Revenue management is one of the most important roles in the hospitality industry. Why? Because financial performance is a revenue manager’s greatest measurement for tracking how well their hotel meets each their guest’ needs.
Revenue managers take what they've learned about their guests and use it to fill rooms to their maximum capacity while ensuring guests are satisfied with their experience (and therefore want to come back!).
Here's everything you need to know about the importance of revenue management in the hospitality industry.
What is revenue management?
In a nutshell, revenue management uses hotel performance data, tools, and data analysis to identify customer behaviour patterns and predict future behaviours. Revenue managers then utilise these insights to inform every decision they make — from setting room rates to managing distribution channels.
The goal of a revenue manager is to maximise revenue (makes sense, right?). However, trying to achieve it blindly while managing hundreds of guests is futile. An effective strategy requires clean, standardised and insightful data to sell the right room to the right customer at the right time.
The importance of revenue management
Although revenue management is often siloed and seen as its own category, and not a cross-departmental function, this could not be further from the truth. Revenue management impacts every area of a hotel's business, including:
- Marketing — How to better reach and resonate with consumers to maximise revenue (for instance, personalisation).
- Branding, reputation, and public perception — The work revenue management puts into reaching the right guests with the right pricing and amenities inherently affects customer satisfaction. Public perception improves with every happy customer that recommends the hotel and shares their experience via positive online reviews (one study found that 94% of customers share their positive experiences).
- Sales — Whether hotel staff is trying to upsell, cross-sell, or simply get a room booked, the insights revenue management provides into consumer behaviours, patterns, and preferences can influence the success staff has with closing the deal.
- Finance and operations — Key to running a profitable hotel, revenue management helps you optimise and allocate budgets based on the data from your hotel management systems.
- Food and beverage — Revenue management extends to your food and beverage department, helping you access performance by menu, server, guest, and more. Gain the food and beverage data to:
- Create more profitable menus
- Source high-quality inventory for better deals
- Identify upsell opportunities
- Build restaurant and bar revenue forecasts
Basically, you gain the data to improve the performance of your entire food and beverage department.
- Sales and catering — Use revenue management to learn which events are the most successful to optimise their location, sales, time and impact.
Ultimately, these use cases emphasise the importance of your revenue management team working closely with all departments to align on the best ways to maximise revenue and offer a consistent guest experience.
This isn’t the only reason revenue management is so important for hotels. Here are additional benefits of revenue management to consider:
Lowering costs & maximising revenue
Effective revenue managers identify trends in their hotel’s data to lower hotel costs and increase revenue by optimising their guests’ experiences based on their room, price, amenities and other preferences. This maximises revenue by ensuring no room is left empty while room rates are at the highest they can be while still attracting guests that are willing to pay. To lower costs, revenue managers focus resources on selling to their best-fit customer segments in the most profitable channels.
Attracting your ideal guests
Through channel management and segmentation, you not only boost revenue and lower costs — you reach your ideal guests. As mathematician Des MacHale said, "Take some time to play around with segmentation. If you can pinpoint your best and worst customers, it’s well worth your time."
Through the best business intelligence tools, you can target your hotel's ideal guests using consumer insights based on the unique experience your property provides.
Increasing the value of guests’ experiences
One of the most common challenges hotels face when selling rooms and reaching the right customers is increasing the value of their hotel in the eyes of their guests. Hotels achieve this by leveraging amenities, services, and industry innovations to ensure every step of the guest's experience adds real value. Through dynamic pricing and targeted package offerings, revenue managers can increase the value offering of their hotel.
Elements of revenue management
When exploring the importance of revenue management in the hotel industry, it's helpful to understand the core elements of the job. After all, these are the levers you push and pull to maximise your bottom line.
There are many pricing strategies revenue managers use to maximise RevPAR. Some approaches focus on their competition's prices. Others focus on:
- The type of guest
- The current or predicted occupancy rate
- The length of stay
- Or forecasting
However, most hotel revenue managers use pricing strategies that leverage both market and internal data. Dynamic pricing, in particular, is a popular pricing strategy due to its flexibility — fluctuating pricing in real-time based on the current market.
Today, hotel inventory revolves around more than just rooms — it's all the resources used to keep a hotel running efficiently. Inventory management plays a significant role in tracking and monitoring the hotel's room types and occupancy. Thorough inventory management often includes regular reports on vendor performance, accountability, and order management.
With these reports, revenue managers can evaluate that guests have all the goods and services that they need to have the best experience possible, which improves their guest return rates and the hotel’s long-term revenue.
More than that, they can consolidate orders to high-performing, cost-effective vendors, improving their purchasing power to receive discounted orders, free shipping and other benefits. This strategy ensures that they are paying less for more, without sacrificing the quality of their guest amenities.
Segmenting customers allows the hotel to target specific groups in their preferred revenue optimisation methods. For revenue managers, in-depth segmentation is essential. To get the most out of your data, segment guests by nationality and traveller type (such as business, leisure, or group) to better accommodate each guest's needs and wants.
Distribution channel management
Calling in may once have been the only way guests could book a room. It's safe to say things have changed substantially since then. Today, guests can access hundreds of online booking websites, from Booking.com and Expedia to Airbnb and Agoda, to get the best deal and quickly book their room — and preferences vary from guest to guest.
A solid distribution channel management strategy must be implemented to accommodate different sources of bookings. Implementing the right strategy means multiple things. One, you can advertise your available bookings to a broader audience, which immediately increases your chances of filling your rooms.
You can also better manage these bookings with them in one place, reducing the risks of double bookings and out-of-date inventory. Last but not least, with a consolidated distribution channel management strategy, you gain powerful insights into which channels are the most effective or how to competitively position your rooms with pricing and other benefits.
To maximise your hotel's bottom line, you must have an in-depth understanding of past performance to inform and predict better decision making in the future. Demand forecasting allows revenue managers to adjust amenities, pricing, marketing, among other factors of their guests’ experiences according to how well they've done in the past.
In today’s business landscape, with rising inflation, global supply chains and multiple variances of COVID-19 spreading throughout the world, demand forecasting has never been more important for understanding your hotel’s —and your guests’ — current needs in real time.
Leverage hotel revenue management software to make the right strategies
Revenue management is an essential component of success in the hotel industry. However, it also takes a lot of time and effort. If your team doesn’t have the time to sort through all your hotel’s disparate data sources to determine how you can improve guest experiences, along with your own financial goals, there is a solution for you.
With the right software to inform your decisions, you and your team will be better prepared to reach and resonate with the right guests. For instance, InTouch's BI tool equips you with granular insights into all of your hotel's data to build optimised strategies and make smart decisions every step of the way. Book a product tour today to learn how you can turn your hotel's data into decision intelligence.