How can a revenue manager build a productive relationship with a hotel asset manager?
The revenue manager interacts with various stakeholders. They include management company, owners or their representatives, and third-party vendors. Good and productive relationships with all parties involved are crucial for the revenue manager to succeed. Building a relationship takes time and, most importantly, understanding various stakeholders' goals and needs.
In this article, I explain the Asset Manager's role and how the revenue manager can build a productive relationship with the representative of the hotel owner's interests.
The Asset Manager's role
Hotel owners have an option to manage the hotel themselves or hire a management company. Most owners choose to delegate property management to an experienced hotel operator for a fee. Hotel owners could stop here and wait for results. However, there is a need to oversee the management company. Someone needs to make sure the operator is maximizing profit and asset value. Asset manager fulfills this crucial role.
By hiring an asset manager, the owner receives a specialist partner that is an expert in the hospitality industry. The asset manager provides an outside eye on the business, ensures that the hotel owner's interests are protected, and manages the relationships between the owner and the hotel operator.
Hotel owner's interests vs. hotel operator's interests
The interests of the hotel owner and operator do not always align. The hotel operator focuses on maximizing revenue rather than profit to earn more management fees, expanding geographically, and building up & protecting brand standards. The hotel owner aims to maximize the profit, optimize and maximize the hotel's value, maintain and improve the physical asset.
The asset manager works to align the hotel owner's and operator's interests by monitoring operation, checking management contract compliance, controlling CapEx, maximizing cash flow and returns, and increasing real estate value. The asset manager also ensures the operator uses the industry's best revenue management, sales & marketing practices.
The benefits of hiring an Asset Manager
The benefits include:
- interpretation and verification of calculations, budgets, financial statements, and reports submitted by the operator
- ensure compliance with the management agreement
- analysis of budget proposals and marketing plans
- optimization of cash flow and owner's return
- liquidity management
- loan negotiations
- prioritization of owner's repayments
- control of receivables
- monitoring of balance sheet, etc.
Without an asset manager, hotel owners can face negative consequences such as not achieving optimal hotel real estate value, missing budget and financial targets, overlooking savings and revenue-generating opportunities, imbalanced and short-term focused approach to managing the hotel, mismanagement of working capital, and many more.
We can conclude that an asset manager is vital for a hotel owner. Hotel operator needs to recognize that and aim to build a productive relationship with the owner's representative.
Revenue Manager and Asset Manager
The hotel revenue manager works closely with an asset manager. Whether it's a weekly strategy meeting, discussion of monthly results, or budget process, the revenue manager has to collaborate with an asset manager on a regular basis.
Usually, the revenue manager works for the hotel operator and does not report to the owner and asset manager. Such structure creates possible misalignment as the revenue manager follows the operator's goals, views, and business practices. As the owner's representative, the asset manager can challenge the revenue manager's strategies and decisions even if the operator deems them acceptable.
The revenue manager needs to align the operator's and owner's interests, understand the asset manager's role & goals, and speak the language that the asset manager will understand.
The synergy
Profit vs. Revenue
The revenue manager has revenue goals and is incentivized by the operator to increase RevPAR and market share (RGI). Asset manager thinks in terms of profit.
Possible solutions:
- agree on net RevPAR goals
- discuss and create a distribution strategy that is focused on the most profitable channels
- develop upsell strategy that brings additional revenue at minimum cost
- always discuss the costs and ROI of revenue and marketing initiatives
- present the results from a profit standpoint (for example, less room revenue this year but more profit due to effective cost-saving strategies)
Room revenue vs. Total hotel revenue
Revenue manager tends to focus on maximizing room revenue. For the asset manager, Rooms is only one of many revenue-generating departments.
Possible solutions:
- develop a total revenue management approach
- maximization of revenue in rooms department must not lead to loss of revenue in other departments
- create and implement group business negotiation procedures that will maximize total hotel revenue (rooms, F&B, Meeting spaces, Spa)
- create packages that generate revenue for multiple departments (room + parking + spa + breakfast, etc.)
- educate leaders of all department about revenue management best practices and collaborate closely to maximize total revenue for the hotel
Short-term vs. Long-term approach
Asset manager focuses on a longer time horizon and aims to maximize asset value. The revenue manager focuses on the current and next year to achieve revenue goals.
Possible solutions:
- understand the asset's long-term goals (ADR, RevPAR, Market Share, etc.)
- avoid short-term solutions (for example, discounting) that will help with the current year's revenue goals but will negatively affect long-term strategy (for example, ADR and asset value growth)
- avoid business decisions that might help with current challenges but will harm the hotel's reputation, customer loyalty, and strategic positioning. For example, attracting new guest segments that will not be well-perceived by the primary and largest guest segment or selling through a distribution channel that will hurt the hotel's reputation.
Conclusion
Productive collaboration starts with the understanding of goals and reasons behind the other person's actions. It's essential to look at the situation from different points of view. Asset and revenue managers have a lot in common. Both are tasked with maximizing the owner's return on investment. Priorities, methodology, and focus areas can be different, but understanding of each role's specifics, collaboration, and diplomacy will lead to productive relationships and excellent business results.
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Recommended Course:
Ecole Hoteliere de Lausanne - Hotel Asset Management