Planning ahead in a recovering travel market is no easy feat. Budgeting presents the challenge of trying to make an educated decision today on what you’ll need to spend in the future to attract and meet guest demand. 

While budget investments for hotels have traditionally been focused on maintaining a property’s physical appearance to enhance guest satisfaction, a hotel’s operational technology stack is just as critical in attracting the right guest for the right price.

Today an automated revenue management system (RMS) has become critical for hoteliers seeking to boost revenue and speed their recovery. And with the increased productivity and profits an RMS can help deliver, these systems often provide a more immediate return on investment compared to long term renovation projects.

The reasons for allocating funds towards an RMS are clear. Hotel organisations that switch to an RMS experience a 7 to 20% increase in revenue per available room (RevPAR) plus an average 2 to 7% increase in profit margin, according to Hotel Tech Report and Deloitte, respectively. Additionally, RMSs help revenue managers save about 20 to 40 hours per month (Deloitte).

But while the benefits of an RMS are apparent, the question remains – how can you convince an owner, board or C-suite level management of the need to budget for an RMS this season?

Outline what an RMS can do for your hotel

A fully occupied hotel doesn’t always equal a profitable hotel. Without revenue management technologies, hotels can easily fall into the trap of selling out to lower-rated businesses, thereby leaving money on the table from higher-rated business opportunities. To identify guests with the highest long-term revenue potential for a property, hoteliers need revenue and pricing systems that take a holistic view of their guests’ activities, not just their room spend.

Revenue management’s goal is to price a room or service so it produces the most overall revenue and profitability. But to operate profitably, hotels need to accurately price a multitude of different rooms through various channels across different days and types of guests. Put simply, hotel management teams must process far too many data points to analyse in real time.

There are simply too many decisions for a hospitality staff member to make without the assistance of an automated revenue management system. These systems use data mining, machine learning and predictive algorithms to calculate optimal pricing and inventory decisions for hotels.

Prove an RMS is a tool you “need” rather than “want”

If hotel decision-makers view an RMS as an optional luxury or a “nice to have” tool that’s more of a “want” than a “need,” then trying to allocate budget towards revenue management technology this budget season will be challenging. In an environment where hotels must operate lean to recover their financial positions from the low occupancy period associated with the pandemic, budgets can get tight. And that means that anything that looks like an excessive, non-essential cost can be easy to say “no” to.  

To demonstrate that an RMS is something their hotel “needs” rather than “wants,” revenue managers should build a business case that outlines how competing properties are already using RMSs with great success.

Make it clear that your competition is achieving higher revenue that they’re reinvesting into campaigns that drive demand among potential customers. By doing so, your competitors are taking guests away from your property.

Some tactics to help prove the need for an RMS include:

• Using a survey to collect feedback from internal team members (sales, marketing, operations, etc.) affected by revenue management. Ask them about their confidence in your current revenue management practices. Ask them about the impacts your current systems have on their departments. Allow them to rank their satisfaction with the current system or approach to pricing and revenue management.
• Find a credible industry report from a publication like HotelTechReport or Skift that speaks to the value of an automated revenue management system. Statistics from these reports speak loudly when it comes to justifying your case.
• Get an idea of what the ROI—or better yet, ROU—might be for switching to a revenue management system.
• Find a real-world example demonstrating how a revenue management system benefitted a well-known brand. Here are a few examples to get you on the right track.

Spell out how a revenue management system fits into your organisation’s business strategy

Listing the benefits and statistics of adopting a revenue management system will carry you far. But to strengthen the overall business case for investment, it is wise to specify how an RMS would support your hotel’s overall business strategy. This begins with outlining the purpose and objective of your automated revenue management system.

Start by defining what a revenue management system can feasibly accomplish. Ask yourself, what business projects will this tool help us focus on? What types of revenue streams will it help price? How detailed would we like those pricing models to be?

For example, will you need an RMS to manage revenue streams from your organisation’s meeting spaces and restaurants in addition to standard hotel rooms? Or, does your organisation need a system that only manages pricing and forecasting for individual guest rooms? Maybe you need a solution that helps with reporting and data warehousing or a solution that can also automate budgeting and forecasting.

Regardless of what purpose and objectives end up on the list of “needs,” connect each of these objectives back to the capabilities of the systems you have under consideration.

Argue that an RMS is a cost saver, not a cost centre

In your business case for allocating budget towards an RMS, highlight how an RMS acts as a cost saver for hotel operations overall. Hotels can use the forecast functions within an RMS to inform their staffing decisions and account for periods of higher or lower demand.

Once demand forecasting data is made available, staffing managers can determine which areas are most affected by the number of guests staying in the hotel. The number of occupants a hotel carries can directly influence staffing needs for housekeeping, the front desk, restaurant servers and valets to park cars.

And, of course, revenue managers need to consider the potential waste created from food and beverage operations within the hotel. Knowing when there will be periods of high and low demand, and which segments will be the key consumers of perishable items, helps hoteliers ensure they order the products at the right time and avoid costly spoilage.

A hotel without an RMS operates at a disadvantage

Making new investments following a period of challenging operating conditions is always a difficult task. However, with the increased productivity and profit that an RMS can help deliver to a hotel, these systems often provide a more immediate return on investment compared to traditional investment areas like expensive renovation projects.

While it’s no easy task to convince hotel owners and senior management to invest in new tools, these stakeholders should know that any hotelier without an automated revenue management system is operating at a severe disadvantage. In a competitive operating environment, where every pricing decision counts, every hotel needs a way to ensure that they price themselves correctly and minimise operational costs while attracting the right guests at optimal rates. That’s where an RMS makes all the difference.

For more information on how your hotel can attract business from guests in an evolving market, please visit: www.ideas.com

Written by: Tracy Dong, Principal Industry Consultant, IDeaS

The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.