Demystifying Hotel Revenue Management

Have you recently sent out an RFP, and received limited or no response? Are you finding it more and more difficult to find the right hotel at the right price? Are hotels passing on your business without an explanation? If you answered yes to any of these questions, welcome to the club! Many meeting planners are facing these same challenges. In order to succeed in this hotel seller’s market, planners must first understand the role of revenue management.

Revenue management is not new. Hotels have used it for years. Simply stated, the goal of revenue management is to maximize profits based on projected demand. What is new is how involved hotel revenue managers have become in the sales process, and how influential they are in overall decision-making. More likely than not, it is not the Director of Sales or General Manager that has the final say on whether a hotel signs your business, but the revenue management team that makes the final decision.

Obviously the hotel industry’s record growth and room demand over the last few years have driven the hoteliers’ singular perception of the importance and power of revenue management. Another important influence is the record number of hotel ownership changes to new buyers. More hotel chains are selling off their real estate to focus on the management component of the business. Of the major chains, including Starwood, Marriott and Hilton, each owns fewer than 25% of the properties they manage. Who are the new owners? For the most part they are private equity companies, private hotel companies backed by private equity companies, and real estate investment trusts. Bottom line, these new owners are focused on revenues and not hospitality or creating long-term business relationships.

This revenue/sales model will continue to dominate in the current seller’s market. However, when the market turns, and indeed some recent reports are indicating a softening of the market, the decision-making process should shift back to be inclusive of other factors beyond revenues including customer relationships and the long-term potential of a particular piece of business.

In the meantime, meeting planners can take a few steps to attract the right hotels to bid on their event.  Here are a few:

  • Carefully define the full value of your business by presenting a detailed historical accounting. I cannot stress this enough to my clients. It is important that you show the hotel exactly what revenues your program has generated in the past and what they can expect in the future. Include ancillary spending (restaurants, bars, golf, spa, AV, gift shop, etc.) as well as sleeping room, room rental and F&B revenues.
  • If you have done recent business with other properties under this hotel management company, share details. Remember negotiating strength is all in the numbers.
  • Try to be flexible in patterns, dates, meeting space requirements, meeting space setup, etc.
  • Instead of brand loyalty focus on hotel management-company loyalty.
  • If possible, book a multi-year deal.
  • When doing a site visit involve the hotel’s revenue manager in the process so you know exactly how this property defines an attractive piece of business.

It is challenging to secure a favorable deal in today’s market. However, if we study the process and do our homework, we should be able to find the right property at the right price. If you are interesting in discussing this further, please leave a comment or contact us today.

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