Importance of Revenue Management in 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.
Increased profitability
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.
Revenue management helps hotels lower costs
Booking trends today are dependent on a number of factors such as the economy of the region, season, average age of travelers, and so on. As a result, the best rate to sell your room today might be very different from the optimal rate tomorrow. Having a revenue management strategy in place not only helps determine the best rate to sell rooms at, it also enables the hotel to plan ahead by optimizing manpower for periods of higher demand and avoiding over-staffing during periods of lower demand. By better managing resources as per their need, properties can make the most of their resources and lower costs by avoiding unnecessary expenses.
Attracting the ideal guest
Not all business a hotel receives can be called ‘good business’. While ensuring maximal occupancy is important, repeat customers are a lot more lucrative than new ones – it costs more to reach out to new guests everytime. A full hotel need not always be profitable – bad revenue management like selling rooms at too low a rate or paying out heavy commissions can leave hotels losing money even during maximum occupancy!Automated revenue managers help hotels better identify the right customers who can provide the greatest long-term value for the property’s future. In order to identify these guests, hotels need to evaluate all guest spending activities and not just the room data – restaurant, bar and gift shop expenses can help properties get a clearer picture of a guest’s preferred activities and their overall value. Hotels can also use this data to make better decision regarding promotions and marketing campaigns.
Revenue management improves branding
Proper utilization of revenue management strategies can play a big role in increasing a hotel’s bottom line. Not only does better pricing improve the property’s occupancy, it also ensures that the hotel is selling all its rooms at the highest price possible and generating the maximum RevPAR it can at the time.While data collection and report building were extremely time-consuming tasks that hoteliers had to go through in order to get the required data, revenue management today can be implemented easily with advanced, automated software on the cloud platform.