Hotel Revenue Management in times of crisis (2023)

Hotel Revenue Management in times of crisis (1)

Features | 9 May 2023

A data-driven, flexible revenue management strategy is indispensable, especially when there is uncertainty on the market and familiar demand patterns are suddenly turned upside down. Our experts explain what is important in these situations.

We have only just managed to leave the pandemic behind us, and our industry is already facing new challenges.

(Video) Revenue Management in the Current Crisis Environment

This motivated Elisha Schoppig and Marco Baurdoux from Hotel-Spider to pose the following question: "How can revenue managers best face difficult times?"

Sara Kock, Revenue Manager at RoomPriceGenie, and Sebastian Küchler, Consultant and Lecturer at Swiss Hospitality Solutions and the EHL Swiss School of Tourism and Hospitality discuss this question.

In the livestream, the two revenue experts explain what revenue management currently involves, which data is most important for pricing purposes, how hotels can best react to current cost developments and much more.

The goal of revenue management

You are probably already all too familiar with this well-known definition of Revenue Management: "Revenue management is the science and art of selling the right room to the right guest at the right time via the right channel." It becomes obvious that revenue management refers to the ensemble of pricing and sales strategies.

"It's a different case with closely related yield management, which focuses exclusively on the optimal positioning of dynamic room prices," Sebastian explains. “Both disciplines complement each other, and their combined goal is to maximize hotel revenue."

Modern hotel technology also offers us many possibilities. "Thanks to new tools, we are now also able to benefit from system-based revenue management. This opens up a whole new range of possibilities for us in terms of data analysis, pricing and forecasting," adds Sarah.

The most important datasets for solid pricing

Well-founded pricing is essential for maximizing revenue. In the past, this was often achieved by relying intensively on historical data. However, due to unpredictable markets and significant changes in demand patterns, this approach is currently less reliable.

"We don't base our pricing on historical data at all anymore. Instead, we take a close look at how the market as a whole is positioned and what our competitors are doing. We also analyze internal data, such as the current occupancy rate and the reservations trend for the next 365 days. This enables us to make well-informed pricing decisions, even in times of uncertainty, without needing to rely on historical data," Sarah explains.

(Video) Hotel Revenue Management with Scott Dahl

Hotel Revenue Management in times of crisis (2)

Market analysis - but how often?

To maintain room prices at the optimal level at all times, it is, of course, important to continuously monitor the market. However, how often should you analyze occupancy, reservation trends and market conditions?

Sebastian offers the following advice: "Particularly in times of crisis, it is important to react as swiftly as possible to market changes. Revenue managers should therefore monitor the latest trends on a daily basis. This can be performed in a time-saving manner with a Revenue-Management-System (RMS), as it runs constantly in the background and provides the most up-to-date data on request".

Sebastian suggests using this rule of thumb in the case of hotels that do not yet have an RMS: "Analyze the current season or month and the following month three times a week. In the case of city hotels, I also recommend evaluating the following months on a weekly basis. Hotels located in resort areas should look ahead to the next season at least once a fortnight."

Those who stay on the ball in this way can react quickly to new developments. You will be able to adapt your prices, channel strategy and minimum stay restrictions accordingly and always position your hotel in the best possible way.

Reacting to changes in reservation trends

"Even before the pandemic, there was a trend toward shorter advance reservation times "This has intensified enormously during the crisis, as travel restrictions and new waves of infection have been unpredictable," says Sebastian.

That's why hotels, whether urban or rural, currently often observe a lead time of 14 days or even less. This potentially complicates operational planning and, of course, pricing. In this context, the most important thing is to adapt your approach to the current reservation behavior.

"In the past, hotels applied last-minute discounts to fill any remaining rooms. This is currently less relevant, as travelers are booking later anyway and accept the standard prices. Instead, offers for early bookers would be more effective in the current environment, thereby creating a basis instead of relying on last-minute bookings. This also provides demand data, which is in turn useful for pricing optimization," says Sarah.

(Video) Hotel Revenue Management: the new challenges and strategies

Monitoring sales costs

In addition to maximizing sales, cost optimization in sales is also an important factor. This involves, for example, increased focus on direct reservations. In this way, you can prevent your hard-earned revenue from being reduced by commissions and other distribution costs.

For example, you can reward bookings made on the hotel website by offering various benefits, such as a free late check-out. Alternatively, you can make it less attractive for travelers to use OTAs by charging higher prices there than on your direct channel.

