You see a hotel packed with people and automatically think it’s profitable, but that’s not always the case. Effective revenue management strategies determine profitability.
Fine-tuning your revenue-earning strategies can be daunting, but the process is more straightforward thanks to innovative software. However, despite the benefits, one often-cited report shows that only 28% of hotels use RMS tools, and if you don’t consider the free features offered by Expedia, the percentage goes down to 10%. This means only a small percentage of hotels leverage technological revenue management systems to up their game and thrive in the industry. Often, this is due to software that simply doesn’t support the hotel’s needs—but options are out there that address this issue.
Discover the benefits of using revenue management systems and how you can properly implement them for the success and growth of your hotel in this guide.
The best RMS solutions use automation and advanced algorithms to provide pricing recommendations that are actually useful and intelligent. These days, there are too many variables that need to be considered to determine the best price for a room, event, or attraction for a revenue manager to handle manually. Constantly changing economics and unpredictable weather, plus increased competition from platforms like Airbnb mean revenue management initiatives have to not only consider more data but be able to gather and derive meaning from that data faster than ever.
Thanks to modern RMS tools like HouseCount RMS offered by Luxe Pricing, marketing teams, and hoteliers can generate accurate information in an understandable format to help them identify how to continue growing their business.
Let’s dive deeper into the other benefits of hotel revenue management software.
Unsurprisingly, hotel departments must work together to increase occupancy rates and maximize revenue and profitability. If these departments deal with different kinds of software, it can be difficult to ensure consistency if the software is used in isolation.
A reliable revenue management system should integrate with your tech stack for a single source of truth. It must also work hand-in-hand with your property management system in supervising daily operations and business requirements. This promotes more growth opportunities.
Historical data is essential for revenue projection and demand forecasting. However, storing large amounts of data is prone to breaches, discrepancies, and loss.
A cloud-basedrevenue management system with security measures like Multi-Factor Authentication (MFA) and User Access Controls provides robust security alongside nearly unlimited data collection and storage capabilities.
Using historical data, the RMS will suggest pricing according to your hotel’s room type and current market trends. With HouseCount RMS, for example, the concept of feedback control is used, which means the system continuously learns and develops with regard to providing the most transparent, flexible, and accurate pricing recommendations based on historical and current data.
You can expect fewer human mistakes with revenue management systems. Because these platforms are automated, analyzing various records from different databases is possible without committing careless mistakes.
Time is money. Revenue management systems stop you from unnecessary spending on manual revenue management. RMS tools with the robust tech behind them enable accurate predictions, helping you boost profits.
Another advantage revenue management systems have over manual resources is keeping up with changing trends in the hospitality industry. RMS platforms can analyze historical data to determine patterns and trends that may affect profits.
RMS also ensures you get the information you need about all your guests to understand their booking patterns and behaviors. This makes it easier to target the right people to increase your engagement. Aside from market segmentation, RMS can also estimate your revenue in the next years, thanks to historical data.
The primary reason why RMS tools can benefit your property is because of the elements and strategies that interplay. Below are the essential aspects to include when employing an effective revenue management strategy for your hotel.
One of the most important aspects of revenue management is customer segmentation. It gives you the tools you need to understand the needs of different travelers regarding booking behavior and expectations.
You can segment customers based on a number of data points, including the following:
Traveler status, whether he is a new or a returning guest
One thing to know about customer demands is they are always dynamic. You must always expect fluctuations based on important events, different seasons, and other macroeconomic conditions.
Demand forecasting involves analyzing critical information about customer segments' past to predict current and future demands so they can be considered in various strategies, including:
Yield management defines customer behaviors to generate the best prices for maximum profit and revenue and prioritizes sales volumes and prices. It’s closely related to demand forecasting and inventory management because its goal is to sell the most rooms at the best price based on customer demand.
The table below shows effective tactics to help revenue managers leverage hotel inventory and maximize revenue.
|
Yield Management Tactic |
Definition |
|
Maximum Length of Stay (MaxLOS) |
Provides a maximum duration to restrict reservations and limitation on promotional rates |
|
Minimum Length of Stay (MinLOS) |
Provides a minimum duration, encouraging longer visits, especially during high-demand periods |
|
Closed to Arrival |
Not accepting reservations with arrival on certain days to minimize the front desk team’s workload. However, this can be risky because it can make you lose your guests. |
|
Allotment |
Allotting pre-negotiated rooms at discounted rates to travel agents, wholesalers, and event organizers |
|
Last Room Availability |
Supports last-minute reservations and pre-negotiated pricing to companies |
Inventory refers to the rooms sold in your hotel.
