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Hotel Revenue management 101

HOTEL REVENUE MANAGEMENT 101

Revenue Management involves careful analysis, planning, and collaboration with other departments. The revenue manager needs to have a fundamental understanding of the hotel business as well as an analytical mindset, whilst being savvy in sales and marketing. They should have access to historic and current booking data, in order to establish pricing scenarios relative to market conditions.

REVENUE MANAGEMENT - ORIGINS:

The concept evolved from innovations in the airline industry where yield-management techniques, such as dynamic pricing and customer segmentation, were first implemented to maximise flight ticket sales.

REVENUE VRS YIELD MANAGEMENT – THE DIFFERENCES?

Revenue management and yield management are closely related. The main difference between the two is the time frame. Revenue Management is strategic and is intended to balance the elements of pricing, inventory, and distribution in a strategic approach to optimizing revenue.

Yield management is more tactical and focuses on managing pricing and occupancy in order to maximise revenue over the short term based on market conditions.

REVENUE MANAGEMENT CULTURE:

Good revenue management starts by taking a close look at the hotel’s operating performance and market environment. Hotel management needs to have a culture that recognises the importance of earning revenue at the various (customer) touch points, before arrival and during their stay at the hotel.

Earlier, we identified the differences between Yield Management and Revenue Management. The right mindset and culture will make it easier to implement a holistic Revenue Management strategy as opposed to just performing tactical yield management.

Because Revenue Management overlaps many data points and will involve the help and contribution of other departments (like F&B, MICE etc) in order to meet your revenue goals, it pays to know whether the management and the rest of your team is fully committed over the long term.

To assess if your hotel is up for the challenge – you should ask the following questions:

  1. Do you know where your customers are coming from?

  2. Do you know what your market mix is?

  3. Do you keep an eye on competitor pricing?

  4. What is the hotel pricing strategy?

  5. Are your leads and proposals turning into actual business?

  6. Can you identify the cause of demand changes or rate disparities at your hotel?

  7. Are you knowledgeable about the area and events or attractions that influence purchase behaviour?

Of course, positive answers can help but doesn’t always guarantee you’ll be able to prepare a revenue management plan that’ll work well with the resources at your disposal.

THE ESSENTIALS:

Good Revenue Management does not just happen in isolation. The essential resources and tools needed to perform basic Revenue Management starts with:

  1. Dynamic Pricing:

    Implement dynamic pricing that adjusts room rates based on real-time demand, market conditions, and other factors. By analysing historical data, competitor rates, and market trends, hotels can set optimal prices that maximise revenue. Implementing a dynamic pricing strategy allows hotels to capture additional revenue during periods of high demand and adjust prices during periods of low demand to stimulate occupancy.

  2. Segmentation and Targeting:

    Segmenting the market of your hotel’s customers and target specific market groups to optimise revenue generation based on their spending habits. Hotels can identify high value segments, such as business travellers, families, or luxury seekers, and tailor marketing efforts and pricing strategies accordingly. By understanding different segments' unique needs and preferences, hotels can attract the right guests and maximise revenue through targeted promotions and personalised experiences.

  3. Yield Management:

    Implement a yield management program that involves allocating the right room inventory to the right customer at the right time. By forecasting demand patterns, hotels can strategically allocate available rooms to maximise revenue. This includes implementing minimum length-of-stay requirements, managing room types and upgrades, and adjusting restrictions on booking channels. Yield management techniques ensure efficient use of inventory and revenue optimization.

  4. Distribution Channel Optimization

    Managing distribution channels effectively is crucial for maximising hotel revenue. Hotels should evaluate and optimise their presence across various online travel agencies (OTAs), global distribution systems (GDS), direct bookings, and other distribution platforms. By carefully managing distribution costs, commission rates, and channel performance, hotels can drive direct bookings, reduce dependency on high-cost channels, and retain more revenue.

