With many hoteliers still scratching their heads when it comes to revenue management, larger segments of the industry like SMEs are still not wholly convinced of its value. Rather than discuss why it should be a mandatory part of your hotel’s operations, let’s begin with some fundamental questions.
What is revenue management? Why is it so popular in the hotel industry?
Almost every industry out there follows some form of revenue management – some call it business analytics or pricing strategies, but the goal is the same. To maximize financial results by optimizing available resources. When it comes to hospitality businesses however, there are three factors that make revenue management a lot more relevant –
– Limited inventory: There are a fixed amount of rooms for sale
– Perishable resources: Unsold rooms perish every single night
– Customer demand: Guests are willing to pay different prices
Essentially, revenue management is the process through which a hotel adjusts its inventory pricing based on sales trends, historical data and other forecasts. This allows properties to boost their bottom-line by deriving maximal value from every sale.
However, the ever-changing dynamics of hospitality means that revenue management today is a lot more complex and analytical. And while general managers are finding it increasingly difficult to keep pace with emerging trends, the importance of a robust revenue management strategy has now become paramount in the modern landscape.
Proper market segmentation can make all the difference to a hotel’s revenue management strategy. By breaking down the market based on corporate bookings, internet bookings, association groups, and so on, managers can effectively determine the maximum rate tolerance for each segment. This would of course vary based on location, type of hotel, franchise/independent, number of rooms, and many other factors.
Using data gathered over the years, hotels can also assess seasonal interest and estimate periods of high and low occupancy. A number of other potentially lucrative aspects, such as a superior view, can also play a big role in optimizing the hotel’s pricing strategy. Guests are usually ready to pay more for a room under certain conditions, like periods of high occupancy or a sea facing room. Managers can use this info to optimize their revenue strategies in the long-term, ensuring that maximum value is derived from each room. Popular to contrary belief, high occupancy is no indicator of profitability – in fact, a hotel witnessing medium occupancy can experience better profitability with a proper revenue management strategy than a fully booked hotel!
With a cloud-based property management system, hotels can further simplify the process by integrating to revenue management software. This allows the software to access the PMS for history and other information, enabling even more insightful suggestions.