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6 Need-to-knows of Hotel Revenue Management

Donnchadh Tiernan

25 Nov, 2022

Hotel Revenue Management is a practice as essential to running a hotel as keeping a collection of rooms, beds and keycards. It is to hospitality what trainers are to long-distance running. The only problem is – when was the last time you had the make-up of a trainer laid out to you? Do you know why you need one? 

In this article I’m going to give you everything you need to know to appear to be an expert in public and to get started in private. It will take the form of answers to the following FAQ’s:

  1. What is hotel Revenue Management?
  2. Why is Revenue Management important in hotel operations?
  3. What’s the best hotel Revenue Management software?
  4. What are some hotel Revenue Management strategies?
  5. What is dynamic pricing
  6. What are the best Hotel Revenue Management online courses and classes?

So get comfortable as I tell you the story from the very beginning right up to the present day and your own hotel. 

What is hotel revenue management?

On a very basic level Revenue Management is about finding the right balance between supply and demand and pricing accordingly. The analogy I use is the reduced cost of nearly-off fruits and vegetables in a greengrocer’s. Reducing the prices of these items is based on the fact that at their optimum price they were not selling and soon they’ll simply be written off as a loss.

Calculated correctly, the reduced price entices buyers to purchase and what would have been a loss becomes something between that and a smaller profit.

Revenue Management first found its way into the hotel world via the miracle of flight, in that it was thought up by American Airlines CEO Robert Crandall and shared with Bill Marriott of the Marriott group.

Robert Crandall is a bonafide titan of the business world. His ambitious thriftiness is the stuff of legend. He once earned his company an extra 40k in a year by removing one olive apiece from every salad serving.

The story goes that during a meeting with Marriott Crandall shared his solution to what he called the ‘spoiled goods problem’. What Crandall was referring to however was not a giant stack of decaying olives without a salad to call home but the symbolic money burning every time a plane of his took off with empty seats.

Empty airborne seats are to an airline what vacant rooms at midnight are to a hotel. What’s more, to an accountant working for either party they’re identical beyond analogy – they’re simply zero.

What Crandall had begun to utilise was the practice we now call Revenue Management. By adjusting prices and marketing appropriately – the right target at the right time – he was able to sell seats he’d previously written off as losses. He’d borne revenues where previously there’d just been deficits.

Hotel revenue management involves a good deal of groundwork – foundations on which to build a palace – followed by a number of habits to pick up and live by. For the moment you could well still reside in the camp labelled ‘hoteliers who know about Revenue Management but abstain because if it ain’t broke bla bla bla’. It’s time to make your exit and head for the Emerald City because you need to not be in Kansas anymore.


Why is Revenue Management important in hotel operations?

The reasons for hotel revenue management systems’ meteoric rise are varied and interesting on a whole host of levels. I’ll get into the most important ones.

Thinking is a requirement. A get rich quick scheme this is not. That said, reason number one is distinctly monetary in nature. 

1. Revenue

I’m sure I don’t need to relay to you the frustrations of losing out on percentages of what ought to be your revenues while lining the pockets of OTAs. Sure, you can live with them but you’ve got a suspicion that you’re just a couple of moves away from not needing them. Revenue Management gives you the inverted version of these frustrations.

The inversion of the frustration to which I’m referring is the little burst of joy that occurs in one upon realisation that following a couple of clever chess manoeuvres you’ve gained back some revenue that you’d learned to live without.

The importance of Revenue Management for your bottom line is essential if you’re determined to grow that bottom line. If you’re not in the position or don’t possess the inclination to physically expand your business, revenue management can grow it where it counts.

2. Management

It’s in the title for a good reason. A key advantage of Hotel Revenue Management is that it puts you back in the driving seat. If you already feel you’re there then answer me this – how do you decide your prices? If it’s lower than my neighbour but higher than the electricity bill I hate to be the bearer of bad news – it sounds like you’re in the back seat.

With just a little research and a few new habits you’ll no longer be running around watching the trees and waiting for fruit to fall. No – you’ll be the orchard keeper with bookings for apples and facts for fertiliser.

3. Independence

Hotel Revenue Management techniques can increase one’s potential to operate outside the realms ruled by OTAs. The return on investment and free exposure is enough to warrant one’s presence on the biggest channels at the very least doesn’t mean it wouldn’t be nicer if they didn’t account for less of your overall revenue.

One of the pillars of Hotel Revenue Management is to segment your clients into profiles or avatars and market directly to them, which done successfully is a great way to foster client loyalty. It’s kind of a two-for-one grab.

Another must-do move is to guarantee that the lowest available price is available only on your website – a fact you should proclaim as visibly as possible on your homepage. If not out of loyalty customers will always book directly if you guarantee them a lower price.

4. Insulation

No, I’m not talking about a foam composite to keep you warm in winter – I’m talking about using forecasting to charge the right prices in high season in order to bolster yourself against your overheads come low season.

No matter how quiet the Winter there will still be basic costs to meet to stay open. Also, the busier you get during high season the higher up your overheads will be. Good Hotel Revenue Management practices will allow you not only to set the right prices but to set aside a sea wall of funding to keep winter costs at bay.

You might be saying it’s not easily done. These are practices that need to be learned and there are a host of tools with which you’d do well to familiarise yourself before putting foot to pavement.

Hotel Revenue Management Software

There are leaders in the field of Hotel Revenue Management Software that dominate their fields to such an extent that they won’t mind my not mentioning them directly here. A simple, straightly worded Google search for ‘best hotel RMS software 2022’ will land you with a list of the usual suspects.

