REVENUE MANAGEMENT 2013UNLEASHING TRAPPED PROFITABILITY
Revenue ManagementPrinciples• Necessary Conditions• Price and Duration - The Twolevers of Revenue ManagementPractice• What...
PRINCIPLESSix Conditions necessary for Revenue Management
Necessary conditionsRelatively fixed capacity
Necessary conditionsAppropriate price structure - High fixed costs – low variable costs
Necessary conditionsPerishable inventory
Necessary conditionsConvenience factorA price sensitive customer willing to pay for added convenience
Necessary conditionsSegment-able marketswith predictable patternsof demand
Necessary conditionsTime variable demandTime of year / dayLength of stay
Defining Revenue ManagementRevenue Management is the business practice that enables a company to‘sell the right product, t...
PRINCIPLESThe Strategic Levers of Revenue Management
Price and Duration• Successful RevenueManagement is predicatedon effective control ofcustomer demand.• There are two inter...
Fixed VariablePricePredictableUnpredictableDurationCinemaConventioncentresArenasHotelCarRental AirlineCruiseLinesRestauran...
Fixed VariablePricePredictableUnpredictableDurationCinemaConventioncentresArenasHotelCarRentalAirlineCruiseLinesRestaurant...
WHAT IS IT THAT I CAN’T SEE?Revenue Practices
Sometimes its easierto do what youalways did…• 2013 – a year to search harder forrevenue optimisation opportunities• Measu...
Where to Start?• Understanding yourcost base• Having a clear andsimple pricing policy• Clarity on ROI frommarketing activi...
Price/CostsSalesFixed CostsVariable CostsTotal CostsRevenueBreak EvenPointUnderstanding the cost of Operation - Break Even...
RevenuesTimeFixed CostsVariable CostsTotal CostsRevenueBreak EvenPointBreak Even Point for Food and Beverage-50500150100
Measuring the Revenue Contribution of each room/unitRevPAR - This measures the revenue generated per available room and ta...
TrevPAR and GOPPARGOPPAR(Total departmental operatingprofit - all undistributed operatingexpenses )Why TrevPAR and GOPPAR ...
WHY REVPAR ISN’T WORKING
Source:Provincial – Average Room Rate and Commissions paidJune 2003 – March 2012
Provincial Net Average Room Rate – less variablecosts£62£64£66£68£70£72£74Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10...
Provincial F&B Payroll & Profit ConversionSource:
Provincial – RevPAR & GOPPAR (2002 to 2011)Source:
PROFITABILITY THROUGH PRICINGThe impact of distribution models and progressive pricing policies
Estimate Costs• Variable Costs– Amenities– Staff costs– Utilities– F&B• Fixed Costs– Building andfacilities– Payroll
Assess External InfluencesEvents having both aPositive and NegativeimpactThe competitionDemand SeasonsGeneral economicsitu...
Keep the consumer in mindCreating an easy to understandrate strategy with• Clearly defined BAR levels• Clear differentials...
Progressive vs. Regressive Pricing strategiesDay ofArrivalTIMEPRICEProgressive Price StrategyRegressive Price Strategy
Customer centric booking models work against regressive pricingstrategiesTingo refunds customers the difference in the rat...
Flash sale Merchant OTA GDS Own web siteCommission 30-50% 20% 10% 0Discount 50% 25% 0 0 0Reservations Fees 0 0 0 15 5Net A...
Optimising channel ROI• Understand net contribution• Evaluate pressure on profit margin• Understand incremental purchasing...
IN THE RESTAURANTEvaluating profit opportunity through strategic pricing andmenu engineering
Menu Engineering and Differential Pricing• Review menus and contribution margins regularly to ensure that the optimalprofi...
10 Steps to effective Menu MarketingSteps to increase GOP• Item Placement– First two and last in section• Boxing– 1 out of...
ON THE WEB SITEOptimising revenues through increased conversion
Goal setting and Conversions• Set up goals in Analytics• Review drop off at each stage of the booking or goal process• Ide...
Industry standard conversion levels• From visitor to the site to a bookinginitiated : 45%• From a booking initiated to aco...
Reward at each stage
…and here’s how one hotel is adopting the same reward and reassurance process
Reinvest incremental revenues gained• PPC campaigns reach the customer closer to the purchase point of thebooking process ...
Other web tips• Add up the conversion stages – limit the number and the distractions• Divide content clearly into site con...
IN REVIEW MANAGEMENTOptimising revenues through review management
47Quantifying the impact of ORM onrevenue“A 1-point increase in areview score equates to a9% increase in averagedaily rate...
Key performance Indicators• Traditional• Market Penetration index ( MPI) = Occupancy index• Average Rate Index (ARI)• Reve...
Summary• Create measurements and goals that really evaluate thebusiness• Assess profit centre contributions and track in c...
WHAT GETS MEASURED GETS MANAGEDPETER DRUCKER
Thank youAlly DombeyDirector• Follow us: @revenuebydesign• Blog: drivingrevenues.com• Training: revenueacademy.co.uk – lau...
Tools and measurements to unleash trapped profitability in Hotel Revenue Management
of 51

