A Guide To Total Revenue Management In Hotels

In today’s dynamic hospitality landscape, hotels are increasingly recognising the limitations of focusing solely on room revenue. Consequently, total revenue management in hotels is gaining traction as a holistic approach transcending traditional boundaries, aiming to optimise profitability across all revenue-generating departments within a hotel.

Driven by the availability of advanced data analytics, the growing significance of ancillary revenues and the increased complexity of hotel operations, a diverse range of hotels are adopting total revenue management – a shift fuelled by a compelling need to build greater resilience in a competitive market, enhance profitability and gain a deeper understanding of value.

In this guide, I explain what total revenue management in hotels is, how it differs from revenue management, the benefits of total revenue management, which type of hotels should implement it, five ways to maximise total revenue and how to measure total revenue performance.

What Is Total Revenue Management In Hotels?

Total revenue management in hotels can be defined as a holistic and strategic approach to optimising all revenue streams within a hotel to maximise overall profitability.

For example, imagine an independent hotel with championship level golf course, eco-conscious spa and foraged feast restaurant, located on the periphery of a popular city centre. Traditionally, your revenue management efforts may have focused on setting optimal room rates based on competitor pricing, demand and occupancy forecasts.

However, with a total revenue management approach, you may also consider analysing menu profitability, implementing dynamic pricing for tee times and offering discounted treatments during off-peak hours.

Is Total Revenue Management Different To Revenue Management?

Whilst revenue management and total revenue management both aim to maximise profitability in hotels, the latter represents a significant evolution and expansion of the traditional revenue management approach.

The key difference lies in scope. Revenue management focuses primarily on optimising room revenue through dynamic pricing based on competitor analysis, demand and occupancy and centres around Key Performance Indicators (KPIs) such as Revenue Per Available Room (RevPAR).

In contrast, total revenue management takes a more holistic view of the hotel, considers the interconnectedness of all revenue-generating departments and how they each contribute to overall profitability, whilst also aiming to optimise revenue across all revenue-generating departments, such as food and beverage, golf, spa etc. KPIs such as Total Revenue Per Available Room (TRevPAR) and Gross Operating Profit Per Available Room (GopPAR) are utilised to provide a more comprehensive picture of financial performance.

What Are The Benefits Of Total Revenue Management For Hotels?

Implementing total revenue management in hotels offers a multitude of benefits that extend beyond just optimising room revenues, such as:

1. More Effective Marketing & Packaging Strategies: With a holistic view of revenue generation, hotels can develop more creative and targeted marketing campaigns and packages. They can bundle room stays with dining credits, rounds of golf or spa treatments, appealing to a wider range of guests and increasing the perceived value of their offering, driving higher booking conversion and total spend per guest.

2. Deep Understanding of Guest Value: Total revenue management encourages a deeper understanding of guest spending across the hotel. By tracking how guests interact with different revenue centres, hotels can identify their most valuable customer segments and tailor offerings and pricing strategies to maximise total spend and foster stronger guest loyalty.

3. Enhanced Guest Experience & Satisfaction: By understanding guest preferences and spending habits across all touchpoints, hotels can personalise offers and services more effectively. This leads to more enjoyable and tailored guest experiences, fostering higher guest satisfaction and positive word-of-mouth, driving future revenues.

4. Greater Diversification & Resilience: Relying solely on room revenue can make a hotel vulnerable to occupancy fluctuations. Total revenue management encourages diversification of revenue streams, increasing the hotel’s resilience to changes in demand for specific products/services.

5. Improved Forecasting & Resource Allocation: Analysing data across all departments provides a more accurate and comprehensive view of demand. This enables hotels to forecast demand more effectively, leading to better staffing decisions, optimised inventory management and increasingly efficient resource allocation.

6. Increased Overall Revenue & Profitability: By strategically managing and optimising all available revenue streams, hotels can tap in to previously underutilised revenue opportunities. This comprehensive approach ensures that every aspect of the hotel contributes to the bottom line, leading to higher total revenue and improved profitability.

Which Type Of Hotels Should Implement Total Revenue Management?

Total revenue management in hotels is not limited by type; its principles can be beneficial for a wide range of properties, such as:

1. Boutique & Lifestyle Hotels: While often smaller in size, these hotels typically emphasise unique guest experiences and offer curated amenities such as speciality bars or partnerships with local businesses for activities. Total revenue management helps them strategically price their unique offerings and understand how they contribute to guest experience and revenue, enabling them to maximise profitability from their own distinct value proposition.
   
