Are you ready for RMS?
Some of you may be asking: "What is RMS?!" It stands for Revenue Management Software and if you've never heard of it, then you might not be ready.
On the other hand, I've spoken to many of you that know what RMS is, but you're not really sure if you are ready for this investment and level of complexity, training and change in your business. Many software vendors like to show off all their features and want to appear as advanced as possible, but leave their audience thoroughly confused and overwhelmed, which of course leads to no action at all.
But this is too important to push off for another year. It can be a longer, slower road, but you should get started. As one RMS software company told me:
"There needs to be a culture of Revenue Management at a property for them to understand our software and see the value - and get the value".
I think this is a critical point, so let's talk about what that means and why it's important. I should also preface all of this by pointing out that chains and franchisees already get this software and training. Even smaller hotels with lower ADR will get the chain's software and training as part of their franchise benefits. So, much of what is described below pertains to independent, boutique hotels.
Let's start with some simple rules of thumb. In our experience, Revenue Management Software becomes much more valuable if you have:
- 30 to 100 rooms (or more). The management time and software cost are easily justified when you have 3 or 4 different room types, and 5-10 units of each type, because the financial benefits are much greater. Smaller properties can still benefit from basic Yield Management (more on that below), but that can be done in Excel and sophisticated software may not provide ROI.
- ADR of $300 or $800 per night also means that proper pricing or unsold rooms have a very high opportunity cost, so the financial benefits are much greater, even if you have very few units.
Like many rules of thumb, there are exceptions, but RMS software requires time and money, so whether it is right for your property depends on the cost-benefit for your particular situation.
Here are a few ways to start thinking about it for your property. This way you can start going down the path with less risk of over-investment:
STEP 1: Develop a basic process with Excel. For many smaller hotels, Excel is the best starting point and with the right process, this can become fairly automated. If the PMS data is clean, then pulling the data into Excel can be quick, and decision rules and alerts can be set up to update automatically when data is refreshed each week.
Doing this once a week is much better than doing it once a month or not at all, so your business could start improving after doing this only a few times. Once you develop a rhythm of doing this every week, you will get a more detailed understanding of the value of Revenue Management for your hotel and start to learn about which details and metrics you really care about.
This can be a good solution for hotels from 10 to 100 rooms and can be done for $0 software cost (assuming you already have Excel) and $1,000 per month in labor, so the benefits should easily cover this expense. For some hotels, this solution can be sufficient for several years, but eventually you may want to move to Step 2.
Step 2 is Medium Automation. This is more advanced than Excel, but without as many bells and whistles as the advanced RMS software. Compared to more advanced RMS software, this is more affordable and and easier to implement and understand, but still provides lots of automation and value.
One example is that the software might pull rates and availability directly from the PMS and show you which dates rates need to go up or down. However, once you make your decisions, you have to go into the PMS to make rate adjustments manually. This should only take a few minutes per day, so it still enables you to adjust rates every day.
There are other limitations like room rate differentials, which need to be fixed, and cannot vary by date. If your Premium Suite is always 30% more then your Standard Suite, then this solution can work fine and be highly automated.
Solutions in this category can be obtained for $300-800 per month in software expense, plus $0-$1,000 in set up fees. Plus $1,000-$3,000 per month in labor.
Step 3 is full automation. If you have spent a few months going through steps 1 and 2, then it will become clear to you if you need to go further into Step 3. If you are getting good data in the RMS and making decisions every day to change rates, but find it cumbersome to go into the PMS to actually make the rate changes, then you are probably ready for Step 3.
Solutions in this category will pull data from PMS (like above), but will also Push data to the PMS. This means that you can analyze the data in the RMS, make decisions, and then implement in the RMS. Then the RMS pushes those rate changes into the PMS and implementation flows out to all channels.
Another common feature in more advanced solutions is that you can change room rate differentials by time of year. If Room Type B is 30% more than Room A in the Summer, but only 10% more in the Winter, then a more advanced system will give you the ability to automate these changes. You can also automate more decisions, so that changes in competitor rates or availability can trigger certain rate changes automatically.
Highly automated software will cost more and the users must have more advanced skills in Revenue Management and software training. However, these tools can save a lot of manual labor and enable quick and clear decision-making about future dates, room types, and competitors. Decisions can be made more quickly and frequently, which can have a big impact on hotel bookings, revenue, and profits.
These solutions tend to be more suitable for hotels that have 50-100 rooms (or larger) and high ADR. Costs can be $800-$1,000 per month, plus set up fees of $2,000 to $10,000. For the right hotel, this investment is worth every penny, because they are impacting lots of room volume and revenue. But you must have a "culture of revenue management" (people and process), before you invest in these tools, or you may not take full advantage of them.
There are other considerations as well. Revenue Management can bring tremendous financial benefits to a hotel, but only if certain things are in place first. Your data has to be clean and updated regularly. If you missed our blog on this topic, you can check it out here: Is your DATA ready for Revenue Management?