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How To Develop A Revenue Management Strategy For Your Hotel

Hoteliers in the UK are contending with a challenging economic environment that has seen the cost of living and energy soar, huge labour shortages, interest rates rising and now, a recession. An effective revenue management strategy, consequently, has never felt more significant, as it can enable a property, regardless of size, to maximise its revenues and ensure it survives this period of uncertainty.

In this article, I explain what a hotel revenue management strategy is, the key elements of a revenue management strategy used in the hotel industry and how you can develop the right revenue strategy for your property.

What Is A Hotel Revenue Management Strategy?

A hotel revenue management strategy is a plan of action designed to achieve one or more specific goals relating to the purpose of maximising revenue, under conditions of uncertainty.

For example, a hotel may want to maximise its profits by looking to reduce its channel costs. Consequently, it may decide to provide new customers who made their reservation through an online travel agent that charges the hotel a commission of 15-20%, with a discount of 5-10% on any future reservations they make with the hotel directly. This strategy would help the property generate more profitable bookings in the future.

Why Do Hotels Need A Revenue Management Strategy?

A revenue management strategy can help hotels to realise their true revenue potential by maximising their revenues and profits from the limited, perishable inventory and services they have available. An effective revenue strategy also ensures that both fixed and variable costs are adequately covered too.

For a hotel to achieve its goals, it often requires a strategy of a bespoke nature – one that takes in to consideration the different types of customers with varied purposes of travel, each with their own respective willingness to pay and demand that varies frequently over time.

Who Is Responsible For A Hotel’s Revenue Management Strategy?

At most hotels that have use of a Revenue Manager, that individual is usually made ultimately responsible for the revenue strategy that will support the achievement of the hotel’s objectives. However, whilst clarity and direction are essential for revenue management, it is equally important that sufficient time is spent discussing, developing and subsequently managing the revenue strategy with all stakeholders that comprise the revenue team and that this is then shared with all staff.

Such stakeholders, for example, could be, the General Manager, Sales and/or Marketing Director, Operations Director, Finance Director, Front Office Manager and Reservations Manager.

What Are The Key Elements Of A Revenue Management Strategy?

Below are 7 key elements of any great revenue management strategy that any property, regardless of type, size or amenities, should consider:

1. Taking A Holistic Approach

Constructive collaboration with all departments, particularly Sales & Marketing, is essential to ensure that each of the individual departmental strategies are aligned with the wider revenue strategy. A holistic revenue strategy is designed to maximise all revenue streams and create a platform to address any challenges encountered collectively. It ensures that Heads of Department are listened to and on board and that all their staff know what they must do to play their part.

2. Understanding Your Market

Knowledge of your local market is powerful – where demand originates from, on what dates and days of the week demand is likely to be high and low and any local events that influence demand too. You also need to ascertain exactly who your competition is, their reputation and what they offer prospective guests in terms of their amenities, location, pricing and products. Knowing these trends so that you can seek to capitalise upon them and how you compare to your competitors can help you maximise your revenues. 

3. Knowing Your Guests

It is critical that you segment your different customers by their purpose of travel and scrutinise their booking behaviour. Who are they and what do they require? Are they travelling as part of a group, for leisure purposes, on business or are they mixing the two as a Bleisure guest? How and when do they make their reservations? By undertaking this process, you will be able to clarify who your highest spending and most profitable guests are and devise strategies to ensure you attract and subsequently retain these guests.

4. Forecasting Demand

Forecasting demand for your property, from each of your defined customer segments, can help you to accurately anticipate future reservations and determine their respective value. This information will help you decide which reservations to accept and when so that you can maximise your revenues! This requires an ability to analyse and draw conclusions from related historical, current and future data, such as past and existing reservations, local events and your competitors’ prices – skills that any great hotel revenue consultant will possess!

5. Creating A Pricing Methodology

There are a range of pricing methods that you can use effectively to maximise revenues for your property – some you can use simultaneously, but one of the most frequently used is known as dynamic or time-based pricing, which, by definition, is selling the same products at different prices to different customers. This method allows hotels to optimise prices by changing them (rather than keeping them static), as often as deemed necessary, based on market data and property conditions, to increase revenue and maximise occupancy.

