Taktikons Blog about Revenue Management

Taktikons Blog about Revenue Management

Revenue Management

In this blogg I aim to give a background on Revenue Management and Distribution. It discusses both organizational issues as well as lectures regarding Revenue Management and Distribution. Many of the blogs can be used as preparation to the Courses and Workshops in Revenue Management and Distribution that Taktikon organizes.

Forming a Revenue Management focused organization

OrganizationPosted by Annemarie Gubanski Nov 18, 2013 14:45:42

Forming a Revenue Management focused organization

After the first article in this series, we continue with an analysis on how to create a Revenue Management focused property. This is part two of a series of three articles, in which we will try to find an answer to the following questions:

- The current role of a Revenue Manager. In this article we defined that the purpose of a Revenue Manager is to use analytics in order to create the winning strategy.

- Forming a Revenue Management focused organization. Now we defined the role and skills of a Revenue Manager, we will see if we can use these findings to form the optimal Revenue Management oriented organizational schedule

- The future role of a Revenue Manager. In an ever changing world, even the role of a Revenue Manager will change. In this article, we will find the answer to the future role of a Revenue Manager and what implications this might have.

Revenue Management within the organization

Revenue Management is not a one-person job, reserved only for the Revenue Manager. Revenue Management involves forming the best strategy by analyzing result. For a strategy to have its effect, every department within the property should not only know about it, they should also apply the same strategy.

At the same time, forming a strategy is not only a job for the Revenue Manager. All relevant departments are involved in the decision making. The difference is that a Revenue Manager bases the strategy mostly on analyzing the result. To demonstrate what I mean I usually draw the following picture on a whiteboard. This is a picture of the whole organisation.

The hands and feet stand for the Operational departments. They are increasingly important as most of the comments made on Social Media are about Operations. The heart stands for all decisions we make based on feelings. For instance, it can feel right for the Group Sales Department to contract a large group and give a discount in order to assure the business. The head symbolizes the brain, or the analytical part of the organization. For instance; analysis that shows that a particular group should not be contracted against a rebate, as we expect to be able to book an equal amount of individual guests against full price.

We humans base most of our decisions on feelings. The analyzing part usually comes later. For instance, when we are hungry and see a snackbar close by, we could go in there and order ourselves a huge plate of French Fries. The notice that a salad would have been the healthy and less fattening option usually comes afterwards. As Revenue Management stands for the analytical part of decision making, it is good to take time to listen to analytics before making the decision.

The role of the General Manager

The General Manager is essential in order to guarantee success. I usually describe a Revenue Manager to be this negative and nagging person. With this I do not mean that we are negative, rather that we always calculate the loss of a certain piece of business. As we work with a fixed capacity, this becomes increasingly important during days and periods with high demand. We just do not like to see a space occupied by a guest paying 20% less than the rate we could have sold this space for. We focus on the 20% loss (displacement) instead of the 80% income. This means that you can expect us to be skeptical against any high producing contract, when we see that a great deal of this production lies in weekdays or periods in which we expect high demand. This goes right against the rules of negotiation; increase your volume and we increase your discount.

At the time the contract is being signed, the property has not yet experienced the demand the Revenue Manager is expecting for this certain period. Practically, you see unused space when the Revenue Manager already states that this space is going to be filled somewhere in the future. At that time, it is good to remember that a Revenue Managers role is to know about Lead Times and Expected Demand.

As Revenue Management comes with the need for a certain mandate to be able to direct the properties strategies, a Revenue Manager should be placed in the Management Team. This means that a Revenue Manager is reporting directly to the General Manager. This, in its turn, means that a General Manager should understand the principals of Revenue Management, in order to support the Revenue Manager sufficiently.

The organizational schedule

In order to assure there is a dynamic discussion regarding Occupancy versus Rate and Long Term versus Short Term, it is strongly discouraged to put a Revenue Manager under a Sales Manager or under an individual that does not have a profound knowledge of Revenue Management. As said; as a Revenue Manager has an active part in deciding on the strategies of the property, he/she is preferably part of the Management Team. For several reasons, a General Manager might like to keep their Management Team slimmed and chooses to have one representative for the Commercial Team. In this case, the Commercial Manager, being the head of all commercial departments, should have a profound knowledge of all different fields of work including Revenue Management!

Read the previous article “The current role of a Revenue Manager” and the next article in this series; “The Future role of a Revenue Manager”

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