Revenue by HRM

10/10/2024

And we’re back! After a brief hiatus, we've been hard at work on our new branding. I recently received the sad news that the company supporting my website for the past five years went into insolvency. My heart goes out to their team and families—running a small business is never easy.

That said, every cloud has a silver lining! We now have a brand-new website, thanks to our incredible new marketing company, who have been nothing short of amazing. 🎉

Check it out: www.revenuebyhrm.com - I hope you love it as much as we do!

Hotel Revenue Management | Revenue by HRM | Outsourced Hotel Revenue Management

01/09/2022

DYNAMIC REVENUE STRATEGIES

Following on from last week when we looked into different distribution channels, today’s focus is how we control these channels whilst remaining flexible and dynamic in the market. The best revenue management strategies offer lots of flexibility, AND consistency of product in the market.

DYNAMIC PRICING

One way to achieve a very dynamic rate structure is to derive many prices from one master rate, then by changing one price in your PMS, you are simultaneously changing multiple rates, which demonstrates a logical rate structure across all channels, whilst saving you time. For example, your Flexible Breakfast inclusive rate is your "Master Rate”, your Room Only rate can be derived from this at -£x per adult, you could also derive a Non-Refundable rate, Dinner inclusive rate or even package rates.

PARITY

By deriving rates in this way, you can also help to ensure price parity across your channels. It is important to note that rates should always be derived in your PMS and mapped individually to your channels. Many channels will offer you the functionality to derive rates on their extranets – this is attractive to some as it reduces the amount of mapping required, however it can be difficult to restrict the availability of these plans / discounts in future. Deriving and mapping the rates from your PMS also aids production tracking so you can see historically which rate plans are popular for your property.

CONNECTIVITY PARTNERS

When it comes to distribution we need to cast the net wide. Converting 5% of 200 potential guests, is more than 5% of 100 potential guests, yet the conversion rate remains the same. Distribution is key and getting in front of the right guests will ultimately translate into more bookings. This can be achieved with a small number of select partners, do not be mistaken that lots of channels will translate to lots of bookings. Choose partners that are reputable and are delivering business into your area from the market you are targeting. Ensure you maintain a relationship with your account manager so they can keep you informed about market trends and opportunities for your hotel.

RESTRICTIONS

A robust revenue management strategy has rates and packages that are designed to appeal to different market segments. To achieve our occupancy and ADR budgets we need to yield these packages to deliver the right business mix into our hotels. Set up is key to offer this type of flexibility. You may want to drive more package business into high demand periods to increase the property Trevpar, to achieve this you may close discounted rate plans across all channels. Maybe there is a large event in the area and you know you can fill your hotel with non-commissionable business, in this case you would need the flexibility to close third party sellers only, leaving your website open and selling. Ultimately, the control must remain with the hotel at all times.

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25/08/2022

Last week we have looked at the process of setting up and connecting the systems to be able to easily distribute the hotel's bedroom stock. Today we will look at the different channels available.

OWN WEBSITE

This channel is key for hotels as it showcases the property and the offerings to the customer. It is crucial to have a website that speaks to the target market, provides the information the customer needs, and entices people to book. As this channel is commission free, the NET Revenue is higher than other channels.

ONLINE TRAVEL AGENTS (OTAs)

For most hotels, these channels produce the highest number of bookings as their reach and authority in the marketplace are very high. There are many smaller OTAs, but the two main ones are Booking.com and Expedia. Having up-to-date images on these websites can put the hotel ahead of the competition. These OTAs have extranets, which must be updated and kept 100% as this is influencing the ranking. Hotels that show up on the top of the relevant search results will naturally receive more bookings than the ones which fall on page 2 and so on. It is great to receive so many bookings through these channels without much effort, but the hotel must keep in mind the commission payable in return. A system which set up correctly can handle channel close-out, so when the hotel knows they can sell all rooms directly, they can close these channels and achieve higher NET Revenue.

GLOBAL DISTRIBUTION SYSTEM (GDS)

The GDS system connects the hotel with the airlines and travel agencies. When customers purchase a package deal with the airline, those bookings come through the GDS channel. These tend to be lower-rated bookings, but the advantage is the rates are opaque, so the hotel can sell distressed inventory without discounting the rate publicly. GDS is also used by corporate travel agents, like Carlson Wagonlit, to book for business travellers. These rates tend to be higher, so they compensate for the GDS switch fee payable for all bookings.

AGGREGATED SEARCH ENGINES

Trivago is an aggregated search engine. It will search hotels in the area, and it will also search the prices for the same room on different channels. These channels are used by savvy customers, who want to make sure they get the best price for their chosen property. It is essential that the rate pulled from the hotel's website is the lowest (most likely the same as many other OTAs). If the price is not the lowest, the hotel will lose the booking to an OTA leading to unnecessary commission payments.