  5. Upselling and Cross-selling:

    Implementing upselling and cross-selling strategies can drive incremental revenue. Hotels can offer guests upgrades, additional services, and amenities during the booking process, at check-in, or during their stay. By providing compelling value propositions and personalised recommendations, hotels can increase average revenue per guest and enhance the overall guest experience.

  6. Loyalty Programs and Customer Retention:

    Investing in customer loyalty programs can boost revenue by encouraging repeat visits and fostering guest loyalty. Loyalty programs provide incentives, rewards, and exclusive offers to loyal customers, encouraging them to book directly and increasing their lifetime value. By nurturing relationships with loyal guests, hotels can reduce acquisition costs and drive higher revenue through direct bookings and ancillary services.

Since this is the era of big data, you’ll need both software and staff to make sense of the abundance of data available, which is why revenue managers with analytical skills are so valuable.

WHY IS HOTEL REVENUE MANAGEMENT IMPORTANT?

Hotel revenue management is crucial for several reasons:

  1. Establish a culture and awareness of the importance of Revenue Management:

    Recognizing you can boost your hotel revenue as a result of implementing different initiatives (as we discussed above) in the area of pricing, marketing, package deals and distribution, we can establish a culture to help drive better revenue and gross operating profit to our hotel over time.

  2. Competitiveness:

    With competition intensifying in the hotel industry, revenue management can help keep prices and offers competitive. This means the opportunity of generating real profit exists as long as you offer rates that meet travellers’ expectations and offer more benefits than what similar competitors are offering.

  3. Availability and Best utilisation scenario of rooms Inventory:

    Hotel revenue management allows the hotel to monitor room usage closely, taking measures to increase room availability and maximise occupancy at any given time;

  4. Understanding your customers:

    Analysing data related to hotel revenue allows you to develop a closer relationship with your customer’s, so you can tailor your rates and packages to accurately reflect their expectations.

  5. Finance and operations:

    Key to running a profitable hotel is revenue management. Revenue Management helps you identify, optimise and allocate working capital and budgets based on your source income and booking data.

  6. Adapting to changing market and conditions:

    By having a holistic Revenue Management culture, you can quickly adjust the key elements of rate, occupancy and distribution management according to changing market conditions, seasonal travel as well as your customer’s needs.

  7. Hotel response to major events:

    Hotel revenue management allows you to plan ahead and develop a roadmap of planned events within the local area. This can help you prepare unique offers tailored to event travellers and maximise room revenue ahead of time.

  8. Branding, reputation, and public perception:

    The work revenue management puts into reaching the right guests with the right pricing and amenities can affect customer satisfaction. Public perception improves with every happy customer that recommends the hotel and shares their experience via positive online reviews

WHAT HAPPENS IF HOTEL REVENUE IS NOT MANAGED PROPERLY?

Failing to manage hotel revenue can negatively affect every aspect of hotel performance. Revenue managers who do not track, analyze, and use revenue reporting tools could:

  1. Push the hotel into competing unnecessarily with other hotels

  2. Harm the hotel’s reputation

  3. Hurt guest loyalty

  4. Lead to missed rate opportunities

  5. Protect against rostering too many staff during slow periods

  6. Ensure adequate numbers of staff are working during the busiest times

CONCLUSIONS:

To successfully manage the revenue of your hotel, you need to make sure a revenue management culture exists and that you have access to the necessary resources and tools. This is because it's not an easy job and will involve careful analysis of the operation and the contribution from others in your team.

Revenue management can help to boost hotel revenue and profitability through dynamic pricing, market segmentation, yield management and channel distribution. For larger hotels, Revenue Management may involve upselling and cross-selling different services, as well as investing in customer loyalty programs to help drive revenue growth to further enhance profitability.

In a competitive hospitality market, revenue management allows owners and managers to position themselves for sustainable growth and continued success.

Hoteliers Guru has recently launched a Revenue Management Service for Boutique and Independent hotels. If you’d like more information about our services please contact us by email: [email protected]

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