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

1. REVENUE MANAGEMENT 2013
UNLEASHING TRAPPED PROFITABILITY

2. Revenue Management
Principles
• Necessary Conditions
• Price and Duration - The Two
levers of Revenue Management
Practice
• What’s to be done when you’ve
done all you can?
• Tips for the second half of 2013

3. PRINCIPLES
Six Conditions necessary for Revenue Management

4. Necessary conditions
Relatively fixed capacity

5. Necessary conditions
Appropriate price structure - High fixed costs – low variable costs

6. Necessary conditions
Perishable inventory

7. Necessary conditions
Convenience factor
A price sensitive customer willing to pay for added convenience

8. Necessary conditions
Segment-able markets
with predictable patterns
of demand

9. Necessary conditions
Time variable demand
Time of year / day
Length of stay

10. Defining Revenue Management
Revenue Management is the business practice that enables a company to
‘sell the right product, to the right customer, at the right time, for the right
price’ with the objective of optimising product price and availability in order
to reach the maximum profit.
Robert Cross

11. PRINCIPLES
The Strategic Levers of Revenue Management

12. Price and Duration
• Successful Revenue
Management is predicated
on effective control of
customer demand.
• There are two interrelated
levers that we can use to
control customer demand:
Demand Based Pricing
&
Duration Management

13. Fixed Variable
Price
PredictableUnpredictable
Duration
Cinema
Convention
centres
Arenas
Hotel
Car
Rental Airline
Cruise
Lines
Restaurant
Golf
Course
Hospitals
Care
Homes
Attractions
Quadrant 1
Quadrant 3
Quadrant 2
Quadrant 4

14. Fixed Variable
Price
PredictableUnpredictable
Duration
CinemaConvention
centres
Arenas
Hotel
Car
Rental
Airline
Cruise
Lines
Restaurant
Golf
Course
Hospitals
Care
Homes
Attractions
Quadrant 1
Quadrant 3
Quadrant 2
Quadrant 4

15. WHAT IS IT THAT I CAN’T SEE?
Revenue Practices

16. Sometimes its easier
to do what you
always did…
• 2013 – a year to search harder for
revenue optimisation opportunities
• Measuring performance and goal
setting is key to understanding where
the business is going and uncovering
profit opportunity

17. Where to Start?
• Understanding your
cost base
• Having a clear and
simple pricing policy
• Clarity on ROI from
marketing activities
• A clear understanding
of when to leverage
profit opportunities
• Identifying optimal
points of profit
opportunity
Marketing Finance
Revenue
management

18. Price/Costs
Sales
Fixed Costs
Variable Costs
Total Costs
Revenue
Break Even
Point
Understanding the cost of Operation - Break Even Point
50
0
150
100
200

19. Revenues
Time
Fixed Costs
Variable Costs
Total Costs
Revenue
Break Even
Point
Break Even Point for Food and Beverage
-50
50
0
150
100

20. Measuring the Revenue Contribution of each room/unit
RevPAR - This measures the revenue generated per available room and takes
into consideration both occupancy and rate
Total Rooms Revenue
Total Available Rooms
RevPAR
320,000 in July = £86.02
120 rooms x 31 days in July

21. TrevPAR and GOPPAR
GOPPAR
(Total departmental operating
profit - all undistributed operating
expenses )
Why TrevPAR and GOPPAR ?
TrevPAR = Sum total of net revenues from all the operated departments plus room
revenues and other income per available room – considers all revenues from all
departments
GOPPAR = Gross Operating Profit per Available Room represents the total departmental
operating profit less all undistributed operating expenses - a good indicator of overall
operational performance - considers costs as well as revenues
TrevPAR
(Room revenues +other
Departmental + MOD income)
Total Available Rooms Total Available Rooms

22. WHY REVPAR ISN’T WORKING

23. Source
:
Provincial – Average Room Rate and Commissions paid
June 2003 – March 2012

24. Provincial Net Average Room Rate – less variable
costs
£62
£64
£66
£68
£70
£72
£74
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
ARR-MAT
Provincial Net ARR Provincial ARR
£3.49
£4.65
+33.2%
Source
:

25. Provincial F&B Payroll & Profit Conversion
Source
:

26. Provincial – RevPAR & GOPPAR (2002 to 2011)
Source
:

27. PROFITABILITY THROUGH PRICING
The impact of distribution models and progressive pricing policies

28. Estimate Costs
• Variable Costs
– Amenities
– Staff costs
– Utilities
– F&B
• Fixed Costs
– Building and
facilities
– Payroll

