Revenue Management and How to Increase Your Cash Flow
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In any business, cash flow is imperative! For hospitality properties to stay alive in times of disruption – It is Vital!
Revenue management will play a central role.
Welcome to another edition of Hospitality Property School.
I am your instructor, Gerry MacPherson.
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In protecting, forecasting, and strengthening a hotel-resorts-inn-bed and breakfast’s etc. cash flow and overall financial position, revenue management will be needed to drive the top-line and eventually the cash position of the property.
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Here are 6 ways revenue management can make a difference
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Increase the cash held within your business
In this period of low occupancy and business disruptions through COVID-19, a higher rate of cash flow, combined with detailed forecasts will allow expense management. This will have a number of benefits critical to operating.
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Additional revenue generated by the proper use of a modern, calculated revenue management system (RMS) directly flows into the amount of cash available.
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From giving the hospitality property greater day-to-day assets to enable the meeting of operating costs, to having money in the bank generating interest and leveraging return on capital, the increased RMS resulting revenue and expected business performance insights cannot be overlooked.
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Forecasting cash flow and a properties portfolio performance
Being able to accurately forecast data, market research and analysis allows hoteliers and innkeepers to implement realistic feasibility studies for all future opportunities. This data collection will also allow owners and managers to determine how to best price their properties within their market.
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Estimating future project successes by setting revenue management standards can improve overall portfolio performance, therefore, increasing the property’s long-term cash flow and value.
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Target the right business
In times of struggle, hospitality properties can all very easily fall into the habit of selling out rooms to lower-rated businesses through a “first come, first serve” approach.
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It is important to keep in mind that not all businesses will have the same value and a full property is not necessarily a profitable property.
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While acquiring any paying guests might feel tempting for hoteliers and innkeepers frantic to attract any business in a difficult market, this often results in a mix of business that restricts ongoing revenue, reduces secondary spending and drives down profit opportunities.
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Revenue management can support the ongoing financial stability of a property, even when faced with disrupted market conditions.
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To help identify the right business mix for a property, you will have to utilize a precise unrestrained demand forecast.
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The right business may not only end up being the highest paying, but it also might include other considerations like:
- Length of stay
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- Long-term loyalty
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- Additional spend
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- Likelihood to return
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To assess who may be your most valuable guest, incorporating data from all transaction systems will provide a holistic picture of guest behavior and their overall value.
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By understanding where customers are likely to spend their money, properties can make educated and data-driven decisions about which guests should receive a last available room or be offered discounted upgrades or restaurant promotions that will help drive demand. When hospitality properties begin to effectively target their most valuable customers, the additional revenues generated will translate into greater cash flow for the business.
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Renovating and your cash flow
There is never an easy time to renovate. Revitalizing a hospitality property can be expensive and result in a partial or whole closure of the business.
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However, when upgrading needs to be done, it should be considered in order to maintain future revenues and maintain fair market share.
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For this period of lower demand, properties considering major upgrades have two approaches they could use:
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A partially shut down of the property, staggering the building works
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A full closure
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You have to keep in mind, a properties online reputation could be impacted both during and post renovations,
- complaints from guests about noise
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- lack of rooms
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And post renovations,
- guests may or may not like the new rooms
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- could cause problems if they get an un-renovated room
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It is critical that pricing should reflect how guests currently see the property, how it compares to competitors, how a partial shutdown will impact a guest’s stay and the desired reputation after the property is reopened.
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The approach you decide will depend on whether your property needs to maintain a short-term cash flow, in which case a partial or staggered renovation is probably the best choice. However, if an owner’s focus is long-term revenue or reopening to reposition the property at a different service or star level, a full shutdown may be the better approach.
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There are downsides with both full and partial shutdown approaches. A partial shutdown can lessen brand prestige as guests have to stay at an incomplete property, while a full shutdown kills revenue and can result in high-performing staff leaving for competitors.
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To assess which strategy is best for refurbishing a property, owners should run A/B testing to understand the displacement of a renovation and help accurately weigh the cost to the business.
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Do these make sense? Let me know in the comments.
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Control costs to free cash
A major challenge when operating in low market conditions is finding the balance between boosting a guest’s experience while keeping labour and operational costs in check.
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You don’t want to have underutilized employees sitting around as a result of not having enough work to do.
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Precise demand forecasting provided by an RMS forms can be your foundation for optimal labour scheduling and other operational planning.
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Let me give you an example.
A demand forecast can indicate the number of occupants expected by room type which will calculate the required housekeeping services, the number of front desk personal needed, the servers required in restaurants etc.
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Another consideration is food and beverage. A large source of potential wastage, especially when it comes to those items that are perishable.
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Knowing when there will be times of higher and lower demand, will help properties schedule both labour and fresh goods at the right time and then avoid costly spoilage.
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Every dollar counts
Every dollar a hospitality property earns today generates cash flow to help keep the lights on and every dollar saved strengthens the bottom line.
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If you are a member of the Hospitality Property School Group, I am going to share 10 new creative room types to help boost revenue.
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In conclusion
With demand for rooms, food & beverage, meetings and events at all-time lows, properties must redefine their target markets and find new sources of revenue. By optimising all revenue streams, you as an operator can find additional revenue and savings in untapped areas. By factoring total revenue and costs into decisions, you can reduce losses and increase profitability.
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As demand returns, the returns on these strategies will gain momentum, generating additional cash flow for the business and helping to expedite recovery.
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How are you managing your cash flow?
Let me know in the comments.
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You will have access to this episode for the next six weeks and then it’s locked in the vault for Hospitality Property School Group members only.
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To see all the other valuable material you’d have access to as a member of the Hospitality Property School Group, check out the short video in the episode post-show notes.
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In the next episode, I will talk about the importance of messaging.
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That’s it for today’s episode,
Until next time, have a fun day.
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Are you getting your weekly INNsider Tips? You can find the link in the show notes.
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⇒ TO READ OR LISTEN TO THIS EPISODE ON KEYSTONE HOSPITALITY PROPERTY DEVELOPMENT:
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