Feature Article in Stay Magazine By Timothy Wiersma – President and CEO Revenue Generation
One of my passions, outside of running Revenue Generation, is flying small aircraft. Recently, my co-pilot and I found ourselves in zero visibility as we entered adverse weather. My initial instinct was to fly by the seat of my pants and try to keep the aircraft straight and level. But training has taught me that when you lose visibility, your body can play tricks on you, and one can very quickly get into a disoriented state. We needed to focus on the instruments onboard and trust fully in them to give us the information necessary to fly straight, level, and on course. Once we gained this situational awareness, we were able to analyze the environment, maintain positive control, and navigate safely to the destination airport.
Thinking ahead to 2023, we are in a similar situation. We find ourselves in the clouds not knowing exactly where the industry will head. But this is nothing new; we have been in the clouds for some time. Recently, we’ve seen significant breaks in the clouds and enjoyed some reprieve, but we also realize the vulnerability of our economy (high interest rates, inflation, labor costs, etc.) and need to be diligent to understand the key indicators of future demand to ensure a successful landing.
As we cross the threshold of another year and break out of the clouds of the pandemic era, we have an opportunity to evaluate our own situational awareness and set ourselves up for a profitable 2023 and beyond.
Here are a few items to consider as you make bold new strategies for the upcoming year.
Gain situational awareness:
So, what do we mean by gaining situational awareness. Consider this scenario. Your owner or banker may ask the question: “So, how’s the business doing?” You may answer “Fantastic!” but then the next question may be, “Well, how do you know?” This is an important question to ask and cuts to the heart of whether your management team has “situational awareness.”
As you look into the future you may want to contemplate the following. What are those “key” metrics that drive success within your organization? The answer will be different depending on your objectives, markets, and the current situation you are in. The approach needs to be a balanced one that considers key stakeholders and the overall objective. For example, owners/investors will naturally focus on EBITDA, ROI, etc. Finance will focus on net profits, margins, etc. Revenue teams will focus on market share indices, conversion, ROAS, sales goals, etc. Operations will focus on overall guest experience, employee satisfaction, etc. High performing organizations will evaluate the effectiveness of all areas and ask this key question, “Are all your operating and commercial disciplines aligned in their objectives or are they working in siloes?” If Revenue Management is operating independently from the rest of the organization, then you may be missing opportunities. If sales is focused only on driving toward a revenue target then you may have missed out on profitability. If operations is not focused enough on staffing appropriately and guest satisfaction then perhaps your are not able to achieve your fullest conversion or rate potential. The list goes on.
Recently, I had the privilege of working with an independent property in a secondary city in Ontario. When I started consulting with them, they were underperforming on several metrics and struggled with being profitable. Upon further evaluation, I realized this team worked very much independently, and their goals were not always aligned. By creating cross functional goals and building a balanced scoreboard we were able to better understand the big picture and come up with strategies to drive overall profitability. Some of these metrics included guest satisfaction, distribution strategies, price positioning, group profitability objectives, and overall gross operating profit per available room (GOPAR). Previously this property was only focused on STR results, and the owners became frustrated with what was flowing to the bottom line. By creating a balanced approach and measures that were identified as key success measures of accomplishment, we were able to build approaches that addressed the profitability piece of revenue optimization.
What we have done in the past is not necessarily going to be successful in the future:
This statement is so true as we look ahead. I’ve seen management teams try to use pre-pandemic strategies in 2022 and fall flat on results. Our mix of business, consumer sentiment, consumer expectations, and costs of doing business have all changed and so must our plan. We continue to see a shorter booking window, more of a blending of reasons to travel, and an evolving mix of international travel moving forward. Keeping on top of these trends and focusing your efforts on the right segments will help drive overall success.
Ensure all systems and KPI’s are working optimally:
Setting revenue systems on autopilot without monitoring is dangerous and likely will result in less-than-optimal results for your organization. I’ve talked to many revenue managers over the last couple years, and most will attest to the need to monitor their revenue systems closely because of the volatile state we are in and the lack of relevant historical trends to rely on. In 2022 my company often times found ourselves assisting with the build of new business analytic tools with new data sets and developing new KPI’s to help commercial teams understand the bigger picture that the current systems are not capable of providing.
Just as important as ensuring you are focused on the right KPI’s is the discipline of monitoring and adjusting your success measures. What you thought at the beginning of the year would be a good goal may fall short of achieving your fullest potential.
A time to be bold:
Destination Canada now projects Canada’s tourism industry will experience a full recovery by the year 2024. Leisure travel will continue to remain strong; more US travelers will cross the borders in 2023 and global overnight arrivals will continue to rise as pent-up demand continues to be high in 2023. Corporate and large group has a way to go yet, but we continue to see positive movement in 2023. At the same time attrition of supply creates an opportunity to drive rate up even further. All these factors suggest we have strong tail winds moving into 2023.
We have many reasons to be optimistic for the future and can take advantage of future trends. At the same time, we have the reality of increasing costs, labor shortages, and increased customer expectations. Ensuring the commercial disciplines understand the key drivers of demand and profitability. By doing so they will gain the confidence to be bold in pricing future opportunities and ensure your bottom line does not suffer.
Create your balanced scorecard with the KPI’s that will drive future success – ensure all disciplines understand and buy into the KPI’s and then set strategies that align with these drivers.
Ensure Revenue Management is supported and understands the bigger demand picture. Providing the tools to better forecast future demand, monitoring new trends and effectively communicating these trends will be a necessary skill to driving market share and profitability.
Take the time to train your associates. One class Choice Hotels Canada recently recommended to each of their GM’s was the Revenue Optimization Essentials Course through HSMAI. All commercial disciplines can benefit from further training in the culture of revenue optimization.
Challenge your commercial teams to be forward thinking and work collaboratively to fit the right pieces of business into the demand puzzle.
If we develop a discipline of gaining and maintaining situational awareness in this new demand environment, build cross functional goals that are aligned, and continue to monitor trends, we will be able to navigate with confidence and find ourselves in the driver seat to sustained revenue growth and overall asset value.