical focused revenue managers into more strategic commercial strategists, with success. These modern-day commercial strategists no longer focus solely on room revenues but consider a hotel’s overall financial potential. This is done through analysing and optimising all revenue and profit-generating streams (rooms, meetings & events, food & beverage, etc.) to strengthen a hotel’s financial performance.

How can a hotel group establish and cover the costs of a cluster revenue management department?

Hotel groups looking to establish a cluster revenue management department across their portfolio of properties must consider how to allocate the costs for this department. Will it be a subscription-based service fee, or will the costs for accessing the cluster revenue management department be split (in some way) among the participating properties?

Subscription-based service fees are popular with managed or franchised properties, paying a certain amount of money per month to the cluster revenue management service center to receive professional revenue management services in return. On the other hand, cluster revenue managers are also used by owned properties, where the participating properties share the expenses of the revenue management professionals or team. In such cases, fees can be varied based on the number of participating properties in each cluster.

In the subscription-based model, the headcount of revenue management professionals or team belongs to the corporate office. The revenue management professionals will be part of the corporate structure and report to the leaders in the revenue management service center. There will be no reporting line between them and the property’s director of sales and marketing (DOSM) or general manager (GM). In the cluster revenue management setting, in most cases, the revenue management professionals will report to the cluster DOSM or cluster GM.

What is involved with outsourced revenue management?

For hotel chains without an established revenue management service center to execute cluster revenue management, or the budget to bring on an on-property revenue manager, but who need to professionalise their approach to pricing rooms and other key commercial activities, an outsourced revenue management service may be best.

In evaluating if the outsourcing of revenue management operations is appropriate for your hotel, it should be considered if the existing in-house team would each have the experience and ability to operate key systems, such as a revenue management system (RMS), property management system (PMS), central reservation system (CRS), and channel manager?

Also, does the existing team have sufficient knowledge of the local market, including competitor activities and experience in setting accurate rates? If the answer is ‘no’ to any of these questions, then outsourcing revenue management activities to a group with specialist knowledge and experience may be a better option.

When outsourcing revenue management operations to a specialist group, it is important that hotels thoroughly assess who they are working with. Generally, the outsourced revenue management group will provide a checklist of all the strategic and tactical tasks they will undertake on behalf of a hotel, but it is on the hotel itself to ensure these activities align with the support needed.

Any outsourced group who take responsibility for your revenue management operations will require access to accurate data and have to use automated technologies to support accurate and efficient pricing decisions. In the age of big data and machine learning, an outsourced revenue management provider must operate with an RMS. Hoteliers should question any outsourced partners as to what technology they use and if those systems are fit for their purposes.

For more information on how the current approaches to revenue management compare, Part 2 here in this series, which will also look at and the advantages and challenges associated with each approach. And to learn more about which approach to revenue management is best suited or your hotel type, please visit here

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

Tracy Dong, Senior Advisor, Asia Pacific region at IDeaS Revenue Solutions. For more information on how your hotel can plan achieve total revenue forecasting in an uncertain market, please visit: www.ideas.com

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