Outsourcing Your Hotel Revenue Management: Yes or No?
May 31, 2021 Administrator Online Marketing
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It is quite often questionable and surprised by many hoteliers when they hear that there are hotels who are willing to hand over their revenue management to a 3rd party to handle as this is such a vital part to the success of your business.

But when you are asked if hiring a lawyer or an accountant from external service providers, all seem to agree that this is quite common. The same question, are these not the vital part or hold sensitive data internally – and therefore, should be treated the same way as Revenue Management? Again, many are not quite convinced.

In this blog, we will be highlighting some good reasons for hotels to be considering outsourcing their Revenue Management and why they should not do it themselves (particularly those hotels that are small / independent and have tight budget to spend.)

In this really challenging circumstance, like COVID-19, where many hotels are seriously considering cutting down their fixed costs, including staff, it is even more appropriate to consider outsourcing Hotel Revenue Management to an expert / external service provider as quite often the cost can be arranged or worked out based on performance.

Where many hotels still get it wrong!

As already mentioned earlier, many hotels are a bit skeptical when are asked if they should get professional help when it comes to improving their strategies to generate more income, but they seem to agree with the idea to outsource their specialist fields like legal, accounting and payroll to a 3rd party to handle.

Unfortunately, too many hotel managers, including owners seem to be of the opinion that they can perfectly well qualify a revenue manager for their skills and strategic vision.

On what basis would you qualify as a revenue manager? Do you really know what the job really entail?

Revenue Management isn’t just simple rate changing here and there, which does seem to be a common misunderstanding amongst many hoteliers. Even this very basic skill, quite often it involves complexities that some junior or senior revenue managers can still get them wrong. When taking on a full-time revenue manager who seems to have a good year of experience, it does not guarantee that he/she is fully capable of loading rates, adjusting rates, including creating promotions and rate pairing correctly on various extranets.

Of course the HR manager, DOS or GM can have a great philosophical discussion about yield management and business vision. Still, it will not tell you if the person in front of you has the right experience and skills.

These would even be clearer for independent hotels, where true internal technical knowledge is little, this is a big challenge. How can a GM who has never been a revenue manager, touched a CRS, updated a channel manager, analyzed segment pick-up curves or performed displacement calculations possibly effectively qualify a candidate for a revenue manager vacancy?

And because of this, a GM with lack or has no hand-on experience is not in a good position to manage a revenue manager, if he decides to hire a full time staff (for a reason either this is a secret part that should be kept internally or whether to save cost to do this job ourselves)? How can he check the quality of his revenue manager work and methodology? To let these small mistakes off, could result in greater loss of revenue.

How will the hotel’s owner deal with this if they don’t know what their revenue manager is doing exactly? Will you simply trust that he is doing the right thing? Will you rely on the judgement of just one person of whom you are not sure what he/she really does in the first place?

And last but not least, will you help your revenue manager to further develop his skills? Good revenue managers are always up to challenges and would like to improve on their skills. To stay in a closed environment with limited on their potential income, may not be such a clever idea. Very often, we see independent hotels may not be able to retain their highly skilled revenue managers or they face higher budget to keep them to stay on.

So here are the summary why an independent hotel should outsource its revenue management: -

  • It will be hard to sufficiently qualify the skills of a potential RM candidate
  • How can you manage a RM effectively if you have not been one yourself?
  • It is a specialist skill for which you should reply on more than one person’s experience and views
  • Turnover tends to be high as RM’s are always on the lookout to grow in their career

What are the advantages of outsourcing your hotel revenue management?

  • Infrastructure
    A professional revenue management service provider will bring with them a full team of professionals – all with different core specializations, ranging from pricing strategies, distribution management, and e-commerce to statistics and maths. So, based on the needs of a particular hotel, they would probably have all the required knowledge, skills and experience available.
  • Professional / Qualified Revenue Manager Are Scarce & Expensive
    Finding qualified revenue management staff is not easy and definitely does not come cheap. Scarcity of revenue managers is a real issue in the industry, and especially for independent and small hotels both budget and the time-consuming hiring process come into play. And, the problems do not stop there…. Even once you have a revenue manager on board, there is no guarantee how long he/she would be with your hotel as there are plenty of opportunities out there. All the efforts of training will be lost once again, and valuable knowledge about your performance will walk out the door.
  • Years of Knowledge from Muliple Angles
    Moreover a professional revenue management company brings with them a wealth of experience from their years working with properties of all sizes, including chain hotels. This allows for the proper checks and balances, and not just relying on the opinion of just one person.
  • The Miscommunication Between RM & Senior Management Is Resolved
    Fundamentally, there is a disconnect between the level of expertise of revenue managers in general as well as true understanding by senior management of this strategic part of the hotel business. Solving this issue bridges a gap to enable higher level of communication where a true understanding of a hotel’s performance can be developed by all stakeholders and real opportunities can be brought to light.
  • Staff Workload & Efficiency
    Sadly, we can see this is happening across the hotel industry. Usually it is the Front Office or Room Division Manager (sometimes GM), taking on the position of “Revenue Manager” besides his/her full time function. Unquestionably, assigning what is always already at least one full-time position, assures the manager’s ability to perform his day-to-day responsibilities is impaired. This unfortunately works as a two way street, not only reducing the capability to effectively run the front of house, but also the hotel’s extent to drive revenue. Essentially, depriving the hotel of opportunities to make money in the worst ways possible.
  • Complexity
    Revenue management is a complex specialty as it is involved many different factors. Many independent hotels are missing out revenue typically including untapped potential on more than one of the following aspects: -
    • Rate opportunities (e.g. hotel type, season, lead time, segmentation, patterns, review score)
    • Improving secondary revenue (F&B, Spa and other outlets)
    • Market and economic fluctuations
    • PMS/POS/CRS opportunities
    • And many more
  • Unmatched Financial Performance
    Finally, it can be hard to quantify the financial benefit of having an external revenue manager beforehand, especially considering the many factors that come into play when it comes to successful hotel revenue management. However, nearly all hotels can undoubtedly profit from the right company leasing its revenue management operations and strategy.

How to choose a professional revenue management company?

There are probably quite a few revenue management companies around, offering various packages to suit their targeted clients. Here are a few tips when choosing a revenue management company for your hotel:

  • Proven Track Record
    Definitely, you will need to see their references, which hotels / properties they have worked with previously and/or currently. It is worth to ask around for opinions from those hotels they are working with or have worked with previously.
  • Commitment
    Would there be some kind of guarantee on performance? Or is there any minimum monthly guarantee on revenue it could bring in ? Or are they willing to commit an increment on performance judging from existing statistics / numbers the hotel has achieved so far.
  • Flexibility
    Due to your property size / market / location and most importantly your budget, you could possibly ask if they are willing to be more flexible in the package offered so that this can be worked out for the mutual benefits.

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