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A Tangible Look at Revenue Management

By Alex Gaggioli, February 4, 2016

Introduction

Every day there are countless tasks hoteliers need to complete to keep their property running smoothly. Revenue management is among one of the most important tasks that needs to be closely monitored. We talked with our resident expert, Cebert, on how small hotels can approach revenue management.

Formerly, he was a revenue manager for a big branded hotel in South Beach, Florida before working at Cloudbeds. He takes his big hotel knowledge and relates it to smaller properties. We’ll go over the most important metrics, forecasting, and tangible solutions to running a more efficient property.

The Important Metrics

Important Metrics for your property's revenue management

You are probably well aware of the key performance indicators for your property. But, we will go over them for good measure. These three metrics will help you create more effective reports that help you run your property more efficiently.

Occupancy

Your occupancy rate is likely the most simple metric you can run. It is the percentage of occupied rooms compared to total rooms for a certain period of time.

Occupancy = Rooms Occupied / Rooms Available

This metric is a no-brainer. You want to know how full your property is because it affects the foundation of your revenue strategy.

Revenue Per Available Room (RevPar)

RevPar is a performance metric which is calculated by multiplying a hotel’s average daily room rate by its occupancy rate. You can also calculate RevPar by dividing a hotel’s total guest room (or beds) revenue by the room (or beds) count and the number of days in the period being measured.

This measurement only utilizes room revenue and excludes other revenue channels such as restaurant, upgrades, etc. This metric can be used to compare performance to other properties, but it differs greatly by property type.

Average Daily Rate (ADR)

ADR measures the average price paid per room and helps you allocate how much money was brought in per room. You calculate ADR by taking the Room Revenue and dividing it by the number of paid rooms occupied.

ADR = Room Revenue / Paid Rooms Occupied

But remember, ADR only takes into account rooms that were sold and does not include vacant rooms.

Other Important Metrics

As a performance measurement, our resident revenue management expert said that you should also look at total revenue and total rooms sold.

How to Act Big When You’re Small

How to act big when you're a small hotel revenue management

As a former big-brand hotel revenue manager, Cebert said the major difference between large-branded hotels and small/medium independent properties, comes down to forecasting. Typically, a small to medium-sized property will look at the current month’s revenues and forecast to make decisions that will affect the entire year. In contrast, large hotels take a look at how the current day and month play into the season, quarter, and year. While small hotels will never have the same resources as large hotels, here are few things they can do.

Take a Long-Term Approach

When you only look at your revenue strategy on a month-by-month basis, your property could be leaving money on the table. Bigger hotels, who generally have a lot more available information, look at revenue and rates by quarters and seasons, rather than by months. When you take a more long-term approach to rates and revenue, you can more accurately respond to current market conditions.

For example, if you’re in a historically busy season and demand is soft, you have an idea what you need to make up in the following months. Or, if next month’s demand is higher than anticipated, you can raise rates to make up for this month’s lost revenues.

If you handle your rates and revenue month-by-month, you are more likely to make knee-jerk reactions. This means you make unnecessary adjustments that could end up costing you more than your current situation.

For example, if your current demand is too soft, your first reaction might be to decrease rates to increase demand. But, have you checked last month’s performance? You may have had a great month and not need to worry about fewer bookings at regular prices. More guests in your property doesn’t always mean more revenue. And that is why your ADR is so important. You can lower your rates and generate more demand, but you have to make sure your revenues and profit are still greater.

Figuring out rates, revenues, and creating a yield management strategy warrants a series of post in and of itself. But, the main point here is that your property should take a look at your rate and revenue targets by quarter or season instead of month-by-month. Every property is different, so there is no definitive forecast structure that makes sense for every property.

Use Market Intelligence

Big branded hotels have the benefit of knowledge. They have the money and power to buy market reports that include information about rates, availability, and projected demand. Market intelligence is most helpful when researching rates, according to our in-house former revenue manager.

While many of the market research reports are expensive, you can also check your local tourism websites and offices for up-to-date information. Tourism offices often publicly release information on demand forecasts, upcoming events, and other information that could be useful while planning out demand that influence rates.

Knowledge is power and you want to prepare yourself as much as possible. Make yourself aware of broad market trends as well as local travel trends to have the most success.

Write Critiques

Large hotels write critiques every month that report on how rates and revenue fared for the month. Our revenue expert knows that this takes a lot of time and suggests you start with the months that missed expectations. Months where you don’t meet your goals are important because it means that you did not accurately read the market. Detailed reports containing how and why you missed your goals can help you avoid mistakes in the future.

Critiques are particularly helpful for the same season next year when market trends mimic each other. Without a critique, you won’t know exactly what happened an entire year earlier.

If you have time, you should also create critiques for good months. If you make a decision and read the market accurately, you will likely want to remember what you did to replicate it in the future.

Reporting

Reporting-for-Revene-Management

Large hotels forecast their rates and revenues with sophisticated reports that take into account all the information we outline above.

Sell Strategy Report

The Sell Strategy Report includes monthly critiques, market research, customer segment performance, including ADR and RevPar. A large property will segment their guests by group in order to see who their most profitable segments are and target them accordingly. This report helps properties analyze how they’re doing on a large scale and respond strategically.

Daily Pickup Report

This report shows the daily rates and ADR for any given day. This report is generally run every single day to keep prices dynamic. It helps the revenue management team analyze which rates are selling or not selling for the given day and how to proceed. If rates are meeting their goals and projections, they know they’re on the right track. But, if there is cause for concern, they can make corrections in real-time.

Cloudbeds’ Solution

As a small or medium sized hotelier, revenue and yield management is likely an overwhelming task. It’s difficult to compete with large hotels and their vast resources. But, there are many things a hotelier can do to mimic the big, resource-rich properties. With a little effort, you too can harness all the information you collect on a daily basis to make better decisions.

As we outlined in our previous post on the six reports your property should run every night, Cloudbeds offers many different tools to keep your property on track.

In combination with the Cloudbeds reporting tools, you can use the new spreadsheet we created to mimic the in-depth reports large hotels create.

Here you’ll be able to create a report that shows ADR, RevPar, and show total revenues based on any time frame you specify.

To download the sheets, simply go to File in the top lefthand corner and scroll down to Download as and choose your document preference type. Boom, enjoy.

We created a tutroial video that you can watch below.

 

Conclusion

We know that running a property is no easy feat. There are countless tasks that need to be done everyday. But, we hope this quick guide on revenue management will help steer your property in the right direction.

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