REVIEW WEBSITES

The most well-known review website is TripAdvisor. This site is used by many travellers to ensure the hotel has good feedback from previous guests. TripAdvisor also implemented a booking engine with an aggregated search function to monetize their site visitors. Hotels can connect directly to TripAdvisor or via OTAs.

SOCIAL MEDIA

The newest channel is social media which can be used to showcase the hotel and set up direct booking links, like Facebook to Own Website. Since the changes in the news feed of Facebook, the organic conversion has declined, but the right paid adverts can lead to many bookings with lower overall cost than the commission paid to the OTAs.

There are many more channels out there, but more is not necessarily the best when it comes to hotel distribution. Each channel needs to be set up and managed to perform well, so a channel that delivers 10 bookings a year, costs more for the hotel to set up (payroll) than the value it creates. The revenue manager must be mindful of many factors when deciding which channels to use. For example, hotels with many Chinees tourists must set up Agoda, as that is the channel used mainly in Asia. On the other hand, hotels with many American visitors must concentrate on Expedia, the most popular OTA in the US.

Having the right distribution strategy which is executed to precision is essential to every hotel that wants to level the playing field and ensure revenue maximization.

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18/08/2022

After reviewing the segmentations, today and in the coming weeks, we will look at the different distribution setups, systems and channels the hotels use to sell their bedroom stock.

Distribution starts with the Property Management System (PMS) which system has all reservation details for past, present, and future bookings. It is vital that this system is set up correctly with different rate codes for all rates and segments.

Why is this so important?

Having different rate codes for different channels allows the revenue manager to flex the rates, control availability, apply restrictions, measure production, identify booking patterns, etc. If most of the bookings arrive under the same rate code, it becomes virtually impossible for a revenue manager to maximise revenue as not enough details can be extracted from the system for analysis.

RATE CODES AND RATE TABLES

After all rate codes are set up in the PMS and market segmentation is attached, pricing needs to be linked. One set of pricing can be linked to many rate codes which have the same price, so when it comes to the price change, there is no need to change all of them individually. For example, the flexible rate is the same (due to price parity) whether it is sold directly or through the OTAs, so the same pricing table can be attached. Corporate clients should have their own rate code (or promo code, etc. depending on which system is used) so their productions can be measured as it is key for LNR account negotiations. All corporate rate codes which have the same rate and same booking terms, like LRA (last room availability) or non-LRA can be linked to the same rate table. After all rate codes and rate tables are linked and the pricing is set, the next step is distributing these through the relevant channels.

MAPPING

Mapping out what will be distributed to where is a key part of the revenue management strategy. Rate codes used for rooms booked in-house will not need to be distributed online, so these should be the ones available for the front desk and the reservations team. Rate codes for online distribution require an intermediate to make the distribution seamless. Mapping directly to OTAs is possible, but the management of each channel separately is extremely time-consuming and can be error-prone. Having a Channel Manager in place will allow the revenue manager to easily execute the required daily tasks, like rate change, closeout, and restrictions on the PMS and the channel manager will communicate all these changes to the relevant channels. Before this can take place, the initial mapping must be completed between the PMS and the Channel Manager, and the Channel Manager and each online Channel.

CHANNELS

What are these Channels? Every intermediary which sells bedrooms for the Hotel is a channel. For example, Booking.com, Expedia or the Hotel’s own website are booking channels, so they need to be connected to the channel manager.

How to connect these channels? First, each room type which is sold on the relevant channel must be created on the extranet or on the booking engine’s back end in the case of the website. After creating the room types all rate types sold on the channel must be created as well, so if the hotel sells flexible or advance purchase rates, they must be mapped independently to the Channel from the Channel Manager. Why? Advance purchase and flexible rates have different prices and different booking terms, so the same double room can be sold for full price or for a discounted price with upfront, non-refundable payment. Without mapping them separately the system would not be able to handle these bookings correctly.

Setting up the distribution systems is a complex task which must be done with appropriate planning and painstaking precision to work properly. Once it is set, the system does all the work without interference unless new channels are added at which point the same procedure must be followed.

Next week we will look at the different distribution channels needed to be in place to have a comprehensive revenue management strategy which allows the hotel to thrive under any economic circumstances.

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11/08/2022

HOTEL MARKET SEGMENTATION IN ACTION

Last week we reviewed the recommended segmentations for a midsized hotel. As discussed, each hotel must choose segments which are relevant and meaningful for their market.