29. Assess External Influences
Events having both a
Positive and Negative
impact
The competition
Demand Seasons
General economic
situation

30. Keep the consumer in mind
Creating an easy to understand
rate strategy with
• Clearly defined BAR levels
• Clear differentials between
room types
• A selling strategy that
encourages guests to book
directly
• An understanding that the
highest rate is not always the
one that has the highest
chance of selling

31. Progressive vs. Regressive Pricing strategies
Day of
Arrival
TIME
PRICE
Progressive Price Strategy
Regressive Price Strategy

32. Customer centric booking models work against regressive pricing
strategies
Tingo refunds customers the difference in the rate between the booking
date and day of arrival (within the cancel period)

33. Flash sale Merchant OTA GDS Own web site
Commission 30-50% 20% 10% 0
Discount 50% 25% 0 0 0
Reservations Fees 0 0 0 15 5
Net ADR 60 90 96 105 115
LOS 1 1.7 1.7 2.1 2.3
Revenue per
booking 30 153 163 221 265
Variable Costs* 25 43 43 53 58
GOP 5 110 120 168 207
ROI per Channel
* Allowing for LOS
Rate = £120

34. Optimising channel ROI
• Understand net contribution
• Evaluate pressure on profit margin
• Understand incremental purchasing
behaviour
• Ensure accurate customer
segmentation to avoid cannibalizing
existing customer base.
• Off-set against awareness created
and new contacts made
• Evaluate impact on customer reviews
which can often be misleading due to
attracting guest whose expectations
differ from the norm

35. IN THE RESTAURANT
Evaluating profit opportunity through strategic pricing and
menu engineering

36. Menu Engineering and Differential Pricing
• Review menus and contribution margins regularly to ensure that the optimal
profits are being extracted.
• Experiment with differential pricing in different demand periods
• Evaluate your Challenges and Workhorses and re-engineer them to make them
either more popular (Challenge) or more profitable (Workhorse)
CHALLENGE

37. 10 Steps to effective Menu Marketing
Steps 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 read
Steps to increase GOP
• Symbols and Icons
– Can increase sales by as much as
15%
• 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 SITE
Optimising 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 to
optimise the process

40. Industry standard conversion levels
• From visitor to the site to a booking
initiated : 45%
• From a booking initiated to a
completed reservation: 5%
• From visitor to the site to a
completed reservation: 2%

41. Reward at each stage

43. …and here’s how one hotel is adopting the same reward and reassurance process

44. Reinvest incremental revenues gained
• PPC campaigns reach the customer closer to the purchase point of the
booking process than natural search referrals
• In a direct booking strategy, reinvesting a proportion of what would have
been paid in commissions is a reasonable strategy
• Use in conjunction with in-page analytics to optimise the user
experience
£50000
Revenue
500
bookings
Cost
£2500
Commission
£10000
Net Gain
£7500

45. 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

46. IN REVIEW MANAGEMENT
Optimising revenues through review management

47. 47
Quantifying the impact of ORM on
revenue
“
A 1-point increase in a
review score equates to a
9% increase in average
daily rate.
Expedia
“
Guests are willing to pay 38%
more for hotels whose online
reviews indicate top-level
service
comScore

48. Key performance Indicators
• Traditional
• Market Penetration index ( MPI) = Occupancy index
• Average Rate Index (ARI)
• Revenue Generated Index (RGI) = RevPAR Index
• New
• Quality Penetration Index
Global Review Index™ _My Hotel
Average Global Review Index™ – Competitor Set
TM- Review Pro

49. Summary
• Create measurements and goals that really evaluate the
business
• Assess profit centre contributions and track in conjunction
with room revenues
• Forecast demand to support more confident pricing
decisions
• Attribute revenues to marketing activities to support re-
investment in activities that drive direct revenues
• Integrate the spectrum of PoB marketing opportunities
available to create a total Revenue Management programme

50. WHAT GETS MEASURED GETS MANAGED
PETER DRUCKER

51. Thank you
Ally Dombey
Director
• Follow us: @revenuebydesign
• Blog: drivingrevenues.com
• Training: revenueacademy.co.uk – launch in July
• Email: ally@revenuebydesign.co.uk
• Web: www.revenuebydesign.co.uk