RM STORIES / CHAPTER 1

An Exceptional Quarter

Every commercial measure improved. Why did the hotel produce less profit

Why I'm writing this

Years ago, one of my former students insisted that I read The Goal. I kept having to put it down, not because it was difficult or dull, but because almost every chapter made me stop and think about how its ideas applied to revenue management.

Eliyahu Goldratt used a story to show how capable managers can improve all the measures they have been taught to manage while the organization itself becomes worse off. I later assigned the book to my students, and many of them actually thanked me for making them read it. Students thanking a professor for an assigned book is a sufficiently rare event that I paid attention.

I see the same underlying problem in hotel revenue management. We have become very good at managing occupancy, ADR, RevPAR, and market share. Those measures are useful, but improving them does not necessarily produce a better economic outcome for the owner. And “manage for profit” is not as simple as substituting GOPPAR or another measure for RevPAR. Acquisition costs, operating costs, ancillary contribution, labor, ownership objectives, and organizational incentives all interact.

I could explore those issues through another article filled with frameworks and formulas. Instead, inspired by The Goal, I decided to try a story about a hotel whose managers are doing almost everything they have been taught to do, and doing it well. That is where this story begins.

Monday mornings were Carlos’s favorite.

Every week, just before eight-thirty, the hotel’s commercial team gathered in the boardroom overlooking the pool. Coffee was poured, laptops opened, and the large monitor at the front of the room displayed the dashboard that had become their scorecard. Revenue management reviewed demand and pricing. Sales discussed group pace. Marketing summarized booking trends. Victor, the controller, reported performance against budget. Carlos listened, asked questions, and tried to make sure everyone left the room aligned around the same priorities.

He hadn’t always enjoyed these meetings. When Carlos became general manager four years earlier, every function measured success differently. Sales wanted more groups. Marketing celebrated website traffic. Revenue management focused on RevPAR. Operations worried about whether the hotel could deliver what the commercial team had sold. Each group had good people making reasonable decisions, but they were not always making the same decisions.

Over the next four years, Carlos had patiently built a different culture. Forecasts became more accurate. Meetings became less political. The commercial team stopped defending its own numbers and began solving problems together. Once the commercial plan was set, operations knew what it had to deliver. It wasn’t perfect, but it was the most coordinated team Carlos had ever managed.

The timing couldn’t have been better. In six weeks, the ownership group would decide whether to extend the management agreement for another five years. No one had said the contract was in jeopardy, but everyone understood that strong performance would make the decision much easier. Carlos wasn’t worried. Looking at the dashboard, he couldn’t imagine presenting a stronger case.

Diane, the ownership representative, sat near Carlos. She attended these meetings every month or two, and Carlos respected her because she never overreacted. She asked difficult questions, but they were usually the right questions.

Beside her sat Dr. Lin, a woman Diane had introduced the previous afternoon with little explanation beyond saying that she would spend a few days observing the hotel’s commercial planning process.

Occupancy had risen from 74.2 to 78.6 percent. ADR had increased from $225 to $229, lifting RevPAR from $167 to $180. The hotel’s RevPAR Index had climbed from 108 to 115, its sixth consecutive month of market-share gains. Direct bookings had grown from 42 to 49 percent of room nights, while dependence on third-party channels declined.

The revenue manager pointed out that convention business had added more than 2,100 room nights during what had traditionally been some of the weakest weeks of the year. Sales added that those groups had generated nearly $800,000 in banquet revenue, about $250,000 more than during the same quarter last year. Every number reinforced the same conclusion. The strategy was working.

Carlos advanced to the final slide and looked around the room. “I think we’ve finally found our rhythm,” he said. “A year ago, we were reacting to demand. Now we’re managing it.”

There was no applause, just the quiet satisfaction that comes from a team recognizing its own progress. Revenue management highlighted another gain in RevPAR Index. Sales described several high-value group wins. Marketing talked about stronger guest engagement and healthier direct-booking trends.

Dr. Lin looked up from her notebook. “When you call a group high value, what exactly do you mean?”

The sales director seemed surprised by the question. “Strong room revenue and substantial banquet spending,” she said. Dr. Lin wrote something in her notebook but offered no response.

The discussion continued, calm and confident, the kind of meeting every general manager hopes eventually to have.

Carlos closed his laptop. “I think we’ve had an exceptional quarter.”

Diane smiled. “I agree. Congratulations. You’ve achieved every commercial objective we established at the beginning of the year.”

The room relaxed immediately. Someone joked that perhaps this month there would finally be fewer emails from corporate. Carlos leaned back in his chair, allowing himself to enjoy the moment. Hotels had a way of humbling even experienced managers, and victories rarely lasted long enough to celebrate.

Then Diane opened the thin folder in front of her.

"There is one thing I don’t understand.”

The conversation stopped. Diane looked down at the financial statements before turning toward the dashboard still glowing on the screen.

“Can someone explain why gross operating profit was down $183,000?”

There had to be an explanation. Perhaps an unusually large maintenance project. Maybe insurance costs had increased. Someone suggested labor. Another mentioned utilities. Each explanation sounded plausible.

Carlos turned toward Victor. The controller had already opened the financial packet. “Room revenue was up nearly $800,000,” Victor said. “Total hotel revenue was up just over $1 million.” He paused and looked back at the statement. “There isn’t one large variance. The difference is spread across several lines.”

After several minutes, Diane quietly closed the folder.

“I don’t think you’re hearing my question.”

The room fell silent.

“I’m not asking where the money went.” She looked toward the dashboard. “I’m asking why a hotel that improved on every one of these measures produced less profit.”

No one spoke.

Carlos found himself staring at the measures on the screen: Occupancy. ADR. RevPAR. Market Share. They were the numbers he had spent his entire career trying to improve. Every conference presentation, benchmarking report, and performance review had reinforced their importance.

Looking at them now, they didn’t seem wrong.

They simply no longer seemed sufficient.

The meeting ended a few minutes later. Conversations resumed in the hallway as people returned to their offices, each carrying a different theory about what had happened. Carlos gathered his laptop and paused before leaving the room.

Dr. Lin remained beside Diane, placing her notebook into her briefcase. As Carlos passed her, he thought again about the question she had asked. Everyone had answered with revenue. No one had answered what the group was worth. He wanted to know what she had written.