Hotel owners and operators must do everything in their power to protect their property’s cash flow and asset value. With smart revenue management strategies and technology, hotels can generate much-needed cash flow, improve financial results, and provide the data and analytics required to succeed.
From giving the hotel greater day-to-day liquidity and meeting operating cost requirements to having money in the bank for investments, the increased revenue and expected business performance insights provided by revenue management can’t be overlooked.
Hotel revenue management plays a central role in protecting, forecasting, and strengthening a hotel’s cash flow and overall financial position by enhancing the cash position of the asset. The additional revenue generated by a sophisticated, strategic revenue management system (RMS) directly flows into the amount of cash available. This higher rate of cash flow—combined with detailed forecasts which enable expense management—has a number of benefits critical to operating through this era of business disruption and economic uncertainty.
Setting and centralizing revenue management standards across a hotel group also improves overall portfolio performance. Data collection and comparisons between properties by brand or by region allow hoteliers to determine how to best price their properties within different markets. Accurate forecasting data, market research and analysis also allow hoteliers to execute realistic feasibility studies for all future opportunities. Estimating future project successes before outlaying capital investment will help any hotel group in the fortunate position to be considering acquisitions to make decisions likely to increase the group’s long-term cash flow and value.
Assessing the value of a hotel is challenging even at the best of times. Valuations today require both deep expertise and a much more short-term analytical process than employed in the past. While many elements go into a valuation, two key ingredients are 1) future net income—a measure of income minus expenses typically estimated over a 10-year period—and 2) the anticipated proceeds from a future sale.
This requires access to market projections as well as the hotel’s performance data. But reliable projections are proving elusive in today’s unpredictable market. Under these conditions, hotels that have invested wisely in revenue management software and know-how are at a distinct advantage. A seasoned revenue manager can draw on deep analytical skills, familiarity with internal and external data sources, and the data-modeling capabilities of an advanced RMS to produce timely, detailed, and frequent forecasts—and reforecasts.
Accuracy, speed, and agility are critical because forecasts guide sales and marketing strategies, as well as pricing and inventory decisions. Forecasts are used by operations to manage expenditures, staffing, and resources, and by the chief financial officer, management company, and owners to project future expenses and net income.
All these functions help drive incremental revenue and reduce costs, thereby contributing directly to the bottom line and increasing asset value. On the other hand, errors and inefficiencies in forecasting can lead to bad decisions and missed targets, which could ultimately result in a forced sale at a below-market valuation.
In recent years, revenue management has expanded beyond tactical rate and room inventory management to become more strategic, more focused on total revenue, and more profit-orientated. This holistic approach is particularly relevant at a time when every dollar earned generates cash flow to keep the lights on and every dollar saved strengthens the bottom line.
By applying revenue science to optimize all revenue streams, operators can find incremental revenue and savings in untapped areas. By factoring total revenue and costs into decisions, they can reduce losses and increase profitability. As global travel demand bounces back, the returns on these models will gain momentum, helping to expedite the industry’s recovery.
There are many ways hoteliers can take action to minimize operating costs. But over the long term, they must focus on creating value for owners and other key stakeholders by increasing and scaling top-line total revenue performance. Much like a reputable investment firm, a versatile, robust RMS will help minimize losses during a downturn. This is why revenue management should never be thought of as a one-time, short-term investment, but rather as a long-term strategy that will pay back exponentially year over year.
Regardless of where the world goes next, there will undoubtedly be more downturns in the future. A hotel organization’s ability to grow successfully will depend on agile and adaptable leadership and smart technology partnerships.
About the Author
Brian Douty joined IDeaS in 2013, bringing more than 20 years of experience directing, integrating, and transforming financial operations in the technology and energy sectors. As CFO, Douty leads IDeaS’ global corporate strategy, finance, accounting, and administration teams.