Better again – check out my article about Hotel Revenue Management Softwares. It’s a top-to-bottom explainer of everything it’s important to know when it comes to RMS software.

Each of these are useful in their own unique ways as well as a lot of the same ways. They are each of them sophisticated data miners which provide graphs and spreadsheets which can help inform pricing strategies to the trained eye.

The main difference between the biggest ones usually comes down to ease of use and what they base their suggestions on. Most have an option whereby you can make it as easy or as complicated as you like by switching between dashboards. The reasoning behind this is to many users – untrained in the specifics of Hotel Revenue Management – many of the the options proffered in the full, uncensored dashboards are highly technical and will likely remain unused.

This is not at all to say they are not worth looking into and learning about, just that a typical hotel manager or owner’s life is busy enough without taking the time to re-educate oneself on the reading of PMS data.

These softwares are designed for professional use, by which I mean people whose entire day is dedicated to reading data and forecasting pricing strategies. Many of the industry leaders change their prices two to three times per day and most of the products are designed around this principle.

You should know however that the more expensive, complex softwares I’ve referred to are just so because they’re designed for big players whose game plans include multiple properties, rooms in the hundreds if not thousands and projections further into the future than even Nostrodamus dare predict.

For those of you reading this and not in that game what you ought to be seeking out is a price recommendation tool. Most leading RMS brands sell this separately and with good reason. PRTs are designed for simplicity and autonomy, which is a luxury that those not responsible for thousands of rooms over years at a time are afforded and should take advantage of.

You – not a revenue manager nor a spreadsheet nor a future data chart – are in charge of your property and your pricing strategy. PRTs suggest prices based on available data but you are the one who pulls the trigger.

This is exactly the reason we came up with SmartPricing by Amenitiz. Our clientele is typically of fifty rooms or less and crucially – independent. Our motto is empowering independent hoteliers and that’s exactly what we set out to do with SmartPricing. It’s easy to use, connects snugly into the Amenitiz PMS so no further connections are required and adapts itself to your property on your terms.

Book a free demo with Amenitiz today and get yourself up to speed on the leaps forward being made in the RMS world for Independent Hoteliers.

Before setting that cart up though there are some more basic Revenue Management Strategies that you’ll need to familiarise yourself with if you want your PRT to work for you in a way that contends with your environment and empowers what’s unique about your property and clientele.

Learn more on Hotel Revenue Management Softwares.

Revenue Management Strategies

There are libraries full of material to help you choose the best revenue management strategy to employ. These are not vague shots in the dark either. They are each time-proven ways to boost your average daily rate and revenue available room (RevPAR).

In plainer English – revenue management strategies figure out what you’ve got coming to you and gives them an easy route getting there. The most effective ones are the most theoretically simple but they require a degree of dedication and regularity that means sitting down for an hour a couple of evenings per week and inputting and reading data.

The good news is they work. Check out our list of six super-effective revenue management strategies right here.


Dynamic Pricing for Hotel Revenue Management

Almost everything I’m talking about today leads us in one way or another to the practice of dynamic pricing. Dynamic pricing is quite simply the name given to raising and lowering the price of one thing in several different places consistently based on any number of factors – whichever you deem worthy of your attention.

At the most rudimentary end of the spectrum you have hotels that price their rooms slightly higher at the weekends – as fine and in tune a move available to a hotelier of the pre-internet age. It might seem silly to mention at all but the fact is dynamic pricing is simply that kind of thinking expanded to it’s logical end.

Dynamic pricing looks at the disposable income of your regulars, the projected demand for at least a year going forward and a list as long as your arm of other things before landing on a number and charging it. Basically, anything that might affect the probability of a room being filled on any given night is factored in.

One highly recommended way to start is with a price recommendation tool like SmartPricing by Amenitiz. Price recommendation tools offer greater utility for a more reasonable price for proprietors of smaller establishments. They do the research and give recommendations – exactly what it says on the tin. It’s up to you whether you take them or not.

The advantage SmartPricing by Amenitiz wields over it’s peers is it comes connected up to the Amenitiz PMS and channel manager, so there’s no messiness when moving between platforms. You simply switch tab, ask for recommendations and do them or don’t.

Hotel Revenue Management online courses and classes

As with the various software suites there is a quick and easy – and superfluous – route to take here and a more thoughtful one that might bake your noodle a little. If you search online for the best hotel revenue management online courses you’ll find a list of diverse, charismatic options that dive deep on all aspects of the subject.

They’ll cost you plenty and cover plenty but unless you’re residing behind the wheel of eighty rooms or more there are as many sections of each that you’ll find useful as useless.

That’s not to say they contain no value by the way, simply that they’ll tend to sell themselves as essential up top – as we all do – but that without any way to fully comprehend the terminology you’re in no position to make the call yourself. How then to proceed?

Well, luckily for you there’s thoroughly research and forensically presented course over at The Hotel Club that’s completely free to all comers. At worst it’s a starter package for you that will help you choose how next to proceed with your yield management education, but at best it’s all you’ll need. Find out for yourself right here.

To conclude with Hotel Revenue Management

There’s a lot to familiarise yourself with in the world of Hotel Revenue Management. With the right approach it’s the kind of learning that will enrich rather than burden your day. How? I’m going to assume you’re interested in your hotel. The independent hotelier approach to Revenue Management is, at its essence, a deep-dive into one’s own business.

Along the way you’ll learn to tell your own story and you’ll figure out who you want to hear it. You’ll learn where best to tell them too. Take Hotel Revenue Management away from the spreadsheets and graphs and it’s a journey of self-discovery for you and your business and it’s one you should embark on – the sooner the better.

Donnchadh Tiernan

25 Nov, 2022