Pump Up the Revenue, Not the Volume - Part One

By Jack Chang Chin Liang, Project Executive, Seven Seas, Malaysia.

The airline pricing system is something that has driven consumers crazy, always making them scrambling for flights in advance due to the fluctuating prices of the seats on board. Banks too are dabbling with their own instruments such as mortgages, car loans and home-equity. What actually drives and determines these changes in figures and numbers? In the hospitality industry, these situations go even deeper. The minute a customer checks in to the hotel; it is just the beginning of his/her spending spree, which may range from not even a single penny out of the pocket to thousands of dollars on revenue centers’ such as spa, posh restaurants and bistros, retail outlets and casinos.
 

Welcome to the interesting world of Revenue Management, an art and science in maximizing that ever important row in your annual report, net profit. Scientific because it deals with the branch of knowledge and facts of customer spending patterns and behaviors’ in a systematic and logical manner while the art (experience) comes into play by when a balancing act is required in determining bookings between regular customers vs. a special situation of a one off event where the guests may splash thousands of dollar on the visit. Revenue Management has been long introduced in the hospitality industry and its rewards, when implemented successful is visible. Yet, many hotels and resorts worldwide apply it haphazardly. On the other end, those that have successfully implemented Revenue Management are now taking it even deeper integrating it into the hotels’ Customer Relationship Management and Sales and Marketing.
Too many hotels are focusing on having their room status to be fully occupied. Hotel owners, especially fail to see the fact that having a lower room status but higher yield based on revenue optimization will improve the bottom line compared to a hotel that is taking in guest blindly or in a first come, first serve basis. It’s even more contradictory in the gaming industry, whereby it is actually proven that lowering room rates do actually yield greener returns. An interesting case study to look at is Harrah’s Cherokee Casino & Hotel. Between January to November 07, 98.6 percent of the rooms were complimentary and nearly 100 percent are complimentary on most weekends. Thus, the average room rate is approximately $6 per night. Although their rooms were on the house, Cherokee guests “pay” on an average, $565 per night, in food and gambling.

Revenue Managers are a new breed and highly paid and the trade off is between hiring a full time revenue manager or engaging an external seasoned industry. Many five star hotels can afford to have a full time Revenue Manager or in the case of chain hotels, have one based on geographical cluster. Most hotels have key members of their team who are familiar with the business patterns to digest and number crunch manually. Alternatively, one can put in place an almost fully automated Revenue Management system that churns out simple instructions and reports for the operation team to follow. Both methods, if done correctly should be able to register commendable increase in revenues and ultimately, profits. But the latter option gives the freedom and ability to the hotel to utilize their acumen in interpreting the results and focus on other more important issues, which can never be automated, such as face to face interaction with customers. This makes the revenue decisions to be significantly optimized by a Revenue Management system with internal and external data and bare minimum human intervention and input. Hotels that are still caught in yesteryear manually operating and tweaking their room rates and selecting customers to check in will find themselves far behind. In fact research shows a hotel with a full time Revenue Manager can double the profits. A common mistake is for hotels to have Reservation Managers do Revenue Management. Both positions are different and can create conflict of interest. Wearing two hats at once and be able to interchange in between can be confusing.
It is crucial to have a reliable and trusted Revenue Management System (RMS) in place to optimize the hotels revenue from all angles. This in turn will give confidence to hoteliers to make the right decisions when request for reservations swamp their emails inbox and web reservation systems. The advantages and likelihood of maximizing their true revenue potential and achieve greater financial stability far outweighs the investment in a RMS.

In Part Two, we will discuss the burning issue of Revenue per Available Customer (REVPAC), Revenue per Available Room (REVPAR) or Gross Operating Profit per Available Room (GOPPAR) and what a PMS should have to enable a truly enterprise-wide Revenue Management System.

The author is a Mechanical Engineering graduate from University Malaya who has previously done stochastic optimization work and research for automobile manufacturers’ Mercedes Benz Malaysia and also Proton Holdings. He has also done internship with Accenture and had a course work attachment with Motorola Technology and is now researching multi-objective optimization for the Hospitality Industry with Seven Seas Computers Sdn Bhd, Malaysia.

 

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Smart Restaurants – What it takes to win - Part Two
By Puru Nanda, Client Relationship Manager, Seven Seas, Dubai.

Since the Early Days the world of restaurant POS systems & POS technology in general has come a long way .In today’s day and age hospitality operators/owners are much more tech savvy than they’ve ever been, and the vendors are slowly responding to this fact. This article outlines the top features a hospitality operator should be looking for in a new Restaurant Management system.

Consider your present restaurant business; you may be utilizing Cash Registers, your staff process orders using slips, all your menus are printed, one of the staff attending the register takes the payment and so on. You are happy that your business is running fine. But, think again. Is your present setup sufficient enough to handle a sudden rush? Do you have a system that would streamline your work force? Do you have Intelligent POS?

To prepare for better times manage a healthier restaurant business flow what you need first is a good POS with advanced functionality. Unlike restaurant cash registers, point of sale systems can do things beyond cash counting. It can become the nerve center of your business controlling every aspect from menus to sales-reporting and thereby multiply your productivity. Good POS for restaurants can do wonders; but, the hardest part is to choose one from the right vendor. Listed below are some of the criteria in helping you to select the Right Vendor.

Data Reporting
The top two most critical issues every hospitality-based business needs to capture are food cost and labor costs. Keep them in check, and your chances of succeeding in such a competitive market are greatly increased. Modern POS systems will help you be on guard by allowing manager’s access to important, easy to understand data on demand, and in real time. A POS system with state of the art data reporting capabilities will allow you to forecast business volumes, which gives managers the information they need to fine tune scheduling and avoid unnecessary labor costs. Time and attendance can be precisely monitored. Real time and instant access to data also allows managers to spot problems quickly and make snap decisions to address discrepancies in cash flow and adjust inventory levels. The POS system will pay for itself many times over if it can help you be on top on these two issues alone.

Back Office Management & Database Integration
Having all your POS terminals linked together, combined with the ability to run reports, make menu and pricing changes on the fly, check inventory levels and consolidate payroll at one central location is crucial to running your business efficiently and profitably. Your POS system should allow you to do this quickly and easily, all from the back office. Database integration and back office management capability should be at the top of your agenda.

Customer Relationship Management
Effective promotions can go a long way in boosting profits. Determining if your coupon or gift card program is working as it should, however, can be difficult. POS systems that can quickly help you evaluate which promotions are working and which ones aren’t, can save you time and money. Having a POS system that can keep track of customer history, their likes and dislikes, comments, etc. can give you valuable insight into what future promotions to design, and which ones should be attractive. Effective customer loyalty and points programs keep your customers coming back.

Payment Security
Payment security is crucial in today’s marketplace. With the incidence of fraud and identity theft reaching epidemic proportions, safeguarding the safety of your client’s credit card data is vital.

Enterprise POS & Multi Location Capability
For those who operate large and multi-location operations, choosing the right POS system has never been easy. Due to logistics and a host of other obstacles, businesses with multiple locations were forced to be creative in how they coordinated the collection of cash and data. Businesses such as these require enterprise wide POS systems that offer features such as client recognition capabilities, hospitality and retail sales, gift card processing, quick and easy debit and credit options, and more. They also require a POS system that can get around cabling and network issues, and preserve precious data in case of a system or network failure. If your company fits in this category, a reliable and flexible enterprise POS solution is a must.