Hotel revenue management principles and practices are always evolving. Travellers and guest expectations are rising. Cities and states around the world are competing to be the top tourism destination. And short-term rentals are now giving even the biggest hotel groups around the world a run for their money. If you're still working with principles and practices established years ago, you're not going to see different results.
To clarify - Hotel revenue management is the practice of analysing guest data to predict consumer behaviour, set optimal room rates, and deploy a distribution strategy to maximise a hotel’s revenue.
In other words, it’s selling the right room, to the right client, at the right moment, for the right price, through the right distribution channel, with the best cost efficiency.
Ensuring all these variables are in sync is no easy feat. So we put together this list of hotel revenue management core principles and best practices to be the secret weapon you've always needed to increase your occupancy and improve your perceived value.
Core Principles of Hotel Revenue Management
Before we get into best practices, let's take a dive into the core principles of hotel revenue management.
Distribution Channel Management
With all the ways a guest can book a place to stay these days, a solid distribution strategy is absolutely necessary to boost your hotel’s visibility and maximise your profit per available room. Simply put, a distribution channel is a platform in which your guests purchase their rooms.
Distribution channel management is the process of monitoring data from distribution channels and setting room rates and booking restrictions on each channel in order to accurately target your ideal segments, maximise your review ratings, and sell rooms at the most optimal prices. To get the most out of your channel manamangent, you'll need accurate data and to use the right revenue management tools that centralise your channel data and offer actionable insights into channel performance.
Demand forecasting is the process of using a mix of historical market and internal revenue data to build predictive reports on future room and amenity demand. With the help of historical data from guest behaviour analytics, you can forecast future demand. This is why it is critical that you keep accurate records. They will allow you to make more informed decisions when forecasting for marketing, room rates, amenities, and more. In turn, you will be better able to maximise your hotel revenue.
Optimising your pricing strategy is the key to achieving maximum revenue per available room (RevPAR). Revenue management, also known as yield management, is the core principle of every hotel. It involves selling the same room to multiple guests at a different price depending on demand and marketing it differently depending on the potential guest's customer segment. To support your yield management decisions, you'll need to track Average Daily Rates (ADR), Revenue Per Available Room (RevPar), and other important KPIs. You also need a dependable hotel property management system (PMS) and accurate business intelligence (BI) tool.
At the center of hotel revenue management’s core principles is pricing. Travelers are most often looking for the most value for the lowest price when shopping for hotel rooms. There are two types of pricing to consider when building your strategy:
1. Dynamic Pricing
This refers to handling your pricing in real-time and adjusting pricing according to demand. If your hotel's occupancy rate is unexpectedly increasing, for instance, it may be time to increase room rates. On the other hand, if competitor prices are much lower, your rates may need to come down as a result.
2. Open Pricing
Open pricing is another strategy, allowing prices to vary between channels, dates, rooms, segments, and more. This strategy brings more flexibility to pricing, enabling you to fluctuate pricing depending on consumer demand for specific rooms or among particular segments.
The most flexible pricing strategy will use both dynamic and open pricing in conjunction. By leveraging both market and internal data, you can optimise your pricing to respond to both market fluctuations and consumer demand. Through this strategy, you can take advantage of how each principle works to maximise your revenue and stay competitive in the market.
Hotel inventory management is the bread and butter of your business. It's the process of managing all of your hotel rooms, using a combination of strategies such as basing your decisions on data, integrating your systems, leveraging mobile technology, and more. The best way to maximise revenue is by limiting the number of unused rooms, and inventory management is the best way to go about it.
Segmentation is a key component in hotel revenue management because all of your customers are not the same. In fact, you'll find that most revenue managers have, on average, 8-10 relevant market segments. In the hotel and hospitality industry four segments matter immensely:
A business guest's needs will be considerably different from a leisurely guest's needs. A business guest is here on work and away from home, attending meetings and being as productive as possible. Offering them a discount on your spa, for instance, isn't going to come off as appealing as amenities like:
- A comfortable desk
- Meal options
- Reliable WiFi, etc.
On the other hand, a leisure guest is here to get away from work, have fun, and likely relax. A spa discount would be more attractive to a leisure guest. So would entertainment, sports, and other local activities they may be interested in. Highlighting the nice desks in the room or WiFi won't be the deciding factor that gets leisure guests to choose you over the competition — which is why it's so important to separate them.
Segments for groups are also essential because their needs will be different from individual or single-family guests. For instance, they'd be more interested in discounts for blocked rooms, gathering spaces where they can all meet up (rooms will likely be separate), and additional amenities that may make their stay easier.
For hotels, nationality is another important segment because it sets the stage for the customer's expectations, preferences, behaviours, and overall satisfaction with their experience with you. According to one 2020 study conducted in Saint Petersburg, the role of nationality is vital to your hotel's success and survival because "travel behavior and preferences could strongly vary among different cultural groups." What's more, their satisfaction relies on how well you can appeal to their different preferences and needs that are a product of their country and culture.
Best Practices of Hotel Revenue Management
Now that you have the core principles established, let's discuss some important best practices to ensure your success. Here are 5 hotel revenue management best practices to help you maximise your revenue:
Use a Business Intelligence platform to streamline data analysis and predictive analytics
Gathering data and analysing it is the key to knowing your customers and predicting their future behaviours. However, it can be a challenge to keep organised and understandable. A Business Intelligence platform imports all of your data into one easy-to-understand platform for everyone in your hotel to reference. This ensures you’re maximising revenue by keeping everyone —i.e., marketing, sales, etc. — on the same page regarding current and future consumer behaviours.
Use dynamic pricing and packaging to optimise hotel revenue
Basing your pricing and packing on supply and demand allows you to stay competitive while selling each room at the best possible rate. For dynamic pricing, this may be higher earlier in the day, and by the time more data has been assessed, mean a lower price by night or vice versa. It depends on the market and consumer behaviour.
Launch loyalty programs and packages to keep guests coming back
Reports show 75% of consumers have said that they prefer companies that offer them rewards. Guests love deals and discounts, particularly those that make them feel exclusive. Build loyalty programs and packages built around your most desired guest segments. Then, focus your program and package marketing on the channels that are most popular among your guests.
Pro tip: Use A/B testing to fine-tune your loyalty program and package offerings to maximise sales and sign-ups.
Leverage Mobile-driven booking to reach customers where they are
Did you know that, according to one Google report, more than 50% of web traffic is mobile? That means that if you haven't optimised your booking for mobile, you could be missing out on more than 50% of traffic. The same report noted that at least 60% of smartphone users are more likely to contact your business directly after locating you on their phone via the web.
Benchmark your competitors to gain perspective on the market
Keeping an eye on the competition allows you to measure your hotel’s success against the market and stand out among the other hotels in your area. How well are they catering to your target audience? Ask yourself: How can I do better? Measuring your success against the competition is a great way to evaluate your strengths and weaknesses, and use that insight to improve.
Leverage the most powerful suite of decision intelligence tools available to the hotel industry
If you’re stuck spending valuable time combing through spreadsheets when you should be building revenue strategies, the right hotel Business Intelligence software can dramatically improve how you use data to inform and implement your strategies. Book an InTouch BI product tour today to learn how the most powerful suite of decision intelligence tools available can help you turn your hotel data into revenue.