Total Revenue Management for the hotel industry: What is it and should you make the change?

However, a shift appears to be on the horizon. Recent leaps in hotel technology have set the stage for total revenue management to become the signature strategy of innovative and forward-looking hoteliers aiming to increase their bottom line.

What is Total Revenue Management?

Total Revenue Management is a comprehensive approach to optimizing all revenue-generating streams within a hotel, extending beyond room bookings.

Unlike the traditional approach of simply selling the right room to the right client at the right time for the right price, Total Revenue Management offers a more comprehensive perspective, considering the entirety of the guest's stay and potential spend. This includes all ancillary sources of revenue, from food and beverage to spa services, parking, conference facilities, and more.

The ultimate objective of Total Revenue Management is to maximize Total Revenue Per Available Room (TRevPAR), also known as Revenue Per Available Guest (RevPAG).

This metric provides a more holistic view of a hotel's performance compared to the traditional Revenue Per Available Room (RevPAR), which focuses solely on room revenue.

Maximizing TRevPAR is achieved by understanding and predicting guest behavior, and optimizing availability and pricing across all services.

TRevPAR is calculated as the total income of a hotel divided by the number of rooms available for booking within a specific timeframe.

Let's take a look at some key elements that define TRM and differentiate it from traditional revenue management.

Key components of Total Revenue Management

While Total Revenue Management aligns closely to the practice of revenue management in most aspects, there are fundamental differences which you should be aware of when looking to drive holistic revenue performance at your property.

1. Broadened strategic scope

   Consolidating all revenue sources under one strategy inevitably influences strategic decision-making, forecasting, and reporting. This shift requires your commercial team to consider all revenue drivers of the property, not just room revenue. As a result, new processes and more collaborative relationships with other departments within the hotel become necessary

2. Departmental integration

   In addition to broadening your revenue team's strategic scope beyond hotel rooms, successful Total Revenue Management also hinges on effective interdepartmental collaboration. It's essential that all revenue-generating departments work together to create appealing packages, promotions, and offers for guests.

   

3. Inclusion of guest-focused ancillary offerings

   One of the most apparent departures from traditional revenue management is the more holistic approach of including revenue generated from all hotel amenities, not just room sales.

   By considering these diverse revenue streams, TRM provides a more comprehensive and accurate picture of a hotel’s overall commercial strength. However, this approach does add a layer of complexity to the discipline.

4. Room price optimization

   Despite the expanded focus on ancillary revenue in Total Revenue Management, optimizing room rates and devising the correct pricing strategies remains crucial. By accurately predicting market demand and closely monitoring your competition with real-time data, you can assist with dynamic pricing and promotions for other revenue streams.

5. Focus on guest behaviors

   Total Revenue Management emphasizes understanding guest behaviors. By leveraging data analytics, you can personalize offerings based on guest preferences, enhancing guest satisfaction and potentially increasing the overall spend per guest.

By incorporating these key components, Total Revenue Management offers a more comprehensive approach to revenue management, allowing hotels to maximize their total revenue potential across all areas of operation.

Why make the transition to Total Revenue Management?

You may be wondering whether Total Revenue Management is commercially viable for your hotel(s) and whether the effort to change your long-standing strategy is worthwhile. The answer is a resounding yes!

Total Revenue Management allows you to optimize each revenue-generating department, applying the same strategy you've been using for room sales across all areas of your hotel operation.

Consider this: your hotel offers more than just rooms. Services like spas, dining, and event spaces are also perishable commodities. If these resources remain unused for a day - say a restaurant table stays unoccupied or a conference room is vacant - that potential revenue is irretrievably lost.

By better comprehending usage patterns and guest preferences, you can craft targeted offers to optimize these services during off-peak times, and maximize revenue from these departments.

For example, if a guest has previously used the spa, you can entice them with special discounts or packages during periods of low demand.

Total Revenue Management also aims to optimize each guest's spending potential. With a revenue strategy that considers all revenue streams, you can uncover previously overlooked opportunities to increase your property's revenue and create personalized promotions and upsell offers. For instance, could you offer golf packages to your corporate guests during their downtime?

When all areas of your hotel are operating at peak efficiency and costs are carefully controlled, the resulting increase in revenue is likely to boost overall profitability. This improved financial performance enables reinvestment in your property, strengthening your hotel's ability to withstand challenges in a highly competitive market.

But the benefits of Total Revenue Management extend beyond the balance sheet. It can significantly enhance the guest experience. By gaining a deeper understanding of guest behavior, you can tailor your offerings to align with guest preferences, potentially even exceeding their expectations.

This personalized approach can boost guest satisfaction, encourage repeat bookings, and generate positive word-of-mouth, both offline and online. In today's digital age, effective reputation management is crucial for securing more online bookings.

A few clicks are all it takes for a potential customer to access reviews of a hotel they're considering on online distribution channels. A recent report by Expedia found that 61% of hotel guests consulted an Online Travel Agency (OTA) before booking on a hotel website.

Although quantifying the value of reputation can be difficult, research provides insight into its impact. A study by the School of Hotel Administration at Cornell University found that a one-point increase in a hotel's TripAdvisor rating could allow for a 10-12% increase in room rates without affecting occupancy; this kind of rate increase can lead to substantial revenue growth.

Finally, Total Revenue Management promotes a more unified and collaborative workforce by integrating all departments in the revenue management process. When all departments understand and contribute to revenue generation, it can also spark innovative ideas for revenue optimization.

The role of technology in Total Revenue Management

Transitioning to Total Revenue Management requires an integrated, data-driven approach, underpinned by the right technology.

The right technology doesn't merely support your Total Revenue Management strategy—it's essential for its success. An effective commercial platform, powered by real-time data, can deliver actionable insights to inform decision-making and optimize both room and ancillary revenue streams.

While Total Revenue Management offers significant benefits, it does come with challenges. However, with the right approach, these can be mitigated, paving the way for a more comprehensive, effective, and profitable revenue management strategy for your hotel.

Lighthouse’s commercial platform is specifically designed to elevate your hotel’s revenue strategy. From demand forecasting to real-time rate shopping, and next generation business intelligence.

One of the primary challenges in implementing Total Revenue Management is data from the various departments. Each department may use different systems, data sets and metrics - making it difficult to consolidate and analyze the data in a meaningful way to make informed revenue decisions and fulfill your strategy.

Your Property Management System (PMS) is a goldmine of data from all revenue departmentsTherefore, an essential first step is to implement a Business Intelligence solution that can efficiently extract and analyze PMS data, providing actionable insights for Total Revenue Management.

Lighthouse Business Intelligence transforms your PMS data into a user-friendly, dynamic dashboard to deliver insights into all of your commercial team business metrics.

This near real-time view of your business performance empowers you to make proactive, data-driven decisions for your Total Revenue Management strategy You can also visualize which of your personalized marketing offers are working, and which aren’t. If they are proving worthwhile, you know where to focus and if not you can try different promotions.

Using actual guest data, you can continuously refine your tactics and messaging for each customer segment throughout their booking journey. This leads to more personalized offers and upgrades, enhancing upselling opportunities and ultimately contributing to increased total hotel revenue. And by consolidating all your critical commercial data on one platform, you create a single source of truth for all your revenue-generating departments.

Find out how you can leverage the power of Lighthouse Business Intelligence to get started with Total Revenue Management and maximize your revenue growth.