Some other pricing methods include discount pricing, length of stay pricing, open pricing, penetration pricing, positional pricing and value-added pricing.  

6. Controlling Inventory & Distributing Strategically

Determining which channels to use, when to open and close them and the quantity of rooms that you will allocate each distribution channel is a crucial element of any revenue strategy. Some Online Travel Agents (such as & Expedia) help market your property to a global audience but are considered costly to use. Whilst reservations you take direct will cost you much less, it may be that you must provide a discount to the customer to secure their reservation directly. To find your best approach, we recommend reviewing your historical data so you can understand how far in advance your customer’s make their reservations, via each channel and decide when to accept (and reject) reservations to maximise prices.

7. Analysing Performance

Before you devise your strategy, define your objective, so that you can measure and track your performance and identify opportunities to improve. Below are some key metrics used by hoteliers to measure the success of their long-term revenue strategies:

RevPAR (Revenue Per Available Room) = Room Revenue / Total Number of Rooms Available

TRevPAR (Total Revenue Per Available Room) = All Revenue / Total Number of Rooms Available

GOPPAR (Gross Operating Profit Per Available Room) =  (Revenue – Expenses) / Total Number of Rooms Available

Net RevPAR (Net Revenue Per Available Room) = Net Room Revenue / Total Number of Rooms Available

How To Develop A Hotel Revenue Management Strategy

To help you develop the most appropriate revenue management strategy for your property, you must ensure all those individuals that comprise the revenue team are present. It is crucial that each individual is given an opportunity to offer their input to ensure a collaborative agreement is found and that buy-in from all involved, to work towards the defined goals and objectives, is acquired.

The development of a hotel revenue management strategy may take just one or several meetings and the following topics should be discussed:

  1. Demand Targeting – Identify which customer segments will generate the greatest profit so that you can focus more on these and less on the least profitable guests.
  2. Acquisition Planning – Devise plans that outline how you will reach the segments you have identified that will help you to achieve your goals and objectives.
  3. Customer Retention Plan – Establish how you intend to retain your customers – in what ways will you communicate to, incentivise and target your previous customers directly so that they will stay with you again in future?
  4. Revenue Per Available Customer Value – Identify which customers provide the greatest value to you based on their total spend, when they stay with you and their preferred booking method and create a plan that targets them.
  5. Channel Costs & Shifts – Ascertain the cost of each channel so that you know which channel(s) to prioritise taking reservations through and share this with your team, then create a plan to target customers whose reservations could feasibly be shifted to a lower cost channel.
  6. Acquisition Costs – Define how much it costs to acquire each of your customers, both by channel and segment.

Finally, ensure you collate this information and re-share it with your revenue team to ensure their alignment and focus. Set follow-up meetings periodically to review progress towards your goals and objectives and use this platform to address any challenges that you are experiencing collectively so that you can identify suitable solutions.

The Key Risks To Your Hotel Revenue Without An Effective Strategy

When a robust revenue management strategy is not implemented, individuals and their respective departments may only work towards their individual targets, rather than collectively towards the hotel’s long-term goals. As a result, your property may target the wrong segments, fail to acquire the right guests, struggle to retain your previous customers directly and/or to shift reservations to a lower cost channel.

Rooms may also be priced too cheaply, in which case you are more likely to sell-out quickly, or conversely, they may be so expensive that you do not sell enough – all of which will only serve to limit both your revenue and your profitability. However, you can avoid these risks by creating a bespoke revenue strategy for your property with a revenue management expert.

Are You Ready To Reach Your Revenue Goals?

At MavREV, we are set up to provide a complete, outsourced revenue management service and serve as a friendly, proactive addition to your on-property team. So, whether you wish to increase your hotel occupancy, achieve a more profitable Average Daily Rate (ADR), or reduce the time you spend managing your distribution channels – we can help! Get in touch with us today to book your free revenue management audit.


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