Tools and measurements to unleash trapped profitability in Hotel Revenue Management

This presentation looks at some additional ways that hotels can explore un-tapping profitability and looks at why GOPPAR and TrevPAR are better measurements of performance than RevPAR alone. It also includes some key performance benchmarks for food and beverage and also introduces the concept of Quality Performance benchmarks as being tested by companies such as sol Melia in association with ReviewPro
Published on: Mar 4, 2016
Published in: Travel      Business      Technology      
Source: www.slideshare.net


Transcripts - Tools and measurements to unleash trapped profitability in Hotel Revenue Management

  • 1. REVENUE MANAGEMENT 2013UNLEASHING TRAPPED PROFITABILITY
  • 2. Revenue ManagementPrinciples• Necessary Conditions• Price and Duration - The Twolevers of Revenue ManagementPractice• What’s to be done when you’vedone all you can?• Tips for the second half of 2013
  • 3. PRINCIPLESSix Conditions necessary for Revenue Management
  • 4. Necessary conditionsRelatively fixed capacity
  • 5. Necessary conditionsAppropriate price structure - High fixed costs – low variable costs
  • 6. Necessary conditionsPerishable inventory
  • 7. Necessary conditionsConvenience factorA price sensitive customer willing to pay for added convenience
  • 8. Necessary conditionsSegment-able marketswith predictable patternsof demand
  • 9. Necessary conditionsTime variable demandTime of year / dayLength of stay
  • 10. Defining Revenue ManagementRevenue Management is the business practice that enables a company to‘sell the right product, to the right customer, at the right time, for the rightprice’ with the objective of optimising product price and availability in orderto reach the maximum profit.Robert Cross
  • 11. PRINCIPLESThe Strategic Levers of Revenue Management
  • 12. Price and Duration• Successful RevenueManagement is predicatedon effective control ofcustomer demand.• There are two interrelatedlevers that we can use tocontrol customer demand:Demand Based Pricing&Duration Management
  • 13. Fixed VariablePricePredictableUnpredictableDurationCinemaConventioncentresArenasHotelCarRental AirlineCruiseLinesRestaurantGolfCourseHospitalsCareHomesAttractionsQuadrant 1Quadrant 3Quadrant 2Quadrant 4
  • 14. Fixed VariablePricePredictableUnpredictableDurationCinemaConventioncentresArenasHotelCarRentalAirlineCruiseLinesRestaurantGolfCourseHospitalsCareHomesAttractionsQuadrant 1Quadrant 3Quadrant 2Quadrant 4
  • 15. WHAT IS IT THAT I CAN’T SEE?Revenue Practices
  • 16. Sometimes its easierto do what youalways did…• 2013 – a year to search harder forrevenue optimisation opportunities• Measuring performance and goalsetting is key to understanding wherethe business is going and uncoveringprofit opportunity
  • 17. Where to Start?• Understanding yourcost base• Having a clear andsimple pricing policy• Clarity on ROI frommarketing activities• A clear understandingof when to leverageprofit opportunities• Identifying optimalpoints of profitopportunityMarketing FinanceRevenuemanagement
  • 18. Price/CostsSalesFixed CostsVariable CostsTotal CostsRevenueBreak EvenPointUnderstanding the cost of Operation - Break Even Point500150100200
  • 19. RevenuesTimeFixed CostsVariable CostsTotal CostsRevenueBreak EvenPointBreak Even Point for Food and Beverage-50500150100
  • 20. Measuring the Revenue Contribution of each room/unitRevPAR - This measures the revenue generated per available room and takesinto consideration both occupancy and rateTotal Rooms RevenueTotal Available RoomsRevPAR320,000 in July = £86.02120 rooms x 31 days in July
  • 21. TrevPAR and GOPPARGOPPAR(Total departmental operatingprofit - all undistributed operatingexpenses )Why TrevPAR and GOPPAR ?TrevPAR = Sum total of net revenues from all the operated departments plus roomrevenues and other income per available room – considers all revenues from alldepartmentsGOPPAR = Gross Operating Profit per Available Room represents the total departmentaloperating profit less all undistributed operating expenses - a good indicator of overalloperational performance - considers costs as well as revenuesTrevPAR(Room revenues +otherDepartmental + MOD income)Total Available Rooms Total Available Rooms
  • 22. WHY REVPAR ISN’T WORKING
  • 23. Source:Provincial – Average Room Rate and Commissions paidJune 2003 – March 2012
  • 24. Provincial Net Average Room Rate – less variablecosts£62£64£66£68£70£72£74Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12May-12Jun-12Jul-12ARR-MATProvincial Net ARR Provincial ARR£3.49£4.65+33.2%Source:
  • 25. Provincial F&B Payroll & Profit ConversionSource:
  • 26. Provincial – RevPAR & GOPPAR (2002 to 2011)Source:
  • 27. PROFITABILITY THROUGH PRICINGThe impact of distribution models and progressive pricing policies
  • 28. Estimate Costs• Variable Costs– Amenities– Staff costs– Utilities– F&B• Fixed Costs– Building andfacilities– Payroll
  • 29. Assess External InfluencesEvents having both aPositive and NegativeimpactThe competitionDemand SeasonsGeneral economicsituation
