How to Optimize Function Space Revenue Management

June 10, 2019 By Stan van Roij

Achieving optimal results on revenue management in hospitality function spaces is an ongoing challenge. Even the experts struggle with getting it right, including how to set the right key performance indicators (KPIs) so they can accurately measure areas of growth and improve upon them.

So, let’s see if we can demystify the challenge of optimizing revenue for your meetings and events spaces. First, we’ll look at the similarities as well as the differences between revenue management as applied to guest rooms and function rooms respectively.

Understanding function room supply vs guest room supply

The base elements of optimizing revenue for both space types are simple. Available rooms, your supply, is fixed and does not change. At the same time, they’re perishable; you can’t sell yesterday’s empty meeting rooms today.

In addition, different customers are willing to pay a different price. For both guest rooms and function spaces, you can manage segmentation factors to differentiate the prices applied to the various products offered. So far, managing function spaces and guest rooms is a pretty similar exercise. Let’s look at the differences.

A guest room is for overnight stays commonly for single and double occupancy using a measurement of days and nights. The intent here is clear, and so are the measurements for success when it comes to tracking revenue. But a function space represents additional variables. A function space is for daytime and evening activities for multiple attendees. It might be sold two or three times a day for different events for a few hours each or just once in a span of a week for a single event.

With these factors in mind, the conditions by which guest rooms and function rooms are sold have to be treated differently. So, how do you get optimal revenue in a function space?

Useful KPIs for function space revenue management

If the conditions under which guest rooms and function spaces are sold differ so significantly, what’s needed to successfully optimize revenue management activities for function rooms is to decide on the right KPIs. Below are some common examples that can help you track and measure the revenue performance of the function space in your properties and identify areas of improvement.

  • Occupancy and physical space by area
  • Number of attendees
  • Average spend by each attendee
  • Conversion rates - confirmed, lost, cancelled
  • Usage hours - time, daypart

When it comes to determining optimized revenue results, it’s important to consider that any single KPI does not always tell you the full story. Combining KPIs and creating clarity between them is best practice to give your analysis greater dimension and meaning.

Combining KPIs for a fuller picture of success

For instance, the function room conversion rate KPI expresses the ratio between the total demand (inquiries received) and the actual captured/booked functions. Say that your conversion ratio this year was 70%, meaning that for every ten inquiries, seven converted to bookings. If last year’s conversion rate was 80%, your first reaction may be that you’re experiencing a loss. But perhaps there are other factors that can give you a fuller picture beyond that single KPI.

Let’s combine the conversion ratio with another KPI: revenue per square feet/meter. With that KPI in place, you may get a different story. For example, if this year’s average RevPASF/M is 10.75m against last year’s figure at 6.20m, you have increased your revenue. Combined with the conversion ratio, the data indicates that you have converted fewer bookings, but the ones you secured were sold at a higher yield overall.

What’s your revenue management situation right now?

Hopefully this discussion provides further insight to the importance and possibility of increased revenue with focused attention on function space revenue management.

if you do have function space at your property, it means that there many opportunities to start paying attention to this important source of revenue. If you haven’t already, it may be time to start thinking about how efficiently you’re using your space, and how you’re tracking revenue as a result.

For more information about revenue management solutions, take a look at the Infor EzRMS product page.

Filed Under
  • Financials
  • Trends
  • Hospitality
  • EzRMS Hotel Revenue Management Software
  • Worldwide
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