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Revenue Strategy Requires a Team, Not a Hierarchy

by Ed Watkins, Contributing Editor |

Teamwork is the key to efficient operation of a hotel or casino, with each staff member understanding his or her role and how it complements and backstops the roles of other associates. It takes a team, but it also requires a mind-set among all team members to work together, not at odds with each other.

Sometimes, the lines of authority become blurred, often with less-than-ideal results. Such is sometimes the case with the revenue management function in a hotel, or even a management or brand company. Revenue management is a relatively new hotel industry discipline and has yet to find a universally accepted spot in the hotel management landscape.

Newer still is Revenue Strategy, which requires a cultural change across the organization to get the revenue department collaborating closely with operations, sales and marketing to work together toward shared profitability goals.

At some properties, revenue managers report to the rooms department executive. Sometimes they report to the director of sales or director of marketing. And while that seems to make some sense — after all, revenue management is a hybrid function between sales and marketing — such a structure can create inherent conflicts that can ultimately hurt every hotel’s stated business mission to maximize revenues and profits.

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Revenue Management Has Come a Long Way

This seemingly accepted hierarchy in which revenue managers report to someone other than a general manager is related to the history of the discipline. Hotel revenue management was born in the 1990s, but it wasn’t until this decade that it really became fully recognized by many operators and, more importantly, owners as a source of increased revenue and profit production.

In those early years, revenue managers were generally behind-the-scenes number crunchers who reported their findings — and, once in a while, their recommendations — to rooms execs or DOSMs. Today, more often their title is director of revenue management rather than revenue manager, a position that implies direct reporting to a GM.

The issue of who has the final say on rates becomes especially prickly when it comes to group business. Sales people and their managers often work with bonus schemes tied to gross rooms booked rather than the profitability that business generates.

Access to space and guestrooms can be another issue. At times, revenue managers need the authority to override sales personnel when it comes to rates offered and number of rooms committed. A 100-room booking from a SMERF group is nice but might not be the highest and best use of a hotel’s room inventory if the SMERFers want to book over a homecoming weekend for a local college.

Hotel organizations need to adopt the principles of total revenue management, which focuses on all revenue generators in a property—not just rooms revenues. RMs should have responsibility and authority to advise GMs on decisions related to f&b, space rental, leisure services and even roomservice. Revenue managers are uniquely talented to help drive profits, and their role should be seen as profit generation rather than just revenue management.

Hotels and Casinos Aren’t Paying Revenue Managers Enough

However, another nagging issue for hotel or casino revenue management is pay. Again, because it’s a relatively new job title in the hotel industry, many companies have had a hard time keeping compensation in line with the growing expertise, responsibility and value revenue managers bring to a company.

A recent study from Aethos Consulting Group found “the hotel industry doesn’t pay enough to lure the strategic and analytically minded talent needed” in the revenue management function. Assuming that’s true, some hotel owners and operators are hurting their top and bottom lines by not hiring top talent and paying them top wages.

According to the research, between 10% and 15% of hospitality companies properly value the role of revenue management and how much a person with the right skill set can help make a hotel or company more profitable. It’s an investment that pays over and over.

The research showed at individual properties, directors of revenue management in the 50th percentile of compensation are paid $120,000 in base salary and bonuses. Those in the 75th percentile make about $150,000.

The tide seems to be turning as more owners and asset managers realize the bottom-line difference a quality revenue manager can make for a hotel. As one revenue management executive was quoted: “It used to be that the revenue manager was at a discount to the director of sales. But now the director of revenue management and (the director of sales) make equivalent money. That was not the case five years ago.”

Ultimately, functions within a hotel or hotel company should complement each, not be at loggerheads over authority, responsibility and pay levels. And revenue managers need to be in collaboration, not subservient, to sales and marketing executives.

They need to report directly to GMs and have equal stranding with other department heads. And lastly, revenue managers need to be compensated to match the value they bring to hotels’ bottom lines.

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Ed Watkins, Contributing Editor

Ed Watkins, Contributing Editor

Contributing editor at Duetto
Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.
Ed Watkins, Contributing Editor
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Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.