In the high-stakes game of hospitality, where both average daily rates and occupancy rates are calculated bets, a misplayed hand can cost you profitability. Hotel owners and general managers, despite their experience, often stumble when it comes to crafting robust hotel revenue strategies. Why? Because the landscape is a minefield of cutthroat competition, ever-evolving guest preferences and fluctuating demand. But there is a lifeline: a set of proven revenue management best practices for hotels that can transform your property from a casualty of market volatility to a master of revenue optimisation.
In this article, I define what hotel revenue management is, what it is not and present a list of revenue management best practices that every hotel should follow.
What Is Hotel Revenue Management?
Hotel revenue management is a process of using systematic computational analysis of data to assist in predicting customers’ behaviour and enable relevant pricing, inventory and distribution related decisions, for the purpose of maximising revenue, or, to put this more simply, to sell the right product, to the right customer, for the right price, via the right channel at the right time.
What Hotel Revenue Management Is Not
To understand revenue management best practice for hotels, it’s crucial to dispel some common misconceptions about what hotel revenue management is. Hotel revenue management is not:
- A purely mathematical process: While analysing data is important, revenue management also requires collaboration, communication, decision making, strategic planning and an understanding of customer behaviour and market dynamics too!
- A “Set It And Forget It” strategy: The competitive landscape, demand, market conditions and pace of technological advancements changes constantly. A successful revenue management strategy requires ongoing monitoring, subsequent adaptation and/or adjustments.
- Ignoring distribution channels: Strategic management and optimisation of key distribution channels is an essential component of revenue management. You must understand the benefits, costs and monitor the performance of each channel. This may include global distribution systems, metasearch engines, online travel agencies, tour operators, wholesalers and your website.
- Just gut feeling: While experience and intuition can play a role, revenue management relies upon data-driven decisions, utilising technology such as a revenue management system (RMS), property management system (PMS) and business intelligence (BI) tools, to collect and analyse the vast amounts of data that enable informed decisions about pricing, inventory and distribution.
- Only about maximising occupancy: Occupancy is a significant factor, but the ultimate goal is to maximise revenue and profitability. Selling every room, at the lowest price, will achieve high occupancy, but could result in lower revenue. Revenue management aims to find the optimal equilibrium between occupancy and average daily rate (ADR) to maximise revenue per available room (RevPAR).
- Only for large hotels: Revenue management principles can be applied to a wide range of accommodation providers, irrespective of size. Bed and breakfasts, boutique hotels, hostels, independent hotels, motels and vacation rentals can all benefit from a revenue strategy that enables them to compete, increase profitability, leverage technology and maximise limited resources.
- Replacing customer service: Revenue management and customer service are not mutually exclusive – they should work in tandem. Excellent customer service leads to positive reviews, which can increase demand and happy guests are more likely to perceive the price they paid as fair and to return too – creating repeat business and facilitating increased prices.
- Simply setting room rates: A widespread misconception is that revenue management is merely about setting prices. Revenue management encompasses a comprehensive range of strategic activities involving distribution management, forecasting, inventory management, performance analysis, pricing and segmentation.
- Solely about discounts: Discounts can be used strategically to boost occupancy when demand is low, encourage longer stays and to attract specific customer segments, but an over-reliance on them can attract the wrong type of customer, be detrimental to profitability, create a perception of low quality and neglect the power of all other revenue management levers too!
Revenue Management Best Practices For Hotels
To maximise profitability, hotels must utilise proven revenue management strategies in their everyday operations. Let’s delve in to the revenue management best practices that enable hotels to thrive, the key areas to consider include:
- Channel management: Channel management revolves around driving profitable bookings. Prioritise direct bookings through use of CRM (Customer Relationship Management), loyalty programs and a user-friendly website, whilst optimising content on and ensuring rate parity amongst OTA’s. Leverage metasearch engines and utilise a channel manager for centralised, real-time updates. Employ data analysis to track key performance indicators (KPIs), implement dynamic pricing and tailor your channel mix to specific guest segments.
- Collaboration and communication: Strong interdepartmental collaboration and honest, transparent communication is crucial. Establish regular meetings between revenue management, marketing, operations and sales to align strategies and share insights. Utilise shared data platforms and visualisation tools to make revenue data accessible to all and foster a collective understanding of revenue goals. Implement clear communication protocols and provide revenue management training across departments to ensure everyone understands their role in maximising profitability.
- Competitive analysis: Competitive analysis in hotel revenue management necessitates a strategic approach. Start by defining the most relevant competitive set, focusing on properties that directly compete for your target market. Gather comprehensive data on amenities, marketing strategies, online reputation and pricing across various channels, utilising market analysis and rate shopping tools. Analyse this data to track KPIs like Average Rate Index (ARI), Market Penetration Index (MPI) & Revenue Generation Index (RGI) and identify areas for improvement.
