Yield management isn’t just for guestrooms—it’s for services, too

TORONTO—A good revenue management strategy is essential to ensuring success. But while many hoteliers have adopted tools and technology to manage room rates across channels, making sure pricing is optimized at any given time, money may still be left on the table.

Frank Pitsikalis, founder and CEO, ResortSuite, noted that much effort has been put into revenue managing rooms. “There are so many different channels, so many different tools and technologies and approaches, and even roles within companies, where they have revenue managers who are so focused on all these different channels for the head-in-bed reservation,” he said. “But the reality is that for a lot of these properties that have other amenities, there’s very little—and, in most cases, nothing—being done to revenue manage those operations.”

What other amenities? Spa, golf, F&B and skiing, to name a few. Pitsikalis noted that for many properties, these amenities are add-ons. Guests come for a business trip or a vacation, see the hotel has a spa and decide to book on a whim. But for other properties, these services are the main attraction. “There are many properties where guests go to that particular resort or property for a spa or wellness experience, or maybe golf, and the room actually is the amenity,” he said. “It’s not their intention to go there and spend time in a room. In some of those properties, the contribution to revenue of the room is actually second or third on the list to things like food and beverage or spa or other aspects, and the fact that so little is done to revenue manage those operations means a lot of money is left on the table.”

The first step is to take inventory of your situation. “Do some margin analysis of all of your product offerings—how much profit is made on each service, look at what the staff cost is, what the product cost is to deliver that service, the time involved—creating almost a profit per minute on these services,” said Pitsikalis, adding that it’ll quickly become clear what the hotel should do.

For example, a hotel might realize it’s mismanaging its spa services. “Why are we offering 90-minute services during our peak times? We should shorten them to 60-minute services because we make more profit per minute on a shorter service than a longer service, and it’s getting more guests in the spa,” he said, noting that more guests open the spa up to more retail opportunities to increase ancillary spend.

Hotels also need to look at historical trends and analyze periods of demand. “You might see that on a Saturday between 10 a.m. and 4 p.m., you’re always fully booked days in advance. Guests coming and staying at the resort can never get a booking on a Saturday,” he said. “In fact, you’re fully booked with low-margin services. Why would you allow that situation to happen? Some of those guests would happily book at other times if Saturday wasn’t available, so now you’re filling your non-peak times and you’re maximizing the revenue during your peak times. It’s actually having a double effect because you’re still getting those services but you’re maximizing your revenue during your peak times, whereas otherwise somebody might not book that service during a non-peak time and pay top dollar for it. It’s a matter of understanding your periods of demand and making those good decisions about what business parameters you’re going to put in place.”

Revenue management goes beyond the guestroom. Think about golf, F&B and the spa.

Product mix is important. “If I have 10 treatment rooms and I offer one spa menu every day of the week 365 days a year, but I’m making $100 an hour in profit on my top items and $20 an hour in profit on my bottom items, then why don’t I shorten my list of services during peak times to ensure I’m maximizing?” Pitsikalis reasoned. “I’m going to fill those times anyway. It’s like offering the same room rate every day of the year. That doesn’t make any sense, but the spa and some of these other operations aren’t doing any revenue management at all.”

According to Pitsikalis, it’s also good customer service. “You can actually improve guest satisfaction by implementing yield management. That sounds counterintuitive; one of the reasons why people ethically don’t do revenue management is because they think we’re gouging the guest, but in fact you’re better serving the guest,” he explained, likening it to the deregulation and eventually yield management of the airline industry, which enabled people from all walks of life—not just the rich—to fly. “If you think of guests at hotels, by implementing yield management, you can serve a lot of different segments,” he said. “You can serve the segment of somebody who doesn’t mind having a massage at 7 p.m. vs. 2 p.m., which is a peak time, and others who would happily pay for that peak time and pay a higher rate.”

And, if you know your guest, you can increase satisfaction in other ways, too. For instance, if you know golfers would pay a premium for a tee time where groups are more staggered—say 12 minutes between tee times instead of eight—then you can incorporate that, too. “It’s a matter of looking at your offerings, and figuring out how you can vary your product mix based on demand and offer some value adds that segment might value,” said Pitsikalis.

Technology, of course, is an important component to this. “You need good reporting around looking at your booking pace and looking at the patterns of being able to forecast effectively what your demand will be this coming Saturday vs. what it’s been in the past,” said Pitsikalis. “You should provide the guidance and business rules that, as the business conditions are changing in real time, the system can automate, take the guidance and say once we have 80% forecasted occupancy in the spa, I now want to cut off all low-margin services.

“When you look at a spa and the perishable inventory and the high value of those services, just doing dynamic availability and changing the menu mix based on periods of demand is a no-brainer,” he continued. “These hotels and resorts need to be thinking about revenue managers who oversee and put strategies in place to maximize the revenue and profit of those operations. It’s a vital segment of our business. It’s money left on the table and it impacts guest satisfaction, it impacts their bottom line and, ultimately, if we do a better job of understanding that part of the business and putting strategies in place, it can really have a dramatic impact on results.” HB

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