Hotel revenue management is an incredibly complex machine. It's perpetually in motion, requiring routine maintenance and replacement parts on occasion. While operating the machine may seem overwhelming, especially to those new to the hotel revenue management space, understanding why and how each piece works can go a long way.
In this post, we take a deep dive into hotel revenue management: What it is, how it works, and the vital role it plays in a hotel’s overall success. Then, we discuss resources, best practices, ideas, and strategies that revenue management professionals from all over the world can use to reinvent their revenue management strategy and increase hotel profits.
Explore hotel revenue management ideas, strategies, resources, and tools
What is hotel revenue management?
The term hotel revenue management refers to a variety of principles and practices that help hotel professionals predict what customers are going to do in the future. While specific goals may vary from one property to the next, some primary objectives of hotel revenue management are to optimize prices to match travel demand, outperform the comp set, increase profits, and improve hotel performance year-over-year.
By using performance data and other hotel analytics, revenue managers make rate decisions, determine distribution strategies, and work to increase the amount of revenue the property generates — all without hindering guest satisfaction.
How can Cvent help with hotel revenue management?
Hotel revenue professionals rely on a variety of tools, resources, reports, and software systems for comprehensive management. Whether you're a new revenue manager looking to grow your skillset or an experienced hotel professional looking for new ways to get an edge on the competition, you can benefit from Cvent’s extensive collection of hotel revenue management solutions.
Cvent provides a variety of solutions and innovative systems that can help:
- Drivemore direct bookings
- Capture higher rates
- Optimize pricing strategies
- Improve year-over-year profits
- Outperform competitors
- Analyze hotel performance
- Track demand for improved forecasting
- Win more RFPs
- Reach more planners
- Improve your market mix
- And so much more
Above property: Here's how we can help
At property: Here's how we can help
What happens if hotel revenue is not managed properly?
Failing to effectively manage hotel revenue can negatively affect every aspect of hotel performance. Revenue managers and directors who do not diligently track, analyze, and utilize revenue reporting could:
- Push business to competing hotels
- Harm thehotel’s reputation
- Hurt guest loyalty
- Lead to missed rate opportunities
Additionally, sales and revenue directors may earn a portion of their salary from meeting revenue goals, and missing those goals could have a significant impact on their annual earnings.
Strategies for better hotel revenue management
Implement revenue management strategies that are in line with your hotel’s revenue goals and budget. See which strategies work best in your market and adjust as needed.
1. Start with an honest inventory.
Creating a successful revenue management strategy should start by taking a hard look at the way the hotel’s revenue is being managed right now. Before making any major changes, ask the following questions to help assess your hotel’s current position:
- What is your current revenue management strategy?
- What are your revenue management goals or objectives?
- Is your revenue management style proactive or reactive?
- What is your group pricing strategy?
- Are you knowledgeable about area events and attractions?
- Do you know what your demand generators are?
- Do you keep a close eye on competitor pricing?
- Do you know what your market mix is? Is it balanced?
- Are your leads and proposals turning into actual business?
- Can you identify the cause of demand changes or rate anomalies at your hotel?
Once you have a firm and fair understanding of your revenue strengths and weaknesses, you can identify opportunities for improvement and create an informed hotel revenue management strategy.
Free webinar: Revenue growth 101
2. Become an expert in your market.
A profitable revenue management strategy factors in seasonal changes and demand fluctuations. Identify the major demand generators in your area, review planner sourcing behavior, and analyze travel patterns in your market. Determine your hotel’s peak, off-peak, and shoulder seasons to help maximize rates and fill future need dates.
Create a calendar of special events, restrict blackout dates, and sign up for Google Alerts. Stay up-to-speed on area events, community projects, and what the businesses in your area are doing.
Strive to know more about your market than revenue managers at competing hotels. The more information you have, the more comprehensive your hotel revenue management strategy can be.
3. Use future forecasting data to establish your budget.
While unexpected hiccups can throw a wrench in the most thorough hotel budgets, proper budgeting and forecasting can help prevent revenue managers from depleting their financial reserves too early or too often. When preparing a budget, hoteliers and revenue managers should review historical data, hotel rate reporting, and competitive set performance tracking to identify revenue opportunities that will have an impact on budgeting decisions.
When establishing a budget, gather data that tracks how your hotel performed over different seasons, during special events, holidays, and other notable dates. Gaining a comprehensive understanding of a hotel’s performance history will help revenue managers identify past market trends, as well as better predict future trends.