If you missed last week’s post, please click here: https://buff.ly/3zsd4Vx

WHY SEGMENT?

LEAD TIME

When the revenue is planned for the coming year, the budgeting start with the segments; how many bookings will be produced on what ADR in each segment in each (months/days). The process is the same for forecasting. As each segment has their own unique characteristics, it is important to understand what actions need to be completed by when to achieve the budgeted figures. Some segments, like Group have long lead times, which can be 6-12 months or even more. Other segments, like Transient have a significantly shorter lead time. Budgeting/forecasting 100 room nights in the Group segment for next month will highly unlikely to be achieved without provisional bookings, whereas forecasting to pick up 100 room nights for next week in Transient is easily achievable.

RATE

Each segments’ ADR varies, which is due to their booking behaviours. Leisure guests tend to be more price conscious as the money coming from their own packet. They also book more in advance to plan for their holidays. On the other hand, Corporate clients tend to book more last minute and have higher spending limit. Transient bookers have also have short lead time and pay more than Groups.

ACTIONS

If the hotel plans for high number of bookings through the Local Corporate segment, it is vital to have sufficient companies with signed LNR (Locally Negotiated Rate) contracts on the books. If this is not the case either more sales activity must be done or the number of rooms in this segment decreased and increase other segments to compensate.
Increased level of demand, for example, for LNR rates warrants the hotel to increase the rates offered. These extra bookings will also displace bookings from other budgeted segments. It is vital for the revenue manager to identify which segments can be reduced to accommodate these bookings, without loosing profitability.

HOW DO YOU INCREASE THE HOTEL’S NET REVENUE WITHOUT INCREASING THE ADR OR OCCUPANCY?

Some examples could be to channel room nights from Third Party segments to Direct, or from National Corporate to Local Corporate. Based on this scenario the RevPAR remains the same for the hotel, but the NET Revenue and Profit increases. Why is that?

NET REVENUE

Before we can answer the question, we need to discuss what NET Revenue is. This does not refer to the revenue NET of VAT, as in business, that is a given. NET Revenue is revenue minus cost of accusation.
For examples, 100 room night on £100 ADR will lead to £10,000 Revenue. Through Third Party segment, this will be £8,400 NET Revenue due to the 16% (example) commission paid to the OTA to generate the booking. If the same 100 room nights come through Direct, there will be no commission to be paid, which means the NET revenue will remain £10,000 (for this example, we did not use any other costs).
In the case of National Corporate segment bookings, the GDS switch fee needs to be deducted from the revenue to arrive to the NET revenue, whereas the Local Corporate segment bookings are booked directly with the hotel, so no deduction in necessary, leading to higher NET Revenue.
These are just some of the examples how a hotel can increase its profitability without increasing its revenue.

Segmenting the bookings for the hotel will allow appropriate preparation of future actions and create a balanced income plan. Monitoring the production of each channel will provide the revenue manager with more in dept details for forecasting and for channelling bookings thorough more profitable segments where it is appropriate.

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Driven by results, we consistently strive to improve upon previous performances to exceed that of our own and our clients expectations.

04/08/2022

HOTEL MARKET SEGMENTATION

In previous weeks we have looked at the hotel revenue holistically, which was suitable for comparison and benchmarking purposes. To gain a better understanding of where the business is coming from, the hotel needs to further segment its business.

WHAT IS SEGMENTATION?

Segmentation is a process where the hotel groups customers based on their travel behaviours. The main market segmentations are Transient, Corporate, Group, Wholesale and Other which groups the customers based on their common characteristics. These five segments give very little information for the revenue manager to act upon, so further segmentation is required.
Channel segmentation groups the customers based on the channels they used for their bookings. Direct, Website, OTAs and GDS are the most used segments. This helps to further analyse the booking behaviour of the customers and identify booking patterns.
The key to segmentation is to use the appropriate number and type of segments for your property. There is no point in creating a segment if only a few bookings come through each year, as it will not show patterns and will not give enough actionable information. Also, grouping together a large number of bookings, which could be separated into different segments, limits the information needed to manage the segment.

WHAT SEGMENTS TO USE?

Depending on the size of the hotel, location and offerings, the number of segments used can be vastly different. The flowing segmentation is appropriate for a midsized Hotel with Spa and Golf facilities.