2. Extended Stay Hotels: These properties often cater to guests staying for long periods who utilise services such as in-room kitchens regularly, but do not require daily housekeeping frequently. Total revenue management can help optimise revenue by considering length of stay in pricing various services, offering package deals for long stays that include amenities or discounts on local services and understanding the total spend of these long-term guests.
   
3. Large, Full-Service Hotels & Resorts: These properties often have numerous revenue-generating departments, including event space, golf course, food and beverage outlets, recreational activities and spa. Total revenue management is particularly crucial here to manage the complexities of such diverse revenue streams, optimise inventory and pricing across all areas and understand the spending patterns of guests utilising multiple facilities.
   
4. Limited-Service Hotels: Even hotels with fewer ancillary services, such as those with a small breakfast area or meeting space can benefit from total revenue management. Optimising pricing for these limited offerings and understanding their impact on booking decisions and guest satisfaction can still contribute to overall revenue performance.
   
5. Mid-Sized Hotels With Ancillary Services: Hotels in this category might have a basic gym, meeting room, restaurant or spa. Implementing total revenue management enables them to move beyond just focusing on room revenue and strategically manage the pricing and promotion of these additional services to capture a larger share of their guest’s wallet and increase overall profitability.

5 Ways To Maximise Total Revenue At Your Hotel

Maximising a hotel’s total revenue requires a holistic and strategic approach that extends beyond simply optimising room rates, in ways such as:

1. Crafting Compelling & Integrated Packages: Instead of selling dining experiences, rooms and spa treatments in isolation, create enticing packages that bundle these together. Such packages increase average spend per booking, encourages guests to experience more of what the hotel offers and drives multiple revenue streams.
   
2. Empowering Cross-Selling & Upselling At Every Touchpoint: Train and incentivise staff across all departments to identify opportunities for successful cross-selling and upselling. The key is to make recommendations relevant to the guest’s preferences and stay, enhancing their experience whilst increasing revenue per guest.
   
3. Implementing A Dynamic Total Revenue Management Pricing Strategy: A total revenue management pricing strategy involves dynamically pricing all revenue streams based on demand, guest segmentation and seasonality. The key is to understand the price elasticity of demand for each revenue centre and adjust pricing strategically to maximise overall yield per available resource and guest.
   
4. Leveraging Data To Enhance Loyalty & Personalise Offers: Implement systems to track guest preferences and spending habits across all departments. This data can then be used to create tailored experiences and personalise offers for returning guests, increasing the likelihood of fostering guest loyalty, higher spending and repeat booking, leading to long-term revenue growth.
   
5. Optimising Ancillary Revenue Streams With Targeted Promotions: Don’t let your non-room revenue centres operate in the background – actively promote them with targeted campaigns! Understanding the profitability of each ancillary product and service allows you to focus your promotional efforts on your most lucrative areas and drive incremental revenues.

How To Measure A Hotel’s Total Revenue Performance

To effectively gauge a hotel’s total revenue performance, a comprehensive approach integrating KPIs, robust technology and consistent performance monitoring is crucial.

For instance, Average Revenue Per Guest (ARPG), measures total revenue generated by a hotel divided by the number of guests staying, whilst GopPAR measures profit generated relative to the number of rooms available. Revenue Per Available Seat Hour (RevPASH) and Revenue Per Available Treatment Hour (RevPATH) can be used to evaluate the efficiency of specific revenue-generating areas such as restaurants and spas, whilst TRevPAR takes in to account all revenue generated by the hotel, relative to the total number of rooms available.

Property Management Systems (PMS) often serve as the central technological hub, capturing data from all revenue centres via integrated Point of Sale (POS) systems for food and beverage, retail and spa, whilst Revenue Management Systems (RMS) are now evolving to analyse data from various revenue streams for optimised forecasting and pricing. Channel Managers provide online booking data from distribution channels and Business Intelligence tools aggregate this information into comprehensive dashboards and reports for actionable insights.

Consistent performance tracking is vital too. Daily monitoring identifies immediate shortfalls or successes, whilst weekly analysis can reveal emerging trends and the impact of promotions. Monthly reviews against budgets offer insight in to financial health whilst quarterly and annual analyses evaluate strategic effectiveness, pinpoint long-term trends and facilitate benchmarking against past performance, the market and competitors.

Are You Ready To Maximise Total Revenue At Your Hotel

At MavREV, we have provided outsourced revenue management expertise to hotels for fifteen years – empowering independent hotels in the UK to reach their true revenue potential at a fraction of the cost associated with employing a revenue manager. Are you looking to maximise total revenue at your hotel? If so, contact Dominic Jackson, CRME to discuss how we can serve as a friendly, proactive addition to your on-property team.