Regularly review hotel data tracking and revenue reporting to identify:
- Sudden demand changes
- Unexpected shifts in occupancy
- Unusually high/low ADR
- RevPAR fluctuations
- Booking patterns
- Missed RFP opportunities
Analyze the strategies used in the past and evaluate how well the hotel performed as a result of those strategies. Identify which strategies worked best, which could be improved, and which should be eliminated; use detailed analysis to inform your next budget.
4. Use variable pricing strategies to optimize hotel revenue.
When it comes to hotel revenue and pricing management, there is no one-rate-fits-all solution. Successful hotel revenue managers consistently optimize room rates to match what's happening in their market. They use dynamic pricing strategies that are based on past performance, current demand, future forecasting, and changes in the comp set. With this information, revenue managers are able to optimize room rates and drive more revenue.
Hotel rate and pricing strategies can be influenced by:
- Travel demand
- Special events
- Room availability
- Market conditions
- Booking windows
- Competitor pricing
- Market segment mix
- Target market trends
- Service level
- Available amenities
To sell guest rooms at an optimal rate, revenue managers keep a close eye on what's happening in their market. They anticipate future demand changes, track room night pickup, and adjust rates accordingly.
Hotels that offer superior services and amenities may be able to charge higher rates during high-demand periods than area hotels with less to offer. If your property offers services comparable to nearby competing hotels, however, selling higher rates than the competition can lead to displaced occupancy, sending travelers to the comp set.
5. Keep a close eye on the competition.
All revenue managers need to know what their hotel offers compared to the competition. What room types are available at each hotel? Which properties are full-service and which are select-select service? Which hotels have event space? What rates are competing hotels in the area offering? Which properties are pet friendly?
Is your hotel receiving its fair share business in the market? If not, dig deeper into competitive set data. Review reporting and performance index changes to identify the reason.
6. Increase repeat bookings using guest segmentation.
Many hotel professionals characterize distinct groups of travelers by their reason for travel in a process called “guest segmentation.” Travelers may be segmented by a variety of travel types:
- Leisure travel
- Business transient travel
- Corporate negotiated travel
- Group travel
- Event attendees
- SMERF: Social, military, education, religious, and fraternal travel
Analyze the travel habits displayed by different segments to better understand your customers. Review stay patterns, room type preferences, and purchase habits to get an idea of what sets your transient travelers apart from your leisure guests, or your weekday mix from your weekend mix.
By developing a deep understanding of different market segments and the types of guests who visit your hotel, hotels can construct exclusive offers and promotions that appeal to specific traveler types— for example,48% of customers who identify as loyal expect personalized experiences from businesses they interact with. Entice loyal customers to return to your property by creating targeted promotions and running more personalized marketing campaigns.
Confirm which segments are bringing in the most business and which are underperforming. Pinpoint market segments that need targetingand develop a plan of action.
7. Manage your RFPs efficiently.
A vital part of hotel revenue management, especially in high-demand areas, is effectively managing RFPs.Stop wasting valuable time writing lengthy proposals for leads that end up being a bad fit for your business. Evaluate and rank the leads that your hotel receives to quickly identify the best pieces of potential business. Prioritize the RFPs that fit your hotel’s availability, size, and revenue goals; rank RFPs ill-suited for your hotel the lowest.
Instead of spending hours reviewing lead after lead, optimize your RFP management system’s response settings to work for you. Update your settings to automatically turn down groups or events that your hotel can't accommodate. Small adjustments that maximize efficiency will allow you to spend more time focused on converting prime leads and winning more business.
Even with so many travel planners booking business online, major decision makers can still be difficult to access. Market to hard-to-reach planners by telling your hotel’s unique story. Add personalized touches to your proposals that will help planners make a memorable connection to the hotel.
8. Widen your audience reach.
Guests can't book a room at your hotel if they don't know that it exists. Widen your reach and improve your hotel’s search rankings by:
- Responding to guest reviews
- Advertising on social media
- Creating a Google Business profile
- Using geo-location services
- Ensuring accuracy across OTAs
- Managing hotel branding
- Creating valuable content
- Publishing a hotel directory listing
Online hotel directories make your hotel visible to travel and event planners from all over the world. Listing in a directory can help hotels generate more group, transient, corporate, and event business by dramatically expanding their audience reach.
Is your hotel also a wedding venue? Reach wedding planners and engaged couples by listing your hotel in a wedding venue directory.
MORE: 14 tips to maximize your hotel's SEO
Bookmark this guide to find the hotel revenue management tools you need when you need them!
