Innsights

The symbiotic relationship between hotel asset management and revenue optimization

The Balancing Act

REVENUE MANAGEMENT PROFILE: feature from the SPRING 2024 ISSUE of STAY Magazine

Tim Wiersma

April 11th, 2024

In a recent conversation I had with an asset manager who was underwriting a hotel in the metro Atlanta area, it was determined that for each incremental 50k of profit achieved, the hotel asset value went up approximately 600k. Imagine if your revenue team fully understood this.

Hotel asset management and revenue optimization are two critical components of a successful hotel operation, each playing a unique role yet deeply intertwined in maximizing profitability and ensuring the long-term viability of the property. This symbiotic relationship can be likened to a delicate balancing act, where strategic decisions in one area can significantly impact the other.

A good portion of my work involves helping revenue teams build topline revenue strategies and utilize tools to better analyze overall strategy from a total hotel perspective. One thing that continues to surprise me is the fact that revenue teams do not always understand their owners’ investment objectives and what their short or long-term objectives are.

Conversely, when collaborating with asset managers, I notice a tendency for them to step into revenue meetings without fully grasping their market context and then influence strategy decisions that may hinder the overall success of their asset performance.

That being said, as the cost of operating and financing a hotel asset continues to escalate, there is more and more emphasis on ensuring that revenue performance is at its peak. Additionally, it’s no longer good enough to say this hotel is performing well from a topline standpoint. Profit has to be on the minds of the entire executive team across all revenue centres.

As we view this unique relationship between owner representatives and revenue leaders, let’s explore why there are still silos today, discover ways to overcome the communication gaps, and better understand how the two groups can take advantage of the strengths each brings to the table to fully optimize the asset value.

What asset management/owners wish revenue optimization teams knew about unlocking a hotel’s value

Ensuring your revenue teams understand the investment objectives is really important and allows your team to better gain perspective on what they are trying to collectively achieve with the owners.

Having worked at the property level for many years and even when I worked for management companies at the above property level, I often found myself in the dark regarding the owner’s objective for their assets. It was sometimes the best-kept secret, and we were left guessing. When I moved over to the hotel asset management side, I found myself working with revenue teams to help them gain perspective on why we acquired the asset to begin with, and what we were trying to achieve.

Asset managers will tell you a lot goes into underwriting a new asset. Besides evaluating the overall asset value, owners need to demonstrate to bankers, insurance companies, and investors that the loan risk is not too great and whether the overall deal is a wise investment. This involves looking at parking, retail space, under-utilized space, optimal mix of business, optimal mix of rooms, the appropriate number of keys, rooms to meeting space ratios, expected capex required, determination of brand affiliation or operating as an independent, management companies, management teams, and more. The key objective behind all of this, of course, is to determine if there is enough unlocked value to ensure a successful acquisition and provide sustained ROI.

Investment cycles also play into enterprise goals and objectives. In general, while short-term investments focus on immediate operational needs and revenue generation, long-term investments emphasize sustainability, growth, and value creation over an extended period. Balancing these short-term and long-term considerations is essential for maximizing returns and ensuring the success of hotel investments. From a revenue generation perspective, if the investment is short-term strategies will focus more on generating cash by using the means necessary to obtain a customer base and taking advantage of the peaks and valleys in the marketplace. Conversely, over the long term, hotels may implement strategies to diversify revenue streams, such as investing in conference facilities, spas, or restaurants to stabilize income beyond room bookings.

Finally, asset managers would like revenue teams to focus on all revenue streams in a hotel. Hotel revenue optimization has traditionally focused solely on room revenue, but in today’s competitive landscape, it’s essential to consider revenue from various sources beyond just room bookings. By optimizing these revenue streams, hotels can significantly boost their overall profitability. Revenue optimization strategies that consider multiple revenue streams rely on sophisticated data analysis and forecasting techniques. By leveraging data analytics, hotels can gain valuable insights into guest behaviour, market trends, and pricing dynamics, enabling them to make informed decisions to maximize revenue across all channels.

A hotel revenue optimization team’s wish list from asset managers

In order for revenue teams to be successful in their role, there are some crucial tools, resources, and practices necessary to ensure your team is effective in developing unrealized revenue potential.

• Investment in Technology: Among all the resources required would be cutting-edge revenue management systems and tools. This could include advanced analytics platforms, dynamic pricing software, and, of course, an integrated property management system.

• Investment in People: It goes without saying that in today’s ever-changing environments, continuous training and development programs are essential for revenue optimization teams to stay updated on industry trends, new technologies, and best practices.

• Access to Data and Integration: Asset managers can support revenue teams by facilitating data integration across different systems (e.g., property management system (PMS), channel managers, customer relationship management (CRM) platforms) and ensuring access to relevant market data and benchmarks.

• Employ Advanced Data Analytics Discipline: Enabling hotel management companies and teams to employ advanced analytics to help solve problems and provide insights will help forecast demand and optimize rooms, banquet, and F&B outlets and better understand customer habits and overall value. Often times finding this unique talent and the tools necessary to employ this is difficult and requires expertise from your management company or a third party to build and maintain.

• Cross-Functional Collaboration: Asset management can help facilitate and support cross-functional initiatives that are focused on driving revenue growth and improving guest satisfaction. Today various operational departments often work independently from each other and are not aware of the cause and effect of strategies on other departments. The greater the alignment of goals, the greater the communication among departments, which ultimately leads to greater opportunities for profitability.

• Incentive Structure Alignment: Today’s KPIs need to go beyond revenue objectives. Aligning incentive frameworks with KPIs related to asset investment objectives can inspire revenue teams to meet revenue and profit targets, thereby fostering performance enhancements. Asset managers should advocate for incentive schemes that recognize both individual and collective successes in revenue generation and profitability.

• Provide Flexibility and Autonomy: In today’s ever-changing environment, enabling your revenue generation teams with the ability to shift gears when necessary as well as experiment with the strategies and tactics is crucial for innovation and performance improvement.

The bottom line

Successful asset management firms and owners excel in addressing intricate challenges to uncover untapped profit by aligning themselves with appropriate resources and personnel. They are effective at communicating goals and objectives and involve key stakeholders in setting up strategies. They support them by providing the right technology, education, and resources necessary to solve these tough issues and grant them the autonomy needed to adapt and thrive in areas with growth opportunities.

By taking the time to equip, educate, and communicate the overall objectives from an asset optimization standpoint, the more in sync and tied the teams will be in helping boost the overall objectives of the property.

Innsights

About

Tim Wiersma

President and CEO, Revenue Generation LLC.

With more than three decades of experience in the hospitality industry, Timothy Wiersma is recognized as a leader in revenue management and commercial strategy. His company specializes in property and portfolio revenue management, business analytics, distressed-asset turnaround, and asset assessment; his company consistently delivers results for properties around the world.

Before Revenue Generation, Wiersma was head of revenue management with Canadian Hotel Income Properties (now Silverbirch Hotels), He was also vice president of revenue management with Host Hotels and Resorts, a Fortune 500 company, and the largest hotel REIT in the U.S. Other positions held were vice president position at TPG Hospitality, a private equity firm with over 60 full-service hotels, and vice president of Red Roof Group where he oversaw the Revenue Strategy of over 650 economy hotels.

Wiersma is an active board member and past president of HSMAI (Hospitality Sales and Marketing Association International). He is also teaching the HSMAI Revenue Optimization Essentials course on a regular basis. In his spare time, time enjoys spending time outdoors, gardening and flying small aircraft.

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