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With Great Power Comes Great Responsibility

The Revenue Manager may be the Property’s “Master of the Universe,” but what does that mean to the future of your hotel?

Tuesday, November 20, 2012
Mr. Larry Mogelonsky - P. Eng.
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When I started in the hotel marketing business, the role of revenue manager did not exist. We were all neophytes to the concepts of channel strategy and yield management. Ask a senior marketing director about pricing, and they would refer you to seasonal or weekend promotions. I can even remember the time when the Inn on the Park in London had one price for each room type, independent of the day of the week or month. The only exceptions were for groups and high-volume customers. The evolution of the Revenue Manager position has solved many of these earlier pricing inefficiencies, but has left a dearth of areas that still need improvement.

Computer Wizardry
Times have certainly changed. The sheer range of prices offered to a property’s channel partners is daunting enough for anyone short of a post-secondary education in finance. At the same time, PMS tools now allow us to adjust pricing by the minute in much the same way as a modern day stock market. It’s micromanagement as much as technological advancements will abide. How can a GM properly regulate this mercurial job and at the same time ensure quality guest service?

Enter the revenue manager; the wizard of numbers and Houdini of profitability. A good revenue manager manipulates the prices within the channels, room types and days of month to maximize return. A great revenue manager, however, carries this to the next level; reading competitive rates and previous years’ data to squeeze the most out of system reservations.

Revenue management is a combination of numerical skills, a thorough comprehension of the property’s operating systems, and strong empirical capabilities. It is a tireless, often thankless job. Hotels that have solid revenue managers should protect them through appropriate financial incentives. Are they worth their weight in gold? Well, at $1,500 an ounce, that could be $3 million. And, in fact, that might be what they can contribute to a thousand-room property annually.

Promotion Opportunities
The role of revenue manager is focused on data. The types of individuals who do well in this position are mathematically oriented, likening them to avid stock or derivatives traders. But, what about considering a promotion for them? After a few years of success, does it not make sense to give them a director’s role? Would this not be an effective way to reward them for what they bring to the table? From my experience, the answer is a resounding no.

The role of director of marketing may be thought of as the logical next step. Here is an individual who is well versed in all aspects of the property, and knows where the revenue opportunities are. The promotion, therefore, reflects a natural progression.

But, let’s examine the role of director marketing. Your DofM clearly recognizes the importance of revenue, but has a much broader role: casting the vision for the future. And here lies the conundrum. Do you want to have a director of marketing that looks to the future, or manages strictly for today?

Marketing Teamwork
The ideal approach is to have a strong director of marketing, reinforced by a knowledgeable revenue manager. Working together, the DofM creates the programs that grow the business while the RM guides the execution of these programs to ensure that the maximum revenue is obtained. The key here is teamwork. Each position has an important role to build your property, but they never truly converge on the same areas of expertise. The risk of promoting the revenue manager is that they will naturally tend to focus on their area of strength: the numbers.

What we have seen during the great recession is a dubious, almost desperate, reliance on the revenue manager. Why worry about the future when there is so much uncertainty in the present? As a result, when budgets tightened, the RM position was never the place to make a cut, while the DofM was left far more open for a game of musical chairs.

But now that the industry has regained its foothold, the prospects to bolster marketing are omnipresent. Rewarding the RM with a promotion makes sense. It is the obvious move to want to progress individuals within the organizational hierarchy. But, ultimately, it is a choice that a GM should be very hesitant to sanction. The fear is that without a promotion, your RM will search for a higher status position elsewhere. Instead, keep your revenue manager happy with two basic strategies: appropriate bonuses and a solid marketing partner.

The Bottom Line
Directors of marketing and revenue managers are critical but separate roles. Both have important skills to offer your property. Merging the positions is seldom the answer for property growth, but rather, you should seek out individuals suited to one role or the other and who work well together.

Larry Mogelonsky (larry@lma.net) is the president and founder of LMA Communications Inc. (est. 1991), an award-winning, full service communications agency focused on the hospitality industry. Larry is also the developer of Inn at a Glance hospitality software. As a recognized expert in marketing services, his experience encompasses Four Seasons Hotels & Resorts and Preferred Hotels & Resorts, as well as numerous independent properties throughout North America, Europe and Asia. Larry is a registered professional engineer, and received his MBA from McMaster University. He is a member of G7 Hospitality and Cayuga Hospitality Advisors. He recently published a book entitled, “Are You an Ostrich or a Llama? Essays in Hospitality Management and Marketing.”

Larry Mogelonsky P. Eng.    Mr. Larry Mogelonsky - P. Eng.
Managing Partner, Hotel Mogel Consulting Limited
Owners, Principals, or Partners
LMA Communications Inc.

Bio: One of the world’s most published writer in hospitality, Larry Mogelonsky is the principal of Hotel Mogel Consulting Limited, a Toronto-based consulting practice. His experience encompasses hotel properties around the world, both branded and independent, and ranging from luxury and boutique to select-service. Larry is also on several boards for companies focused on hotel technology. His work includes four books “Are You an Ostrich or a Llama?” (2012), “Llamas Rule” (2013), ...
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