Hotel revenue management: It sounds like a grandiose concept, but what is it, really? Put simply, it’s having the right systems in place to maximize revenue and better manage resources — but there are many elements that go into this process.
For hoteliers interested in more efficient revenue management, understanding this concept and how a revenue management system (RMS) can help them achieve their goals is a great place to start. In a recent survey, nearly 84 percent of hotels reported using some sort of revenue management technology. For hoteliers aiming to stay competitive, it’s vital to understand how technological investments can boost their bottom line.
What is Revenue Management in Hotels?
Hotel revenue management is the strategic process of setting room rates, controlling inventory and maximizing profit across all available channels. This can be achieved through a variety of strategies designed to optimize revenue and profitability for hotels, including dynamic upsells, demand-based pricing, intelligent forecasting and more.
Revenue management is about more than just supply and demand. It’s understanding how much guests from different audience segments are interested in spending on their stay — often referred to as “willingness to pay.”
By measuring demand, understanding willingness to pay, monitoring booking volume and utilizing data analytics, you can make more informed predictions on consumer behavior and understand how to structure the promotions your hotel offers.
3 Core Concepts of Hotel Revenue Management
If you’re looking to create your hotel’s revenue management strategy, where do you start? There are three core concepts that go into the process:
Demand forecasting: The process of using historical data, market trends, competitor activity and special events to anticipate future periods of high and low demand and adjust room rates accordingly.
Terms to Note for a Hotel Revenue Management Strategy
When creating a strategy to improve hotel revenue management, there are a few key terms that will likely come into play. The following vocabulary will be helpful to take note of as you begin to develop a plan:
Average Daily Rate (ADR): The average price a hotel room is sold for during a specific period. (ADR = Total Room Revenue / Total Rooms Available)
Occupancy Rate: The percentage of hotel rooms occupied on a given night. (Occupancy Rate = Rooms Sold / Total Rooms Available) x 100
Revenue per Available Room (RevPAR): A key performance indicator (KPI) that combines ADR and occupancy rate. (RevPAR = ADR x Occupancy Rate)
Length of Stay (LOS): The average number of nights guests stay at the hotel.
Pickup: The increase in bookings leading up to a specific date.
Discounting: Offering lower room rates to attract guests during periods of low demand.
Minimum Length of Stay (MLOS): A requirement for guests to book a minimum number of nights.
Hotel Revenue Management — What are the Benefits?
When hotels don’t incorporate revenue management strategies, they keep room pricing static instead of adjusting for demand, willingness to pay or any other external factors. As a result, they risk leaving money on the table.
Because demand in the hospitality industry fluctuates, adapting to ever-changing conditions is one way hotels maintain a competitive edge and get the maximum amount of money for each room. A well-defined hotel revenue management strategy offers a few key benefits, such as:
Improved profitability: Effective cost control and revenue maximization lead to higher profit margins by reducing overhead and increasing cash flow.
Enhanced guest experience: Dynamic pricing allows hotels to offer competitive rates while maintaining profitability, which can attract more guests.
Competitive advantage: Understanding market trends and competitor pricing enables hotels to position themselves strategically, which is increasingly important in today’s hospitality industry landscape.
3 Ways to Increase Your Hotel Revenue With Technology
Technology offers many advantages when it comes to increasing your hotel’s revenue. By implementing a hotel revenue management software, hoteliers optimize their earnings at every point of the guest journey. Here are a few ways that a revenue management software can help hotels boost revenue:
Drive upsell revenue: By automating the process of offering room upgrades and other add-ons, hotels can present guests with relevant upsell offers at the time they are most likely to convert. This alone can increase upsell revenue by up to 200%, without adding additional administrative work for hotel staff.
Increase more 4 and 5 star reviews: When guests are prompted to review a hotel after a great stay, they’re more likely to leave a positive review on key third-party platforms where other potential guests can see them. A guest experience platform like Canary automatically prompts guests who leave a 5-star rating to share their experience on Tripadvisor and Google.
Create modern guest experiences: Today’s hotel guests tend to be digitally savvy and strongly prefer tech-forward experiences. By enabling guests to help themselves with technology, you drive guest satisfaction that turns into loyalty and ultimately, repeat business.
Want to learn how to manage hotel revenue and guest experience effectively with technology? Book a demo to explore Canary’s award-winning guest experience platform today.
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