"How well the latter performs depends to a large extent on the market. If the competition is manageable, your OTA profile will probably not forfeit too much visibility. However, in a highly saturated market, you risk losing plenty of OTA reservations," according to Sebastian.

To which Sarah adds: "You should only opt for this route if your hotel website has become a solid alternative to OTAs. It is only worth shifting your focus from OTAs to the direct business if the website can be easily found by potential guests and offers a good conversion rate.”

Hotel Revenue Management in times of crisis (3)

To control the occupancy rate on the basis of price adaptations

If you regularly adapt your prices, you are well aware that this also has an impact on demand. Particularly during a shortage of skilled workers, this opens up interesting opportunities for you.

"Smaller teams often struggle to handle the workload of a fully booked hotel. It may therefore be worth slightly increasing prices to curb demand to a certain extent. From a revenue management perspective, this may initially sound counterproductive. However, it provides the team with the chance to catch their breath a little. It also enables you to ensure guest satisfaction with fewer members of staff and to maintain your good reputation or review score," Sarah explains.

The goal has therefore been shifted."It’s no longer just about filling the hotel. Instead, it is important to consider which occupancy level is optimal in light of the current situation at the hotel. The goal should therefore be to achieve an optimal balance between price and occupancy in order to generate maximum revenue, while at the same time considering the operational reality," according to Sebastian.

(Video) Practical revenue management tactics to implement in your hotel during the coronavirus crisis.

Price amendments with increasing costs?

Meanwhile, inflation has affected practically all industries. It has not even spared the hotel industry. Many hotels have therefore considered the extent to which they can pass this on to their guests.

"Costs are currently increasing for all companies, and most of them are passing this on to their customers. Hotels should proceed accordingly, otherwise, their margins will shrink. This may initially irritate travelers. However, if they continue to book, this indicates that they have accepted the higher price,” explains Sebastian.

One way of justifying the new price would be to offer the guest an additional benefit. This can be achieved, for example, by introducing more flexible cancellation conditions. However, Sarah warns that this approach requires caution: “Offering additional benefits increases costs for the hotel in most cases. This can swiftly neutralize the price increase. Besides, many hotels currently lack the staff to provide additional benefits. That is why it is important to bear in mind that the lowest price is not always the most important factor and that guests also focus on aspects such as ratings and hotel amenities."

Approaching new systems

Revenue managers previously needed to manually collect and analyze data in order to adapt prices accordingly. Today, due to the dynamic markets and almost infinite volumes of data, it is worth using revenue management systems and also considering operating with business intelligence platforms.

"These new revenue tools save time and provide hoteliers with more time for other tasks. This is particularly beneficial for small hotels that do not have a separate revenue management department. RMS also provide reliable data and pricing suggestions that support a well-informed strategy," says Sarah.

Nevertheless, skepticism towards RMS and other automated systems remains high. There is often a fear of inadvertent alterations by the system. However, these can be prevented quite easily. Instead of immediately switching to autopilot, you can initially work hand-in-hand with the system to understand its decision-making processes and the parameters it takes into account. Once you feel more confident, you can gradually hand over control to the RMS," explains Sebastian. This will save you time and optimize your results, even under difficult circumstances.

Although everything goes haywire in times of crisis, some things always remain constant in the area of revenue management.

The constant monitoring of internal data and new market developments is extremely important, especially during phases of uncertainty. The courage to introduce new systems and maintain price levels is also a crucial factor for your immediate and long-term success.

(Video) Revenue Management - Recovery Planning in Times of Demand Disruption during Pandemic

At the start, it may sound difficult to implement all of this. However, if you heed the advice of our experts, you will be able to face this crisis (and those in the future) confidently and successfully.


How do hotels manage their revenue? ›

Revenue management involves the use of analytics and performance data to help those in the hotel industry predict their customers' behavior. The data is then utilized to make appropriate decisions in regards to pricing and distribution strategies.

What are the 3 main concepts used in revenue management? ›

The discipline of revenue management combines data mining and operations research with strategy, understanding of customer behavior, and partnering with the sales force.

What technique is used by hotel to avoid the loss of revenue? ›

Open pricing. Open pricing refers to creating different prices for reservations made by different guest segments at different time periods through different distribution channels, etc. Such flexibility allows you to maintain stable levels of occupancy and generate revenue even during low demand periods.

What are the strategies to increase revenue in hotel? ›

11 Simple Ways to Successfully Increase Hotel Revenue
  • Offer Early Check-In and Late Checkout.
  • Promote your food and beverage options throughout the stay.
  • Offer room upgrades pre-arrival.
  • Partner with local businesses to offer excursions and experiences.
  • Take advantage of other upsell opportunities.
Sep 14, 2021

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 the hotel's biggest source of revenue? ›

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.

