What is hotel revenue management?

Generating more revenue and a better occupancy rate without reducing prices too much – that’ s the goal of every revenue manager in a hotel. To remain competitive in today’s market, hoteliers need an effective pricing strategy for hotel revenue management. But what does revenue management actually mean?

Revenue management – an underestimated revenue generator for the hotel industry

Hotel revenue management is about optimising the turnover of the hotel through certain measures. This includes optimal pricing as well as market-compliant and dynamic pricing strategies, taking into account different distribution channels and relevant analyses. Through clever revenue management, hosts optimize their room occupancy and thus their revenue.

The aim is to sell the right room to the right guest at the right time, through the right sales channel and for the right price. It’s all about balancing demand and capacity with smart pricing.

Since every hotel has its own requirements and conditions, there is no general pricing strategy that suits all. There are no fixed room prices, as these can be adjusted at any time due to various factors. The adjustments are based on regular market and competitor analyses, marketing activities and the collection of data relating to specific market developments. In many larger hotels or hotel chains, revenue managers take over these analyses. But even small hotels should definitely deal with this topic in order to remain competitive. And thanks to modern software, they can also benefit from revenue management today, without complex manual calculations and analysis.

Revenue management is very popular with airlines, for example, their prices change depending on when a certain flight is booked – and even several times a day. After all, revenue management is an ongoing process. This depends, among other things, on the number of seats still available in each category, the development of prices among competitors and the strength of the demand. And in times of mobile search and booking engines, things can change very quickly.

Key figures of hotel revenue management

For successful revenue management, hoteliers and revenue managers must collect and regularly evaluate so-called “big data”. Based on these intensive analyses, they then derive future forecasts and calculate current room prices. Nowadays it is important to act on the market and not just to react – especially due to the increasing power of online travel agencies (OTAs) and the associated price control.

The factors that influence the pricing include both basic information about the hotel and external influences, such as:

  • occupancy rate
  • historical reservations
  • average daily rate (ADR)
  • revenue per available room (RevPAR )
  • target audiences
  • distribution channels (digital vs. direct sales)
  • prices on the OTAs
  • prices and availability of competitors
  • weather conditions
  • seasonal holiday and leisure offers, events
  • user generated content & ratings
  • market-relevant information (e.g. market shares)
  • economic, political and social developments

The term “big data” already suggests that there are an extremely large number of factors and data that interact and need to be analysed. What hotel revenue managers used to evaluate manually in complex and confusing tables is taken over by revenue management systems more and more.

Smart support through revenue management systems

The biggest advantage of these software solutions: They take over the extensive analyses fully automatically and give hoteliers corresponding price recommendations. Software providers, such as
RateBoard, use an algorithm based on many of the above-mentioned factors to calculate the hotel’s current room rates. Afterwards, the hotelier decides for himself whether the rates should be adjusted in his hotel software and forwarded to all his channels or not. And for those who want to learn more about that, there are further analyses, statistics and key figures to explore. This way, for example, RateBoard’s customers manage to increase their sales by an average of 8 %. On top of that, it saves a lot of time and effort for every revenue manager. After all, it’s almost impossible to do all this manually nowadays. But fortunately, there is technical support for this!

Get the most out of your pricing strategy with hotel revenue management!

In our next article Matthias Trenkwalder, Co-Founder and Managing Director of RateBoard, a provider of a smart revenue management software, answers even more questions about hotel revenue management.


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