Choosing the right distribution channels is essential in revenue management. Choose from a wide mix of bed banks, OTAs, GDS, and metasearch engines. You can also utilize demand forecasting results to determine which channels work for customer segments.
Identifying which distribution channels work for each customer segment helps you find the right balance between revenue maximization and room occupancy.
Another essential factor is pricing, which can significantly impact bookings. Setting optimal room rates means you’re on your way to revenue maximization.
Below are the most effective strategies to develop the right pricing for your hotel rooms that can be advantageous to your revenue and guests.
Dynamic pricing regularly changes the room rates based on market demand. It also depends on demand and supply and internal and external data.
Dynamic pricing strategies let you keep up with market trends, maximize occupancy rates, and track other KPIs relevant to hotel revenue management.
Open pricing creates various prices for different guest segments based on certain periods and distribution channels. Because of this flexibility, hotels can maintain and sustain stable occupancy levels to generate maximum revenue, especially during low-demand periods.
The main difference between dynamic and open pricing is that the former prioritizes balancing supply and demand, while the latter focuses on profitability margins across channels and segments.
Other pricing strategies you can employ for your hotel include the following:
KPIs can help you achieve maximum revenue for your hotel. Knowing KPI indicators and how they can affect profitability is important when leveraging effective pricing and revenue strategies.
The revenue manager must carefully track these KPIs to develop the best pricing strategy to improve the metrics. This can help with your hotel’s success.
|
Key Performance Indicator |
Definition |
Formula |
|
Occupancy Rate |
The ratio of the total occupied rental units to the total available rental units at the same time |
Rooms Sold Rooms Available |
|
Average Daily Rate |
A rate that involves the room’s average rental income in a given time and compared to the property’s past ADR |
Rooms revenue earned Number of rooms sold |
|
Revenue Per Available Room |
Assesses a hotel’s business and financial performance |
Rooms revenue / Rooms available Average daily rate * Occupancy rate |
|
Total Revenue Per Available Room |
Measures total revenue and overall revenue streams to assess total business performance |
Total revenue Total number of available rooms |
|
Net Marketing Per Available Room |
Involves distribution and total marketing expenditures in the computation to gauge their impact on the overall room revenue |
Room revenue – distribution costs Number of available rooms |
|
Gross Operating Profit Per Available Room |
Measures the hotel’s profits and asset values in a certain period |
Gross Operating Profit Number of available rooms |
HouseCount RMS is not just your typical revenue management system. Aside from being an all-in-one cloud-based solution, HouseCount RMS analyzes past and present KPIs to establish robust hotel pricing recommendations. This makes it easier for revenue managers to maximize revenue opportunities and enhance user experience. At the same time, the system is autonomous, meaning you can save time for other important tasks. By using the fundamentals of feedback control theory (the system uses its data to output the desired result—in this case, the best pricing), HouseCount allows revenue managers to “set it and forget it” when needed, giving them more autonomy.
This automated revenue management system has four main pricing features:
HouseCount RMS also provides an extensive list of competitive advantages, including the following:
The core principles of hotel revenue management do not need to be changed. However, strategies to enhance revenue building for hotels should remain in sync with contemporary business and technological advancements.
Here are several approaches employed by hotels to enhance their revenue.
In the past, key performance indicators like Occupancy rate, ADR, RevPAR, and NRevPAR were crucial for assessing hotel revenue management success and comparing with competitors. However, today's focus has shifted.
Hotel revenue management now emphasizes strategic profit management, with GOPPAR (Gross Operating Profit Per Available Room) and TRevPAR (Total Revenue Per Available Room) taking center stage.
are revenue metrics that do not consider costs. However, GOPPAR and TRevPAR provide a more comprehensive view of a hotel's business performance than other KPIs. This means revenue managers are not solely focused on occupancy-related metrics but also consider a room's value within the broader economic context of the hotel.
Data science and predictive analytics are gaining traction across various industries, including hospitality.. A notable trend is using historical booking cancellations data about booking cancellations to forecast occupancy rates and room pricing.
In-depth customer behavior analysis is also used to tailor offerings to different customer segments across key distribution channels.
Effective revenue management in the hospitality industry depends on booking channels. Channel management software automates room availability updates to prevent double bookings.