- Continuous monitoring and refinement: Revenue management relies on continuous monitoring and refinement, driven by a robust data infrastructure of integrated data from various sources providing real-time KPIs. Conduct regular performance reviews, allow for forecast adjustments and trend identification. Implement dynamic pricing and inventory management, utilising an RMS for automated demand-based adjustments. Foster a culture of experimentation through A/B testing and continuous learning, encouraging staff to stay up-to-date on revenue management best practices.
- Customer Focus: A customer-focused revenue management strategy prioritises data-driven personalisation through CRM integration and guest segmentation, enabling tailored communications and offers. Value-based pricing, rather than low prices, focuses on delivering perceived value through dynamic packaging and add-ons. Enhance guest experience through in-room technology, mobile check-in, proactive service and reliable Wi-Fi, whilst ensuring robust data security and privacy compliance. Feedback loops and online reputation management are both critical.
- Data-driven decision making: To achieve data-driven revenue management, establish a strong data foundation by integrating data into a centralised repository, ensure data quality and invest in robust technology like BI and an RMS. Define and track relevant KPIs through automated reporting, implement data-driven analysis and forecast using predictive and statistical techniques. Foster a data-driven culture by encouraging departments to collaborate, establish a clear decision-making process and provide training.
- Dynamic pricing: Dynamic pricing in hotels relies on a solid foundation of data with accurate demand forecasting and real-time integration. Implement a robust RMS for automated, flexible pricing adjustments, combining algorithm-driven and rules-based strategies. Define clear pricing strategies based on your competition, guest segments and value. Continuous monitoring of KPIs and regular analysis are crucial for refinement. Ensure clear communication and transparency of pricing policies to guests and staff.
- Focus on Total Revenue Management: Total revenue management (TRM) requires breaking down departmental silos through cross-departmental collaboration and integrated systems, enabling holistic data analysis of customer lifetime value, profitability and total revenue KPIs. Optimise all revenue streams by implementing dynamic pricing, inventory management and cross-selling and upselling across all departments. Enhance guest experience with an integrated guest journey, personalised offers and comprehensive feedback loops. Foster a total revenue culture through incentive programs, regular reviews and training, ensuring all departments contribute to maximising overall profitability.
- Forecasting accuracy and demand prediction: Accurate hotel forecasting relies on robust data, encompassing historical, market and real-time data that enables the use of advanced techniques like event-driven forecasting, predictive analytics and statistical modelling. Implement a collaborative forecasting process involving cross-departmental input, regular meetings and scenario planning. Leverage technology through BI and an RMS for automated forecasting and data visualisation. Continuous monitoring of forecast accuracy, feedback loops and regular reviews are essential for ongoing adaptation and refinement.
- Inventory control: Hotel inventory control requires centralised management via an integration between channel manager and PMS, implementing strategic controls like length-of-stay restrictions, rate fences and utilising data-driven optimisation based on booking pace analysis and demand forecasting. Leverage technology with an RMS for automated adjustments, alerts and ensure continuous monitoring through A/B testing, feedback loops and regular reviews. This approach ensures real-time inventory updates, minimises overbooking risk and maximises revenue by aligning availability with demand.
- Performance measurement: Performance measurement in hotel revenue management involves defining relevant KPIs beyond RevPAR, including Total Revenue Per Available Room (TRevPAR), Net Revenue Per Available Room (Net RevPAR) & Gross Operating Profit Per Available Room (GOPPAR). Implement robust data collection and analysis through integrated systems, ensuring data accuracy and real-time monitoring. Utilise benchmarking and competitive analysis against your competitive set, tracking ARI, MPI & RGI. Conduct regular performance reviews to generate insights and foster a data-driven culture through collaboration, continuous improvement and training.
- Segmented market approach: Segmented market approach involves defining distinct customer segments based on data-driven insights beyond demographics. Develop tailored marketing, pricing and service strategies for each. Optimise distribution channels and implement rate fences to target specific segments. Utilise BI tools, CRM and an RMS for data analysis and performance tracking. Conduct regular reviews, continuously monitor segment performance and implement feedback loops to adapt to evolving market conditions and refine strategies.
Maximise Your Hotel Revenue
At MavREV, we empower independent hotels in the UK with remote revenue management expertise so they can realise their true revenue potential, at a fraction of the cost associated with employing a Hotel Revenue Manager. With over fifteen years’ experience, we have a proven track record of providing hotel revenue solutions. Are you ready to improve the revenue performance of your hotel? Contact our team today to discuss our Outsourced Revenue Management service.
