Successful businesses integrate revenue with operations management to guarantee the highest possible profitability. Despite its roots in the travel and SaaS industry, revenue management is also popular in other sectors, including the hospitality industry. Its approach has quickly shown to maximize revenues for the sector.
Therefore, there are a lot of things to consider before choosing the best course of action. In order for stakeholders to make the best decisions at the appropriate times, this article will examine revenue management in detail and identify some of its most popular strategies.
What Is Revenue Management?
Revenue management is a business strategy that makes it possible to maximize your profits and optimize your inventory. As new artificial intelligence systems, automated procedures, and tools that are at the forefront of the industry are developed, their precise specifications change over time. However, the essence of it is still the same.
It entails using targeted distribution channels to market the best accommodation options to the right customer at the appropriate rates and at the right times. In addition to helping to assure client happiness, this approach is also affordable.
This regularly calls for the use of analytics and similar data points to build the most effective strategies. The following are some typical factors that can be examined.
- Demand forecasting
- Behavior analysis
- Recognizing customer spending habits
- Creating dynamic pricing packages
- Using business information to analyze the pricing strategies of competitors
By grasping these concepts, managers can make well-informed decisions and ensure that any revenue generated is spent as efficiently as possible.
Why Is Revenue Management Important?
A hotel can benefit greatly from revenue management since it helps it make the most of its available room inventory and increase its potential revenue. And all of this is accomplished through the use of data-driven judgment rather than relying on guesswork or instincts. Hotels may ensure that they cover their fixed expenses and charge for their services to enable them to be profitable because they have fixed costs regardless of whether or not their rooms are sold.
Revenue management can also encourage more innovation by offering information on services that the hotel may not have previously considered but could benefit from. Additional justifications for the significance of revenue management include its ability to reduce expenses, enhance demand forecasting, increase hotel productivity, aid in selecting the ideal staffing ratio, and give the hotel a competitive edge.
Therefore, to survive and reinvent itself, the hospitality industry must implement new strategies and policies like advanced revenue management, which will benefit hoteliers all over the world.
Important Revenue Management Strategies
Hoteliers continue to adopt standard practices and benchmarks throughout the industry. Each property, however, needs a unique revenue management strategy. It should concentrate on its unique selling proposition, competitive environment, and ideal customers rather than copying others. They aim to increase the current revenue stream, draw in the right clients and provide fiercely competitive rates. Let’s take a closer look at a few powerful strategies that can assist you in getting improved financial results.
Understand Seasonal Variation
Depending on the season, booking rates may inevitably change. In order to properly anticipate factors like occupancy rates and return on investment, it is increasingly crucial to have advanced management tools that can recognize these fluctuations (ROI).
The employees, the kinds of promotions being offered, and the amount of money that guests are ready to spend at any particular time are all factors that seasonal fluctuations might impact.
This concept leads to the next crucial strategy that needs to be adopted.
Choose the Best Pricing Strategy
The selection of the right pricing strategy at the appropriate time is essential for efficient revenue management. All sectors of the hospitality industry are very competitive. Price is significant in many situations because of this. Customers are not just interested in high-quality products and services. When looking for housing, they are equally concerned about staying within their budget.
For many of the same reasons, most online review aggregators base most of their customer ratings on value for money. Therefore, properties ought to use a more flexible pricing scheme. This will help to highlight how much the management understands the needs of the typical visitor.
Segmentation and Price Optimization
Any insightful response to the question, “What is revenue management?” must take price optimization into consideration. Segmenting your customer base into multiple “types,” studying their behaviors and booking patterns, and then attempting to optimize price for each section are some potential ways to accomplish this. For instance, you might charge business customers less for rooms since you are confident that you will make up the difference through their use of corporate facilities.
Incentives for Direct Booking
Since hotels get to keep all of the money that customers spend on their booking, direct reservations can be quite beneficial for managing hotel revenues. Online travel agencies, on the other hand, cost a commission or a listing fee to hotels even though they help them reach a larger audience. In light of this, you want to provide a loyalty program, complimentary bonuses, and other rewards to entice as many clients as you can to make direct bookings.
Promote and Sell Ancillary Products and Services
The misconception that a new hotel’s primary goal is to provide rooms to guests is one that these establishments can easily make. This may represent the organization’s core principle, but we must keep in mind that successful revenue management should constantly strive to elevate a property head and shoulders above the competition. For this reason, other on-site amenities ought to be advertised with just as much zeal.
