Frank Pitsikalis, senior VP of Agilysys, highlights how a change in general manager compensation will shift KPIs to revenue per available guest (RevPAG).
For years, hotel general managers (GMs) have been incentivised based on RevPAR (revenue per available room), a metric that assesses the revenue from room sales. While straightforward, this model often prioritises room occupancy over holistic guest experiences and other lucrative revenue streams like food and beverage (F&B), spa services, or other wellbeing activities. With GMs’ bonuses tied to RevPAR, there is little incentive to optimise total guest revenue, resulting in missed opportunities for driving profit across the property.
Recent research from Axonify highlights that employees in the hospitality sector often face misalignment between operational priorities and management incentives, with over 50 per cent of hotel staff feeling disengaged at work due to unclear objectives. This disengagement can be exacerbated by compensation models that limit GMs’ focus to room revenue, detracting from efforts to drive spending in other areas.
To better reflect the evolving demands of modern travellers, the industry must shift from RevPAR to more comprehensive metrics like RevPAG (revenue per available guest) and TrevPAR (total revenue per available room), which encourage a more balanced approach to revenue management.
The hidden cost of overlooking revenue opportunities via the guest experience
RevPAR’s simplicity has made it a popular metric, yet it neglects the full scope of a hotel’s revenue potential. When GMs are compensated based solely on RevPAR, strategies can skew towards filling rooms at any cost. For example, offering complimentary F&B services to secure room bookings might boost RevPAR but sacrifice significant revenue that could have been generated through premium offerings. This narrow focus not only undermines total revenue potential but can also lead to guest dissatisfaction if non-room amenities are treated as afterthoughts.
Axonify’s study highlights that frontline staff, who play a pivotal role in shaping guest experiences, often lack the guidance needed to prioritise revenue-driving activities across departments. A shift towards RevPAG or TrevPAR would incentivise GMs to integrate all aspects of guest engagement into their management strategies, addressing these operational disconnects.
How RevPAG and TrevPAR are redefining hotel profitability through personalisation
Unlike RevPAR, RevPAG and TrevPAR capture the entire revenue landscape by considering all sources of income – from F&B and wellness services to event bookings and ancillary sales. By linking GM compensation to these metrics, hotels can incentivise practices that drive holistic revenue growth. This means not just aiming for high occupancy but creating packages that add value, upselling services, and designing bespoke experiences that cater to individual guest preferences.
Furthermore, RevPAG encourages hotels to tap into the increased spending power of modern travellers who value convenience and personalised experiences. Data-driven strategies can reveal insights into guest behaviour, allowing hotels to offer curated services that boost revenue per guest. By compensating GMs based on the total revenue generated, rather than room revenue alone, hotels align incentives with a revenue model that prioritises both guest satisfaction and profitability.
Why it’s time to link GM bonuses to total guest revenue
The crux of this shift lies in how GMs are rewarded. When bonuses and salaries are linked to RevPAG or TrevPAR, GMs are motivated to adopt strategies that maximise the entire guest journey’s revenue potential, rather than focusing solely on filling rooms. The alignment of GM compensation with comprehensive revenue metrics fosters an approach where additional services, such as spa treatments or fine dining, are viewed as integral components of the guest experience. This change would also ensure that frontline staff receive the support needed to drive engagement across all departments, improving job satisfaction and reducing the disconnects highlighted by the Axonify research.
The cultural transformation needed to embrace total revenue management
Transitioning from RevPAR to RevPAG or TrevPAR involves more than just adjusting performance metrics; it requires a cultural transformation within the organisation. Hotels must invest in training, equipping staff at all levels to understand and contribute to total revenue management. This aligns with the Axonify findings that employees perform best when their objectives are clear and their roles are structured to support the broader business strategy.
Hotels will also need to adopt advanced data analytics systems that can track and interpret comprehensive revenue data. By providing GMs with actionable insights, these systems enable them to make informed decisions that promote balanced growth across all revenue streams.
How moving beyond RevPAR can drive the bottom line and guest satisfaction
RevPAG and TrevPAR present an opportunity to move beyond outdated metrics and address operational inefficiencies. By redefining GM compensation to include total revenue, hotels can encourage a balanced approach to revenue management that meets the evolving expectations of today’s guests. This strategy not only drives profitability but also fosters long-term loyalty by enhancing the overall guest experience.
As the hospitality industry continues to innovate, realigning compensation with more comprehensive revenue metrics like RevPAG and TrevPAR will be crucial for staying competitive in an ever-changing market. Embracing this shift ensures hotels can unlock their full potential, optimise every aspect of the guest experience, and achieve sustainable growth.
