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4 New Year's Resolutions for Every Revenue Manager

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March 26, 2018
Revenue Management
Neal Fegan - neal.fegan@totalrevenueuplift.com

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If you are like most revenue management directors, you have just received your RevPAR index goal for 2018. It represents 2 percent to 4 percent growth to last year and your incentive plan is largely based upon achieving it. To be successful in 2018, take that growth goal and double it, and develop a strategy to achieve it.
I know what you’re thinking. You just got your budget and sales and marketing plans approved. You put all that work into them and your RevPAR index goals are based upon the plans you have set out to achieve through detailed strategies that you have presented to corporate and got approved. The goals are already a stretch because 2018 is going to be tough!
Here’s the reality. The budget process is a choreographed dance between the corporate office and the hotel management. The hotel develops a plan that it believes is the minimum that will be accepted by corporate because their bonuses are based on it and they want to achieve their goals to get that bonus. In other cases, corporate starts by providing a growth figure and the DRM spends hours plugging daily forecasted room nights and average daily rates (ADR) by market segment into a predefined year-end goal, painstakingly toggling between worksheets to see if the numbers match that goal. Furthermore, corporate is often incented on hotels achieving their goals as well, so they are pushing hotel management to achieve better results by increasing budgets, but not by too much. They, too, want the goals to be achieved so they receive their bonuses.
Additionally, that well thought out plan you had for 2018 was started back in August of last year. Sure, it has been tweaked a few dozen times as it has gone through a slew of approvals, but the base of the plan is now 6 months old. Is that really the best basis for successful strategies in 2018?
About that last thought you had … 2018 is going to be tough. But it will be just as tough on your competition as it is on you. It’s not like those two fewer citywides are only impacting you and not the hotels down the street. Don’t buy into the propaganda that you were peddling to the corporate office to keep your goals as low as possible.
Also, your competition has the same RevPAR index goals that you do. I don’t mean exactly the same, but everyone has just gone through the same process that you did and ended up at some number close to what you have. Do the math. It’s impossible for all of you to achieve those goals, because that is how RevPAR index works. Your market share is a portion of a pie. Not everyone can end up with a bigger piece than they had of last year’s pie because there is still only one pie to go around. When one hotel gains at least one other loses.
All the hard work you put into your budget and sales and marketing plan is a sunk cost. I’m not saying it wasn’t hard work. It was. However, the completion of the process doesn’t usually get you to a goal that will optimize your revenue potential. There's so much office politics and incentives involved in that process to minimize the amount of growth in your goals.
Here’s the deal: These mediocre market share growth goals leave you and your competition risk averse. Your RevPAR index goal is likely within the yearly standard deviation of growth in your market. As long as you don’t mess around with things too much, there’s a good chance you will hit the number. You end up trying to get a bigger slice of the pie by making minute adjustments. You are happy with slight improvements and pat yourself on the back when days look good, and you explain away the days that look bad. If your results fall a little short of your goal for this year, you’ll likely make up that loss next year and hit your bonus then.
Many misconstrue this to minimize risk. Understand the risk of the decision you are making, and get your revenue team to buy into the decision and go for it. Take these four steps to get started on your transition from risk aversion to risk management.
1. Quantify the Risk in your Decision Against the Potential Revenue Gain Revenue management faces risk in almost all the decisions we make. Increase a rate, and guests may flock to your competition for better deals. Take a low-rated piece of business and it could displace higher-rated business that is yet to come. Close out discount rates far in advance and you may end up going down with dozens of empty rooms because you over forecasted demand. 
Whatever the case, predict the amount of revenue risk involved in the decision and weigh it against the potential revenue gain. Discuss this risk vs. reward result with your revenue team so everyone is on the same page. By quantifying the risk of the decisions, you can help offset the fear of making them and move forward to large market share gains. Remember, you can mitigate the amount of risk by making trial decisions in a smaller, more controlled scenario before you revamp an entire strategic direction. For example, if you believe wholesalers are undercutting your retail prices to steal customers you would get on your own and that they are not providing incremental revenue growth for your property. Institute stop sells on a few weekends and see if you notice a significant decrease in demand or if the demand is just shifting into other more profitable market segments. Always establish objective success metrics before you test. Gain consensus on them with your revenue team, so everyone knows the trigger to move forward. 
2. Realize that a RevPAR Index of 100 is Not Your Fair Share Achieving a RevPAR index of 100 does not mean that you have your fair share of the market. An index of 100 means you have achieved the average RevPAR index of your competitive set. That’s it and nothing else. If you or members of your revenue team are still using this vernacular, get it out of your vocabulary. Think about it, if you have five hotels in your comp set ranging in ranking on TripAdvisor from No. 5 to No. 82 and you are ranked No. 8, 100 is not your fair share of the market. If you want to keep using the term, set a RevPAR index goal based on your own market position. Make that your “fair share,” or better yet, drop it all together. Otherwise it is holding you back from achieving your potential.
3. Cancel your Daily STAR subscription Market share is a long-term game. You aren’t in it to win every day. In fact, many times your strategy is to lose on some days to win out on others. You can analyze what happened on a given day, but don’t count your wins and losses in anything less than weeklong chunks. For example, you kept your rates lower on Tuesday and Wednesday, pushing minimum length of stays to bump occupancies on Monday and Thursday. The result is that you lost market share on Tuesday and Wednesday, but you did this on purpose. When you look at the week as a whole, you gained market share significantly because the gains on the shoulder nights more than offset the losses on the peaks. Don’t get hung up in the minutia of daily gains and losses, and don’t waste your time analyzing it every day.
4. Take your Mediocre Yearly RPI Growth Goal and Double It This brings me back to my initial point – to be successful in 2018, be aggressive. Being content with a 2 percent weekly market share gain because it is in line with your yearly goal is not a recipe for revenue management success. You could probably achieve this without even showing up. Hotels on revenue management auto-pilot will often achieve small gains on a regular basis. By doubling your goal, you are pushing yourself outside of normal patterns (or normal ebbs and flows of business in your comp set) and forcing yourself to think about the changes you need to implement to achieve that goal. Attaining a more aggressive goal will lead you to take some more chances. You’ll take business you’d normally pass on, you’ll charge higher (or maybe lower) rates than normal, and maybe you’ll plan events or promotions that have never been attempted before. You will miss the mark sometimes, but if you do it correctly, you will blow away your competition, because they will be playing it safe, content to sit back and shoot for their standard yearly market share growth goal.
Be aggressive and end 2018 as the revenue management hero for your organization.

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