Controlled overbooking can benefit revenue by analyzing daily channel statistics and taking action on potential double bookings. Selling slightly more inventory than available, similar to airlines, can maximize capacity and revenue. Revenue managers can optimize inventory distribution to avoid unoccupied rooms using historical data on cancellations and no-shows.
Reservations from direct booking channels boost RevPAR and remain an efficient distribution avenue. However, online travel agencies are also gaining popularity because they can expand your hotel’s digital presence to global travelers.
Reducing OTA commissions can be an effective way to maximize revenue through advertising. But to encourage more travelers to book directly, you must think creatively.
It’s important for potential guests to realize OTAs charge the hotels a commission for advertising, which usually means that prices are higher than booking directly. Communicating this fact to repeat guests is essential.
Enhancing and revamping your website is also critical in gaining more visitors. A hotel's website should be user-friendly, equipped with a robust booking system for reservations, and offer opportunities for upselling.
Another effective approach to enable online bookings is through a mobile app. An effective mobile application offers a valuable chance to promote additional hotel services.
Artificial intelligence and data science are influential in the hospitality sector, particularly impacting revenue.
Chatbots can address questions about property details, services, and facilities while collecting valuable data about customer preferences and trip purposes. They can provide 24/7 assistance by answering common queries, offering upsells, and interacting naturally with customers.
Ancillary revenue in hotels refers to income generated from services besides room reservations. These services include dining, transportation, entertainment, a spa, and additional amenities like extra beds or flower deliveries.
Businesses can package these services to cater to specific customer segments, including business, leisure, family, or group travelers.
Dynamic packaging is a traveler-centric strategy enabling customization by adding services through dynamic packaging engines. It offers flexibility and convenience, allowing travelers to book from multiple sources using a single online application.
When properties utilize dynamic packaging, prices for rooms and other services can be adjusted accordingly, depending on the choices made by guests.
Analyzing competition and benchmarking is essential for assessing a hotel's performance and its place in the market. This involves comparing your hotel's KPIs to similar properties or industry leaders to identify areas for improvement.
Utilizing reports like STR, which offers data on many properties globally, helps you gain insights into your competitors' performance. By comparing and contrasting these metrics, you can find opportunities to fine-tune your pricing and distribution strategies.
Aside from the hotelier, hiring a hotel revenue manager can significantly help boost your overall revenue. He has extensive tasks, responsibilities, and goals for gaining more guests, digital presence, traction, profitability, and better hotel performance.
Hotel revenue managers can, therefore, benefit from reliable revenue management systems. These platforms can reduce manual and administrative tasks, giving them more time to accomplish other relevant tasks that can help lighten the workload of other departments.
Hotel automation offers numerous advantages to hotel managers. It streamlines operations, reduces labor costs, and enhances guest experience through self-service options and data-driven personalization.
Automation also improves resource management, security, and safety while providing a competitive edge in attracting tech-savvy travelers. Additionally, the ability to remotely manage hotel operations adds flexibility and efficiency to the role of hotel managers, ultimately contributing to improved overall performance and guest satisfaction.
Below are other benefits of hotel automation for revenue managers:
Total Revenue Management significantly impacts hotel revenue managers in several ways. For instance, total revenue management considers revenues from property rooms and other ancillary services, including events, spas, and dining. This promotes revenue optimization across all revenue streams, maximizing overall profitability.
Moreover, total revenue management relies heavily on data analysis and forecasting. Revenue managers use advanced analytics to make informed decisions about pricing, distribution, and marketing strategies. This data-driven approach enables them to react quickly to market changes and guest preferences.
The siloed approach in the total revenue management system involves optimizing revenue streams separately, which can negatively impact your profit and revenue. And while there is still a chance for revenue to improve in siloed systems, revenue managers might be at risk of utilizing the revenue and demand more holistically.
The best way to remedy this is through demand-driven pricing. This strategy can optimize your prices based on seasonality, guest demand, competition, and other relevant factors.
Another way is to respond to your guests’ recommendations and feedback. This helps you understand better their preferences and booking behaviors and make necessary improvements that can benefit hotel revenue.
A holistic approach involves analyzing and collecting data about guests and their behavior while staying at your hotel. You can also tailor experiences and services based on their needs and preferences, significantly optimizing their stay.