The key lesson here is that revenue management should pay attention to any additional facilities that might be available. There may be an option for visitors to purchase products like towels and robes on-site. A hotel may decide to launch a marketing campaign for a well-known branded restaurant. To provide visitors with the opportunity to explore surrounding locations, certain hotels may even be able to collaborate with nearby third-party companies (like tourism agencies).
Align the Different Departments
It would help if you considered how you might encourage cooperation and shared objectives among the many departments of your hotel. In order to accomplish this, you must convince the key decision-makers in each department of the significance of revenue management. Work with them to modify their current approaches if necessary, and ensure their record keeping is accurate as well.
Sponsor Events and Attractions
The hospitality and entertainment industries work hand in hand. This is why it makes perfect sense to give visitors more choices while they are there. Giving customers travel discounts when they take public transit is a well-known example.
However, there are additional strategies specifically relevant to on-site revenue management. In order to organize conferences and business seminars, hotels having meeting rooms can rent out these spaces. These and other acts can be a pleasant source of extra cash, and they are all great ways to build brand awareness and customer loyalty.
Forecasting Tips for Revenue Management Strategies
Forecasting is beneficial to those in the hotel management industry since it facilitates future planning and helps decision-makers make more informed strategic choices. As a result, being able to anticipate demand levels can also assist you in maximizing the amount of money that is made from a perishable inventory.
Highlighted below is an overview of some of the most important tips for using forecasting as part of a hotel revenue management strategy, along with an explanation of why it matters.
Make Use of Historical Data
With regard to hotel revenue management, most forecasts place a heavy emphasis on historical data and the idea that previous trends might recur. Monitoring your data, for instance, can reveal, among other things, that your busiest months are often in the summer or that you see a reduction in demand during the winter season. Making credible forecasts regarding the future of demand can be done with this information.
Keep Accurate Records
The principle of offering the right product to the right customer is central to the response to the question regarding revenue management. Additionally, you must sell at the best possible moment, price, channel, and cost to you. It is essential to maintain detailed records since you have to use the information at your disposal to do this. You should pay close attention to KPIs like revenue, occupancy, and hotel rates.
Utilize Already-Existing Data
The information that is already recorded in the books is one of your most valuable resources for estimating and managing hotel revenue. Usually, this refers to any rooms that have already been reserved as well as activities, conferences, or dinners that have been planned. However, you can look at your website analytics and social media statistics in addition to this. Keep in mind that the information in the books is some of the most reliable you have at your disposal.
Always Consider Events and Holidays
It is crucial that you account for events and holidays in your forecasting efforts and make the necessary modifications in light of them. For instance, if you forecast demand based on historical data but fail to account for the fact that a significant sporting event is taking place nearby, your prediction may be inaccurate. Holidays like Xmas, Easter, Ramadan, and Thanksgiving can also have an impact on current hotel trends, either negatively or positively.
Top Revenue Management KPIs
The monitoring of Key Performance Indicators is essential for efficient hotel revenue management. However, it is crucial to first fully comprehend them before using software or other hotel software solutions to track them.
GOPPAR
Gross operating profit per available room, or GOPPAR, is a measure that accounts for all of the hotel’s available rooms, whether or not they are actually occupied by paying customers. You can get a decent understanding of total financial success because it also takes into account numerous different revenue sources and expenses.
NRevPAR
The term “Net Revenue Per Available Room,” or “NRevPAR,” refers only to revenue from room sales and disregards all other sources of income. Once more, it emphasizes vacant rooms rather than ones that are filled. To determine “net revenue,” you must first subtract distribution costs from room revenue before dividing by the number of rooms available.
TRevPAR
TRevPAR is a key performance indicator that only considers incoming revenue. Similar to GOPPAR, it doesn’t care whether a room is actually occupied or not, only that it is available. Its name stands for total revenue per available room. All revenue generated by rooms, including that from room service, meals, and other amenities, is also taken into account.
EBITDA
The EBITDA KPI can help to show how well your hotel is doing overall at producing income while removing any potential confounding factors. As a result, it becomes simpler to compare your hotel to other hotels or even chains under your own hotel brand without the findings being affected by factors like the variations in tax rates between countries.
ARPA
Average Revenue Per Account, or ARPA, is a KPI that can assist in letting you know how important a customer is. It is concerned with the typical revenue per customer account during a predetermined time period, usually monthly or yearly. This can also be used to compare historical data and determine the relative worth of new clients.
Wrapping Up
As you presumably already know, the hospitality industry is quite competitive. Due to how hoteliers handle past and present data, revenue management should not be taken lightly if long-term success is to be achieved. It should also be in line with flexible strategies, your hotel’s needs, and those of your clients. Any revenue management improvements must be made as quickly as possible in order to stay ahead of the competition.