- Direct: This includes full-priced bookings the hotel receives direct, like through its own website, walk-in, phone calls, etc.
- Advance Purchase: All discounted advanced purchase bookings can be included in this segment. Depending on the size of the segment, it can be further segmented into Direct and Third Party Advance Purchase segments.
- Third Party: This segment includes all full-priced bookings received through OTA (Online Travel Agent) channels, like https://buff.ly/AuWaw5, Expedia, etc.
- Local Corporate: All bookings from companies which negotiated rates directly with the property will be included in this segment. This can be further segmented based on whether they have LRA (last room availability) or not if it is appropriate for your hotel.
- National Corporate: KNR (Key Negotiated Rates) bookings belong to this segment together with corporate bookings received through the GDS channel
- Conference and Events: Bedroom bookings linked to on-site conferences and events assigned to this segment. For hotels with large conference and event facilities, this can be split into two segments as booking behaviours can differ.
- Wedding: This segment includes all wedding guest bookings
- Package: Any package deal bookings are assigned to this segment. For hotels with Spa, Golf, or other main selling points, it is recommended to separate these into individual segments.
- Group: This segment can include all group bookings (10 or more rooms). For larger properties, it is recommended to further segment these bookings into, Leisure Group, Corporate Group, etc.
- Tour: Bookings received through Group Travel Agents are assigned to this segment
- Wholesale: Bedrooms sold to wholesale travel agents, like Hotelbeds have a separate segment as these are usually much lower rated bookings.
- Tactical: Voucher deals and other cheap rated bookings, which used to fill trot periods also cheap rated and segmented independently
- Promotional: This segment is used by hotels with robust Marketing Strategy to measure the success of the campaigns and monitor booking patterns
- Other: Any other bookings assigned to this segment, like, house booking, complimentary stay, etc. It is very important to not assign bookings here which could have their own viable segments.

There are many other segments, which can be useful for your property based on location. For example, an airport hotel will have a separate segment to monitor Airline bookings or a hotel with a large corporate base might segment the corporate business further. The key is to have a suitable number of segments for your property to allow the revenue manager to take appropriate actions for each segment to increase the right revenue at the right time.
Next week we will discuss what actions can be derived from the data patterns shown by the segmentations.

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28/07/2022

HOTEL BENCHMARKING - THE EXCEPTIONS

If you are joining us now, please read these articles before continuing to gain a better understanding of Benchmarking.

WHAT IS BENCHMARKING https://buff.ly/3nWk9bP
HOTEL BENCHMARKING IN PRACTICE https://buff.ly/3Pzpa5Q

After discussing the importance of Benchmarking and how to interpret the reports, it is vital to look at what is Natural RGI and how to calculate your hotel’s.

NATURAL RGI

The assumption is that achieving 100 or more on the RGI index shows the hotel achieved great results and outperformed the comp set. Unfortunately, this is not always the case. It is near impossible to have 5-6 true competitors who provide the same level of service, have the same number of bedrooms, start rating, and building conditions. If most of the comp set has 5* hotels and your hotel is 3* the natural RGI will be sitting below 100. If your hotel has 200 bedrooms and the comp set average is 70 rooms, your MPI index will sit below 100 combined with the same ARI index will lead to lower RGI. On the other hand, if your hotel is similar size and star rating as the comp set but has been recently refurbished the natural RGI will sit above 100. Natural RGI is where the hotel should sit in comparison to your competitors based on Product / Rooms / Food & Beverage / Conference & Events / Facilities / Location / Service / Trip Advisor Performance. Just because 100 is fair market share does not necessarily mean that is where your hotel should sit.

HOW TO CALCULATE NATURAL RGI?

To calculate your Natural RGI, you need to rate the hotel and the individual competitors on Product / Rooms / Food & Beverage / Conference & Events / Facilities / Location / Service / Trip Advisor Performance.

Download our Natural RGI Calculator here: https://buff.ly/3Bpi1RF

The rating scale is 5 excellent, 4 good, 3 average, 2 below average, 1 is poor, and 0 if service not present.

Enter each rating in the relevant grey field on the Assessment Sheet against the criteria for Product, Rooms, Food & Beverage, Conference & Events, Facilities, Location, Service, and Trip Advisor performance. If a hotel does not have a facility, then leave cell blank.

Go to the Natural RG Sheet and add your hotel's actual RGI YTD, and (the Previous year's RGI YTD, if known) in the grey cells.

The sheet will calculate your hotel’s natural RGI. This will allow a fair comparison to the comp set. If your natural RGI is 85 and your actual RGI score is 86, the hotel get’s more than its market share. On the other hand, if the Natural RGI is 120 and the actual RGI is 119, the hotel is leaving revenue on the table.