Revenue Management Software (RMS) plays a crucial role in assisting revenue managers in optimizing revenue for hotels. These software solutions offer several benefits to revenue managers:
Firstly, RMS collects and analyzes vast data, including historical booking patterns, market demand, competitor pricing, and external factors like local events or holidays. This data-driven approach enables revenue managers to make informed decisions about pricing and distribution in real time, ensuring that rooms are priced competitively to maximize revenue.
RMS also automates routine tasks, such as rate adjustments and inventory management. This automation not only saves time but also reduces the risk of errors. Revenue managers can set rules and algorithms within the software to execute pricing strategies automatically, allowing them to focus on more strategic aspects of revenue management.
Moreover, many RMS solutions offer scenario analysis and "what-if" modeling, allowing revenue managers to simulate pricing strategies and their potential impacts on revenue. This helps in making well-informed decisions and adapting strategies as needed.
Below is a table summarizing other ways revenue managers can benefit hotel revenue management systems and vice versa:
|
Cost |
Revenue managers can help with large profit margins, ensuring your continued success. |
|
Time |
Time is always of the essence in the hotel industry, and while you may want to ensure you’re charging the right price at the right time for your rooms, you may not have the spare time to dedicate to the process. |
|
Size |
RMS and revenue managers allow more flexible and in-depth pricing relevant to a wider audience and larger hotels |
|
Market Segments |
Helps narrow down which price ranges are appropriate for which market segments |
Demand forecasting in the hospitality industry promotes better inventory management. It utilizes historical data and analyzes past metrics to make accurate predictions of guest demands in the future. Other factors that rely on forecasting include cash flow, turnover, capital expenditure, profit margins, and risk assessment.
The higher the precision of your forecasting, the higher the chance to make better business decisions that optimize hotel revenue. Revenue managers can leverage the following advantages with forecasting:
Several techniques for demand forecasting in the hospitality industry exist. And sometimes, utilizing multiple methods works better than choosing a single technique. The following are the most common and effective strategies to make accurate predictions:
Upselling is significant in a revenue manager's strategy, particularly in the hospitality and service industries. The primary goal of revenue management is to maximize revenue by optimizing pricing and inventory management, and upselling is a crucial tool in achieving this goal.
Upselling allows a hotel to increase the average transaction value. By encouraging customers to spend more on additional products or services, revenue managers can boost overall revenue without increasing the number of customers.
Revenue managers can also better balance a hotel’s pricing strategies through upselling. They can offer lower base prices to attract customers while making up the difference by selling higher-margin add-ons or upgrades. This helps optimize price-sensitive demand segments.
Revenue managers can better allocate and manage inventory by promoting additional products or services. For example, a hotel can offer room upgrades during peak seasons or special occasions, helping to maximize revenue from premium rooms.
Luxe Pricing’s Custom Revenue Management Solutions provides comprehensive strategies and advice to help you optimize your teams and our software.
Upselling significantly impacts hotel revenue management strategies. By effectively promoting additional services or room upgrades to guests, hotels can boost their revenue streams without increasing their customer base.
This practice optimizes pricing strategies, enabling hotels to offer competitive base rates while generating extra income through upsells. It also allows revenue managers to manage their inventory better, strategically allocating premium rooms or services during high-demand periods.
Moreover, by tailoring upsell offers to individual guest preferences through data analysis, hotels can enhance customer satisfaction, garner positive reviews, and encourage repeat business. Essentially, upselling is vital in a hotel's revenue management, contributing to revenue maximization and overall profitability.
LuxSell URS collects customer data and provides front desk agents with the right offer for the right guest at the right time, in conjunction with the pricing recommendations in place through HouseCount.
In short, both systems collaborate to implement dynamic pricing strategies. HouseCount RMS can adjust base room rates based on real-time demand fluctuations, while LuxSell URS dynamically adjusts upsell offers to match the changing pricing landscape.
HouseCount RMS and LuxSell URS provide analytics and reporting capabilities to track the performance of upselling efforts. Revenue managers can assess the impact of upsell conversion rates, revenue per guest, and the overall contribution of upselling to total revenue alongside the RMS's performance metrics.
Utilizing the collaborative functionality between HouseCount and LuxSell URS is paramount. These systems seamlessly can help hotels optimize their room and ancillary service revenue, ultimately leading to higher overall profitability and guest satisfaction.
Upselling is integral to a revenue manager's toolkit for optimizing revenue, managing inventory, and delivering a better customer experience. It allows businesses to extract more value from each customer transaction while aligning with pricing and demand management strategies.
Leverage dynamic and effective strategies with LuxSell URS and HouseCount RMS. Request a demo today.