Hotel Revenue Management Strategy: Your Guide to Maximising Revenue

What is Revenue Management in Hotels?

Hotel revenue management, sometimes referred to as yield management, shares its roots with the flexible pricing tactics employed by airlines. This concept seamlessly transitioned to hotels, where unsold rooms represent lost revenue.

We advocate for a holistic approach to revenue management, where every aspect of the business is aligned to maximise profitability. It must be integrated into the hotel’s culture and embraced by all employees. A strong revenue manager, equipped with both soft and hard skills, can drive this culture and align the hotel’s direction to achieve its objectives. The role of revenue managers has evolved significantly. Today, they need to automate tactical tasks and focus on strategic revenue management, shifting from merely descriptive to prescriptive approaches.

Ways Revenue Management Benefits Your Hotel

Revenue management plays a crucial role in the competitive and cost-heavy hotel industry. Adopting a holistic strategy allows for optimisation of room revenue and other perishable services such as dining, meetings, and spa treatments. This comprehensive strategy enhances Total Revenue Per Available Room (Total RevPAR) and improves resource planning, ensuring the best guest experience.

Developing Your Revenue Management Strategy

Market Segmentation

A successful strategy begins with understanding your guests—who they are, what they need, and their value to your business. Market segmentation can be based on booking channels, group size, demographics, or length of stay. However, segmenting by booking motivation provides deeper insights into guest behavior and spending patterns, allowing for tailored strategies that attract the most lucrative guest mix.

Segments to Consider for Your Hotel

• Leisure Travel: Individual leisure guests, who often book through OTAs, pay higher rates but are less profitable. Leisure groups, like golf societies, book well in advance and may spend more elsewhere.
• Business Travel: Business travelers book last minute at higher rates, while business groups book earlier at lower rates but have higher on-property spend.
• Corporate Negotiated: These bookings fill slow periods with low rates, while conference groups, despite low room rates, generate high ancillary revenue.

Hotel Demand Forecasting

Understanding segmented guest behavior leads to accurate demand forecasting. This involves analysing unconstrained demand (total demand regardless of capacity), constrained demand (demand that can be supplied), and competition. Key data points include RevPAR from the previous year, group bookings, demand indicators, holidays, and competitor data. Traditionally done manually, demand forecasting is now often handled by Revenue Management Systems (RMS) to enhance accuracy and efficiency.

Room Inventory Management

Effective inventory management involves distributing room inventory across channels, understanding booking lead times, and balancing overbooking risks. This process maximises revenue while maintaining guest satisfaction. OTAs provide reach but are costly, whereas direct bookings save on commission but often come at lower rates.

Hotel Pricing Strategies

Dynamic pricing is central to revenue management, adjusting rates based on supply and demand. Other strategies include:

• Price Skimming: Setting high rates to attract affluent guests.
• Value-Added Pricing: Bundling extras to enhance perceived value and generate additional revenue.
• Length of Stay Discounts: Encouraging longer stays to reduce costs and increase ancillary spending.

Hotel Revenue Management Systems

In the field of revenue management, data analysis plays a pivotal role, demanding swift decisions to seize opportunities. We strongly advocate for hotels to harness the power of software and technology to maximise revenue.

Revenue Management Systems operate tirelessly, analysing vast datasets around the clock. By amalgamating internal and external data, they forecast demand and compute optimal room rates in real-time. This instantaneous calculation empowers continuous pricing optimisation. A robust RMS typically encompasses channel management capabilities, enabling seamless adjustments across platforms via a centralised dashboard.

This automation liberates revenue managers from manual tasks, empowering them to concentrate on strategic revenue management endeavors.

Cultivating a Revenue Management Culture

At Radka Telyckova, we advocate for a revenue management culture where all employees understand and contribute to revenue optimisation. This approach not only increases revenue but also enriches the guest experience through personalised service recommendations.

Revenue Management Performance Metrics

Beyond RevPAR, modern metrics include:

• TRevPAR (Total Revenue Per Available Room): Measures total revenue including non-room revenue.
• Net RevPAR: Accounts for distribution and transaction costs.
• RevPAM (Revenue Per Available Meter): Evaluates conferencing and banqueting performance.
• GOPPAR (Gross Operating Profit Per Available Room): Assesses overall financial performance.

Implementing Revenue Management

Start with a comprehensive revenue management audit to identify patterns, risks, and opportunities. Depending on your needs, decide on on-property, centralised, or outsourced support. Embracing technology, particularly RMS, is crucial for maximising revenue.

Revenue management requires a blend of analytical, theoretical, and practical skills but offers substantial benefits.

For personalised guidance and support, contact our team of expert consultants for a free consultation. Maximise your hotel’s revenue and enhance guest satisfaction today!