  • 30. Keep the consumer in mindCreating an easy to understandrate strategy with• Clearly defined BAR levels• Clear differentials betweenroom types• A selling strategy thatencourages guests to bookdirectly• An understanding that thehighest rate is not always theone that has the highestchance of selling
  • 31. Progressive vs. Regressive Pricing strategiesDay ofArrivalTIMEPRICEProgressive Price StrategyRegressive Price Strategy
  • 32. Customer centric booking models work against regressive pricingstrategiesTingo refunds customers the difference in the rate between the bookingdate and day of arrival (within the cancel period)
  • 33. Flash sale Merchant OTA GDS Own web siteCommission 30-50% 20% 10% 0Discount 50% 25% 0 0 0Reservations Fees 0 0 0 15 5Net ADR 60 90 96 105 115LOS 1 1.7 1.7 2.1 2.3Revenue perbooking 30 153 163 221 265Variable Costs* 25 43 43 53 58GOP 5 110 120 168 207ROI per Channel* Allowing for LOSRate = £120
  • 34. Optimising channel ROI• Understand net contribution• Evaluate pressure on profit margin• Understand incremental purchasingbehaviour• Ensure accurate customersegmentation to avoid cannibalizingexisting customer base.• Off-set against awareness createdand new contacts made• Evaluate impact on customer reviewswhich can often be misleading due toattracting guest whose expectationsdiffer from the norm
  • 35. IN THE RESTAURANTEvaluating profit opportunity through strategic pricing andmenu engineering
  • 36. Menu Engineering and Differential Pricing• Review menus and contribution margins regularly to ensure that the optimalprofits are being extracted.• Experiment with differential pricing in different demand periods• Evaluate your Challenges and Workhorses and re-engineer them to make themeither more popular (Challenge) or more profitable (Workhorse)CHALLENGE
  • 37. 10 Steps to effective Menu MarketingSteps to increase GOP• Item Placement– First two and last in section• Boxing– 1 out of every 8-10 items– Limit to 10-15% of menu space• Page Panels– 3 page panel, focus on centre– 2 page Panel, top right hand side• Pricing Font and Presentation– Keep the font slightly smaller No £• Keep fonts large enough to readSteps to increase GOP• Symbols and Icons– Can increase sales by as much as15%• Keep descriptions short– Only 1/3 is actually read• Showcase Food Types– Prime Angus beef• Clean Menus– Dirty menu, dirty kitchen• Menu Insert– Highlight specials uniquely
  • 38. ON THE WEB SITEOptimising revenues through increased conversion
  • 39. Goal setting and Conversions• Set up goals in Analytics• Review drop off at each stage of the booking or goal process• Identify the value of each visitor at each stage and evaluate what to invest tooptimise the process
  • 40. Industry standard conversion levels• From visitor to the site to a bookinginitiated : 45%• From a booking initiated to acompleted reservation: 5%• From visitor to the site to acompleted reservation: 2%
  • 41. Reward at each stage
  • 42. …and here’s how one hotel is adopting the same reward and reassurance process
  • 43. Reinvest incremental revenues gained• PPC campaigns reach the customer closer to the purchase point of thebooking process than natural search referrals• In a direct booking strategy, reinvesting a proportion of what would havebeen paid in commissions is a reasonable strategy• Use in conjunction with in-page analytics to optimise the userexperience£50000Revenue500bookingsCost£2500Commission£10000Net Gain£7500
  • 44. Other web tips• Add up the conversion stages – limit the number and the distractions• Divide content clearly into site content and booking engine content• Speed up the booking process,• Limit the rates, offers, special request and details• Make it easy for customers to get the information they need• Strip out redundant functionality
  • 45. IN REVIEW MANAGEMENTOptimising revenues through review management
  • 46. 47Quantifying the impact of ORM onrevenue“A 1-point increase in areview score equates to a9% increase in averagedaily rate.Expedia“Guests are willing to pay 38%more for hotels whose onlinereviews indicate top-levelservicecomScore
  • 47. Key performance Indicators• Traditional• Market Penetration index ( MPI) = Occupancy index• Average Rate Index (ARI)• Revenue Generated Index (RGI) = RevPAR Index• New• Quality Penetration IndexGlobal Review Index™ _My HotelAverage Global Review Index™ – Competitor SetTM- Review Pro
  • 48. Summary• Create measurements and goals that really evaluate thebusiness• Assess profit centre contributions and track in conjunctionwith room revenues• Forecast demand to support more confident pricingdecisions• Attribute revenues to marketing activities to support re-investment in activities that drive direct revenues• Integrate the spectrum of PoB marketing opportunitiesavailable to create a total Revenue Management programme
  • 49. WHAT GETS MEASURED GETS MANAGEDPETER DRUCKER
  • 50. Thank youAlly DombeyDirector• Follow us: @revenuebydesign• Blog: drivingrevenues.com• Training: revenueacademy.co.uk – launch in July• Email: ally@revenuebydesign.co.uk• Web: www.revenuebydesign.co.uk

Related Documents