You now have tools and resources to help build a profitable revenue strategy. Next, work to improve hotel occupancy with these proven strategies.
Hotel Revenue Management: 8 Ways to Boost Your Business? ›
Selling additional (or ancillary services) can significantly increase hotel revenue. There must be plenty of them that you currently offer for free, like buffet breakfast or the occasional early check-in or late check-out. By turning them into paid ones, you can unlock additional revenue opportunities.How can a hotel boost its revenue? ›
Selling additional (or ancillary services) can significantly increase hotel revenue. There must be plenty of them that you currently offer for free, like buffet breakfast or the occasional early check-in or late check-out. By turning them into paid ones, you can unlock additional revenue opportunities.What is the revenue management methods used in the hotel? ›
Revenue management refers to the strategic distribution and pricing tactics you use to sell your property's perishable inventory to the right guests at the right time, to boost revenue growth. Other products such as your amenities and food and beverage offerings will also come into the picture.How can hotels achieve their ultimate success through revenue management? ›
Use variable pricing strategies to optimize hotel revenue.
Successful hotel revenue managers consistently optimize room rates to match what's happening in their market. They use dynamic pricing strategies that are based on past performance, current demand, future forecasting, and changes in the comp set.
- Build a road map. ...
- Segment your target market. ...
- Sell the experience over the transaction. ...
- Maximize online reach with a Channel Manager. ...
- Build your direct channel with a booking engine.
When it comes to bringing in revenue, hotels typically rely on four primary sources: rooms, meetings and events, food and beverage, and ancillary services. In hospitality, typically, the performance of each pillar will determine a property's financial success.How can hotels increase sales and marketing? ›
- Stop giving away free upgrades. ...
- Offer paid room upgrades pre-arrival. ...
- Streamline your upselling efforts with a smart hotel technology. ...
- Offer personalised deals and packages. ...
- Benefit from guest segmentation. ...
- Capitalise on food and beverage deals.
The discipline of revenue management combines data mining and operations research with strategy, understanding of customer behavior, and partnering with the sales force.What are 3 strategies that you would use to manage and control revenue? ›
- Analyze the market. It is essential to understand your market before implementing a revenue management strategy. ...
- Segment your customer base. ...
- Choose the best pricing strategy. ...
- Focus on customer retention. ...
- Focus on mobile optimization. ...
- Leverage available revenue management tools.
They must be able to understand the needs across departments, keeping an eye on the hotel's competitive set, market demand, and events that might affect demand like national holidays to make smart and informed decisions about pricing.
What are three sources of hotel revenue? ›
Typically, revenue in the hospitality industry is generated through hotel room rentals, meeting space occupancy, and the sale of food or beverages.What is a good revenue for a hotel? ›
As a general rule, a healthy profit margin lies at around 10%, whereas 5% is a low margin and 20% is a high margin. Hotels can compensate for a low profit margin by trying to get a higher revenue per booking through ancillary revenue and upselling. Learn more about how to drive ancillary revenue.What are the 5 steps of revenue management strategy? ›
The stages in this process are Data Collection, Segmentation, Forecasting, Optimization, Dynamic Re Evaluation.What is the 5 step revenue management process? ›
The Revenue Management Cycle (RMC) is a five-step guide that simplifies the revenue management process. It consists of: competitive analysis, forecasting, pricing, inventory control and performance review.What is 1 benefits of revenue management for hoteliers? ›
A hotel revenue management system is used to analyse various data such as internal data, market supply, and customer demand to optimize pricing and inventory. Simply put, it helps hoteliers in calculating the ideal rates for rooms and maximising the bottom line.What is the biggest expense in a hotel? ›
Because the hospitality industry is service-focused, employee wages often make up a large chunk of fixed costs. From the concierge to cooks to the housekeeping, there are many staff members on the payroll at all times. This is why labor costs are typically the largest part of average hotel operating expenses.What is the most valuable asset of a hotel? ›
People are the most valuable asset in the hotel industry. From the front-line employees who interact with guests daily to the executives who lead the company, the human element of hotels is critical to the business's success.What is 4p marketing strategy in hotel? ›
The 4Ps in tourism are “product,” “price,” “place,” and “promotion.” They are intangible factors for enthusiasts, planners, and adventurers and are categorically streamlined as follows.How can hotel attract business customers? ›
- Impress Visitors before their arrival.
- Train your staff to deliver world-class service.
- Maintain Excellent Room Services.
- Offer better rates with recreational facilities.