KEY TAKEAWAYS

- Sometimes occupancy is sacrificed for higher rate or vice versa. It is important to find the balance as sacrificing too much on one and not gaining enough on the other can lead to decrease in RevPAR and profitability
- Costs also must be taken into account as £100 RevPAR achieved with 80% occupancy and £125 ADR will be significantly less profitable than achieving the same with 73% occupancy and £137 ADR. This is due to the cost of servicing 7% more rooms to achieve the same revenue.
- The exception to the above is when there are incremental sales. For a hotel where the average incremental sale is £50, it worth to sacrifice rate for occupancy, but B&Bs or low in-house spend hotels, pursuing ADR over occupancy will yield higher profitability
- Calculate your hotel’s natural RGI, so you have a fair comparison to comp set. A hotel which consistently achieves RGI in the 90s outperforms the comp set, if its natural RGI is 85. Also, having consistent RGI in the 110s is not good news, if the natural RGI of the hotel is 125.

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Driven by results, we consistently strive to improve upon previous performances to exceed that of our own and our clients expectations.

21/07/2022

HOTEL BENCHMARKING IN PRACTICE

WHAT IS BENCHMARKING?

According to STR, Hotel benchmarking is the process of comparing your property’s performance against the competition, adding a layer of context to what success and failure look like in your circumstances and environment.

Want to learn the basics of Benchmarking? Please read our previous article here

Benchmarking reports, like the STAR report produced by STR include a vast amount of data paired with many different comparisons. It is important to understand how to read these reports and identify information that can be turned into actionable intelligence.

An experienced revenue manager uses the STAR reports to look for trends and identify opportunities.

OCCUPANCY – MPI CHANGES

It is key to look at the reports and analyse how the hotel’s occupancy progressed and how that compares to the comp set. Once a trend is identified, it is vital to put it in perspective and identify what coursing this trend.

Was there a change in the hotel’s availability?

If 25% of the bedroom stock is out of order due to the refurbishment and is taken out of the inventory, the MPI will increase as now 25% fewer rooms need to be sold to achieve 100% occupancy. On the other hand, if it is not taken out of the inventory, and only put out of service, the hotel’s MPI will drop significantly as now selling all available rooms will leave the hotel with a 75% occupancy level.

Was there a change in the comp set?

If a hotel in the comp set had a significant inventory reduction your hotel’s MPI will suffer, whereas if a hotel in the comp set had an extra wing added, their MPI will drop and your hotel’s will increase.

Did your hotel secure a large corporate group for an extended period?

Securing a large business group will boost your hotel’s occupancy as this is on top of the regular booking patterns.

If the Occupancy level goes up, but the MPI index remains the same, it tells us that there is an increased demand in the marketplace which your hotel has benefitted the same way as the comp set did.

ADR – ARI CHANGES

The changes in the achieved ADR and ARI index have to be analysed in the same way. If there is a trend, we need to look at what is coursing it.

Was there a change in the hotel’s offerings?

If the hotel increases the level of service provided, the rate offered can also be increased and this will lead to outperformance of the comp set and increased ARI levels.

Was there a change in the comp set?

If the comp set has gone through a refurbishment, it can command a higher rate, and this can lead to a decrease in your hotel’s ARI even if the achieved ADR stays the same level.

Did your hotel secure a large corporate group for an extended period?

Having a stable base business allows a good revenue manager to increase the rate and achieve higher yields, higher ARI

REVPAR – RGI CHANGES

Looking at the MPI and ARI movements can help identify some trends, but it does not take into account how one can interact with the other. Therefore measuring and paying close attention to changes in the RGI index is vital.

Increased ARI + Increased MPI

If ARI and MPI are increasing RGI is going up exponentially and it is a testament to a job well done.

Increased ARI + Decreased MPI

Depending on the level of increase/decrease, this could be a warning sign of pushing rates too high and sacrificing occupancy, if the RGI index is decreasing. If the RGI index goes up, this can be the most profitable combination as increased RevPAR with lower occupancy leads to increased profitability.

Decreased ARI + Increased MPI

Lowering the rates to increase occupancy can be a dangerous tactic, as increased occupancy directly increases costs. On the other hand, if the rate drops by 5%, but occupancy increases by 20%, this is the best strategy to implement under current market conditions, as this leads to RGI and profitability increase

Decreased ARI + Decreased MPI

This is a sign of danger to the business. A trend like this requires immediate action as the hotel is losing out on the comp set. Courses need to be addressed as soon as possible. It is vital to look at the state of the hotel, the offerings and the commercial strategies in place (revenue, sales, marketing).



These are only a few key areas to look at when searching for underlying reasons for the changes in the indexes. Not being able to understand and interpret what the data tells you can leave significant revenue and profit in the hands of the competitors.

Next week we will continue talking about these metrics to gain further understanding of what the indexes tell us. We will also look at what Natural RGI is and how to calculate it and what other exceptions are there for these rules.

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