Hotel Revenue Management

Hotel revenue management 101: Strategies to boost topline revenue at your property

Now, more than ever, revenue management is the cornerstone of running a successful, profitable, hotel. The increase in available data and ways to track and analyse it may seem like it has complicated the industry, but it also provides a wealth of new opportunities for your business to turn a profit.

The most successful hoteliers are savvy operators who continually look for ways to learn and improve the way they do things, gaining an edge over the competition. But only a small percentage of independent hoteliers use revenue management strategies and thus limit their revenue-generating potential.

Read on to learn the strategies that will help you realise optimal revenues and profit for capacity-constrained and perishable assets (rooms, in this case).

Before we get into that, you need to understand the basics. Let’s start with the definition of revenue management and what it can mean for your hotel.

What is revenue management for the hospitality industry?

Revenue management refers to the strategic distribution and pricing tactics you use to sell your property’s perishable inventory to the right guests at the right time, to boost revenue growth. Other products such as your amenities and food and beverage offerings will also come into the picture.

Revenue management revolves around measurement of what customers from different segments are willing to pay, and this can only be done by measuring and monitoring the supply and demand of your hotel rooms.

Every traveller has a maximum value they can offer your hotel; revenue management is about capturing as much of this value as you possibly can. Preferably you’ll do this by convincing the guest to book direct, purchase extensions, up-sells or extras, and become a return visitor.

The best strategies are based on the understanding that hotel pricing is fluid, and can change from one day to the next. This is why you should never be afraid to increase your rates. Customers actually expect increases over time – most businesses where consumers spend money are varying their prices based on demand and shifts in costs.

Effective hotel revenue management strategies can also help hoteliers:

• Better manage resources
• Protect against rostering too many staff during slow periods
• Ensure adequate numbers of staff are working during the busiest times

With all this in mind, revenue management can drive the entire business plan when implemented effectively. Your hotel distribution strategy is also a vital part of your revenue management plan. Make sure you are on the internet distribution channels that promote your destination online. They have strong marketing power and can put your hotel in front of many customers you can’t contact directly.

How to increase hotel revenue

Many strategies come into play when driving more revenue to your hotel, and many of them don’t involve raising prices or playing with your rates much at all.

Not least of these is satisfying your customer. If the product you offer is universally recognised as quality, you have the grounding to charge a higher price.

If guests feel like they are getting maximum value for their money, it’s very likely they’ll be willing to spend more. Getting more out each individual guest who stays with you is a great way to increase the overall revenue of your hotel. For instance, guaranteed revenue from a guest you convince to stay an extra night by discounting the additional night might be worth your while, especially in low season.

Here’s a list of general tactics you can use to improve your hotel’s revenue stream:

• Be bookable online
  These days travellers enjoy the flexibility, convenience, and value of booking online. By connecting to online travel agents/more online travel agents you’ll easily see an uplift.
• Build a revenue culture
  Who’s on your revenue team? Everyone! Anticipatory service + proactive revenue-minded employee = emotionally connected customer with engaged loyalty and higher revenue returns.
• Sell other hotel products
  Revenue opportunities extend far beyond simply selling your rooms. Think about the amenities you have on site and what your are charging for them, and go even further by offering hotel guests the chance to purchase items like soap, utensils, towels etc – especially if your hotel has a unique sense of style.
• Leverage events and attractions
  Local events and attractions are a great opportunity to put together packages for guests or offer additional services such as transport. The benefits are two-fold – guests will enjoy their stay more and your hotel will generate more income.

As you move away from tactics and towards fully fledged strategies around your revenue and room sales, you need to start understanding your key performance indicators (KPIs). Once you know what you should be looking at you can start analysing the data and developing ways to manipulate them in your favour.

As an introduction, these are the metrics you can explore:

• Occupancy rate
• ADR (Average daily rate)
• RevPAR (Revenue per available room)
• TrevPAR (RevPAR + ancillaries)
• GOPPAR (Gross operating profit per available room)
• RevPASH (Revenue per available seat hour) – useful if you have a hotel restaurant

The principle that you should always keep in mind is to assess market conditions in real-time and adapt accordingly.