- Establish an online presence.
- Take advantage of peak booking seasons.
- 1- Search engine optimization. ...
- 2- Content. ...
- 3- Effective Hotel marketing campaigns. ...
- 4- Local online marketing. ...
- 5- Form brand alliances. ...
- Allow for a quick check-in and check-out. ...
- Use apps.
What are the 4 C's of revenue management? ›
The strategic levers of yield management can be summarized as four Cs: namely, calendar, clock, capacity, and cost.What are 7 core principles of revenue management? ›
In revenue management, the major functional components for its application are: (1) market segmentation, (2) inventory pooling, (3) demand forecasting and supply forecasting, (4) overbooking's control, (5) revenue mix controls, (6) exception processing and (7) performance measurement.What are the 4 stages of revenue management? ›
Similar to the concept of the 7Ps of Marketing Mix, there are 4 key elements of revenue management that hotels should adhere to. The 4Ps of revenue management are: Pricing, Positioning, Pace and Performance.What are the 9 essential strategies for increasing revenue? ›
- Set defined goals. Make quantifiable goals for how much you want to increase your sales and revenue. ...
- Target repeat customers. ...
- Target former customers. ...
- Grow your geographic reach. ...
- Refine your pricing plan. ...
- Add products or services. ...
- Bundle products or services. ...
- Upsell products and services.
- increasing your prices.
- finding new customers.
- selling more to existing customers.
- offering sale promotions to boost the volume of sales.
- developing new product or service lines.
- selling in new markets.
- Revenue Management Pricing. The most obvious factor in revenue management is the price. ...
- Inventory Revenue Management Systems. ...
- Revenue Marketing Strategies and Opportunities. ...
- Sales Channels and Revenue Pricing.
A key part of revenue management is using the right distribution channel to find the right customer. While you want to reach as many people as possible, the priority should be generating direct bookings when possible.What is the most important goal of a revenue manager? ›
A revenue manager is tasked with keeping up with market trends, analysing data and using the available information to anticipate demand and then adjust strategies accordingly. Ultimately, the core objective for any revenue manager is to maximise the amount of money generated by selling products or services.What are the three soft skills a revenue manager needs to develop? ›
The second most common hard skill for a revenue manager is reservations appearing on 8.5% of resumes. The third most common is customer service on 6.8% of resumes. Three common soft skills for a revenue manager are creativity, organizational skills and communication skills.How important is revenue management to the overall financial success of the hotel operation? ›
Revenue management is an extremely important concept within the hospitality industry, because it allows hotel owners to anticipate demand and optimize availability and pricing, to achieve the best possible financial results.
How can revenue management system help hotel or business operation more effective and efficient? ›
Revenue management is a key concept within the hospitality industry, because hotels must contend with fixed costs, a perishable inventory, and varying demand levels. Typically, revenue management involves using analytics and available data to predict demand, make strategic pricing decisions, and maximize revenue.How can revenue management be used to improve financial performance? ›
The benefits of revenue management include a better ability to predict customer wants and needs, a more effective pricing strategy, an expansion of available markets and a stronger relationship between the company divisions.What is the main goal of revenue management? ›
The aim of Revenue Management is to analyse data that allows you to predict demand, so that you can offer them the right product at a fair price, and therefore optimise your business results.What factors contribute to a successful revenue management? ›
When it comes to revenue management pricing solutions, there are many dynamic factors at play. However, there are four major variables that consistently influence revenue management: price, inventory, marketing, and channels. Think of each factor as a wedge of a pie chart with constantly changing barriers.Why do hotel companies need to follow nine 9 revenue management strategies? ›
Although revenue management applies to other industries, it has significance in the hospitality industry because hotels deal with a perishable inventory, fixed costs, and varied levels of demand. Revenue management is important because it takes the guesswork out of key pricing decisions.What are the 4 methods of improving revenue? ›
What Are The '4 Methods to Increase Revenue'? If you want your business to bring in more money, there are only 4 Methods to Increase Revenue: increasing the number of customers, increasing average transaction size, increasing the frequency of transactions per customer, and raising your prices.What are the 3 levers of revenue growth? ›
Now you know the three levers (number of customers, average shopping basket value, and number of regular customers) and their tactics, with which you can get more sales out of your online shop.How can revenue management drastically improve profitability? ›
As a strategy, revenue management allows businesses to adopt a data-driven approach to decisions on what to sell them. It ensures that informed decisions are made, and your business does its best to drive revenue upwards, while selling the same amount of products and services as before.