Revenue Management Roles Are Evolving

Hotel revenue management is stuck in a rut. Over the past few years we have played with notions such as gross operating profit per available room and total revenue management. We’ve even seen a few system upgrades, and we’ve made a concerted effort to adapt to market changes. But on a broad scale, our methods remain the same.

So where are future groundbreaking changes in profits going to come from? Will it be in learning to better optimize the 500 square feet of meeting space in our secondary market limited-service products? Or perhaps will it come in identifying the incremental spend ratio of our top 100 pantry shoppers?

While we will certainly continue to improve our micro-methods, I believe that the next move in hospitality revenue management will not be the implementation of a new metric. The next shift is coming in the form of an industry-wide organizational restructuring with sales, marketing and operations all falling under the umbrella of a single overarching revenue strategy.

Evolving RM

Robert Cross, in his 1997 work “Revenue Management: Hard Core Tactics for Market Domination,” introduced revenue management to readers by justifying the importance of top line growth. He told us the business world was changing. No longer are investors passively standing by to see if their gamble pays off, silently voting with their feet as they drop one stock in exchange for the next. Shareholders are now actively inquiring about the business methods in place in order to ensure one thing: growth.

You’ve heard you’re only as good as your last move. This couldn’t be truer in today’s market. With that in mind, it is easy to conclude that managing expenses off the bottom line is little more than a temporary fix to expansion. Cutting operations expenses can streamline a business and make it more efficient, but there is only so much that can be taken from the structural components of a company before internal collapse becomes inevitable. Thus, if growth truly is the precedent for making or breaking a business, then the top line is the only sustainable place to which a company can look. Hence, Cross uses this logic to establish the importance of revenue management in modern business models.

Skip ahead 15 years and here we are. We had reservations agents, then yield managers and now directors of revenue. In corporate structures, it is more than common to see a VP of sales & marketing, operations and, of course, revenue management.

Revenue management will play a crucial role in the future hotel world. Revenue management is special because it holds the keys to surviving the famine of strenuous market conditions if only corporate organization will restructure around its premises. If, however, the use of revenue analytics remains siloed to mere inventory yielding and price setting, then only those segments can be the benefactors.

Getting it right

J.P. Morgan became known for acquiring and merging the top players in a given industry in order to create a single well-oiled machine. This method of efficiency yielded a product that competitors could not compete with in quality or price, often causing them to go out of business completely. While ruthless, Morgan’s model made him the monopoly icon he is today, and out of such methods came the business term “Morganization,” which is the practice of taking over troubled businesses and restructuring them into streamlined profitable entities.

Like General Electric or Carnegie Steel, the hotel industry is in need of structural “Morganization” that streamlines the many departments under the guidance of an all-encompassing revenue strategy. Those companies that embrace this mindset will become the benefactors of the groundbreaking profits once seen in the conceptual years of revenue management.

As it relates to sales divisions, the benefits of reporting to revenue management are extensive. After all, revenue management is about “selling the right thing to the right client at the right moment at the right price.” Where better to solicit direction than from the entity that exists to find out what the right thing/client/moment/price is? The reality is that those in revenue management should be the most effective sales people of all. While collaboration between the departments is the new normal, there still remains a consistent pattern of revenue managers who report to executive sales leadership.

Revenue management will eventually supersede sales in organizational structure, or sales leaders will embrace a revenue-grounded hybrid approach in order to appropriately collaborate with revenue teams. In this restructuring, we will once and for all answer the problem of the renegade group and preferred corporate segments. These entities will flow seamlessly beside the transient model from group bidding to the very approach behind request-for-proposal season, all under the guidance of sound revenue analytics.

Sales incentives will also face a revamp away from the status quo of a general monthly room night, average daily rate and revenue quota as the system is counterintuitive to sound revenue strategy offering the same bonus potential to those who make their numbers by selling peak Tuesday and Wednesday nights as opposed to supporting low-demand and shoulder periods. How many times has a piece of group business come across your desk that you don’t need? In steering the focus away from this before half of the work is done, we will be creating far more efficiency in our sales efforts.

For years I have looked at my budgets and thought I would rather have half the group base as long the rest of the roomnights fall over need periods. Unfortunately, our sales structure often supports order taking over salesmanship because we struggle to qualify our clientele, but a department guided by revenue analytics would bring ample opportunity to sell with purposeful direction. You may be asking if we would see less total revenue from such efforts if they were primarily incentivized to fill need dates. The answer is a simple yes, but we would see twice as much incremental business because transient demand would more than make up for group deficiencies over peak periods.

The transition within hotel marketing follows similar logic. As technology progresses, the advertisement itself and the purchase point are becoming almost seamless. This means revenue involvement in marketing efforts is imperative. Because revenue analytics answers the “right place and right time” question needed to target optimal business, it is imperative that marketing responds if they are to effectively support the overarching revenue strategy. This streamlined approach will help prevent the creation of marketing plans that might otherwise be based on gut intuitions untied to return-on-investment obligations.

In companies where resources do not allow for separate revenue and marketing professionals at multiple levels, get ready to see the “M” in “DORM” change from “Manager” to “Marketing.” Where there is room for separate marketing departments, whether on property or within corporate structure, the positions will function in a reciprocated data-driven environment. The revenue department provides the “when and where goals” for the marketing department to respond with the “what and how solutions.”

Finally, let’s address the “sacred cow” of all departments, operations. These folks run the show; they become the vice presidents of operationss, COOs and eventually the CEOs of the hotel world. Many times, all departments report to the operating hand, whether to a GM on property or to a higher-ranking operations executive at the corporate offices, but I predict a change is in the wind. As technology advances push sales and marketing to function from data-driven groundwork, the most effective leaders will also have to bring direction from the same mindset. They will have to be number crunchers.

The future of a company is in its ability to grow. We have established that growth comes from the top line and there is no doubt that revenue management is the natural owner of the top line. This means that operations will naturally evolve away from the over-arching role of “team lead” and will begin to focus more exclusively on the physical operation itself as a by-product of revenue’s progression into the leadership role. In this, we will allow those who are making the top line decisions to speak directly to ownership and investors rather than packaging sound bites for others to communicate. Far from a hostile takeover, this evolution is a consequence of changing markets, new business practices and heightened competition.

Looking to the future

While the evolution of revenue management will present many opportunities to today’s revenue leaders, it will also bring many challenges.

The new brand of revenue management calls equally for a new breed of revenue leaders. Thus, anyone who is interested in such a role will have to progress far beyond the stereotypical number-crunching skill set often bequeathed to the RM role.

One of the reasons that sales and operating departments so consistently produce top-tier leaders is because these individuals often possess the people skills and leadership experience required to engage an entire company. The need for such attributes is not going away.

So here’s what it comes down to: There is a restructuring coming to the hotel world that naturally evolves the practice of revenue analytics to the very top. This new function will cause efficiency and unprecedented growth for the companies that embrace it. These will be the companies of the future.