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 pillars of revenue recognition? ›

In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.

How to increase hotel revenue in high season? ›

While there are many ways to increase your hotel revenue depending on your property's needs, here are 15+ tactics to get you started.
  1. Build a road map. ...
  2. Segment your target market. ...
  3. Sell the experience over the transaction. ...
  4. Maximize online reach with a Channel Manager. ...
  5. Build your direct channel with a booking engine.
Dec 10, 2022

What are the 9 essential strategies for increasing revenue? ›

How to increase revenues and sales
  • 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.
Mar 10, 2023

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.

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.

Why revenue management is highly important to hoteliers? ›

Revenue management is highly important to hoteliers because it allows them to maximize revenues and yields, using smart tech and big data. The main aim is to foresee market demand and react to changes in the market efficiently.

What are the three key financial ratios in the hospitality industry? ›

In today's industry, solvency, operating and profitability ratios are the most commonly used financial analytics that hoteliers utilize to gauge current and projected business performance.

What are the revenue drivers in the hospitality industry? ›

Some of the key revenue drivers in the hospitality industry are pricing, direct bookings, loyalty programmes and systems and tools.

What are the three types of budgets used in the hospitality industry? ›

3 There are generally three main types of budgets. These are profit budget, cash flow budget and balanced budget.

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 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 are the five core factors of revenue management? ›

Dynamic Factors in Revenue Management
  • 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.

What are GAAP principles of revenue recognition? ›

Generally accepted accounting principles (GAAP) require that revenues are recognized according to the revenue recognition principle, a feature of accrual accounting. This means that revenue is recognized on the income statement in the period when realized and earned—not necessarily when cash is received.

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 does successful revenue management require? ›

Revenue Management Requires a Strategic Approach:

Developing an effective revenue management strategy requires a deep understanding of the market, guest behavior, and pricing optimization techniques. Revenue managers must analyze data, monitor trends, and make informed decisions to maximize revenue and profitability.

What is step 4 of the revenue model? ›

Step 4 of the new five-step revenue recognition standard i.e. ASC 606, requires the allocation of the transaction price to each performance obligation in a contract with a customer. The transaction price is the basis for measuring revenue. It is not always the price set in the contract.

What are four 4 operational tasks in the revenue cycle? ›

Four basic business activities are performed in the revenue cycle: sales order entry, shipping, billing, and cash collection.

Can you recognize revenue before invoicing? ›

Because service is provided, the revenue must be recognized prior to the point of invoice. This example introduces the concept of unbilled accounts receivable, which represents the amount of cash a business can expect to receive based on the service that they've already provided, but not yet invoiced.

What are 3 things you would do to increase revenue? ›

Strategies to increase sales revenue
  • 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.

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 3 ways a company can increase profits? ›

There are 3 main ways to improve the profitability of your company: Sell more, price higher and reduce costs. But profits can also be increased by greater cost efficiency.

What is the rule of thumb for hotel valuation? ›

Let's look at how the hotel valuation thumb rule actually works. A hotel can be valued by dividing the projected net income by an appropriate cap- italization rate. A capitalization rate is a factor that combines the cost of the debt and equity capital used to finance a hotel. Total Revenue Smith Travel Research).

What is the average ROI for hotels? ›

The expected mean return for each hotel is 15%, however, the distribution of IRR's varies widely. Measures of dispersion, such as the standard deviation, indicate the spread of the distributions and the risk associated with the prospective return.

What is GOP in hotels? ›

To determine your hotel's GOP, subtract the property's operating expenses from gross hotel revenue. GOP = HOTEL REVENUE - OPERATING EXPENSES. Calculating hotel GOPPAR is really simple, especially if you understand each component of the formula separately. GOPPAR = GROSS OPERATING PROFIT / AVAILABLE ROOMS.

How much revenue does 1 hotel make? ›

The average annual revenue for all sole proprietorship Hotel businesses in the U.S. was just $94,464.

Where do hotels get their revenue? ›

Three main revenue sources in a hotel are room, food & beverage, and other income and the selling of the three main revenue sources in a hotel will dictate its success. It is the room sales effort that fills the sleeping rooms on a nightly basis. The catering sales effort endeavours to fill the meeting space.

Do hotel owners make a lot of money? ›

Owning a hotel can be profitable if you have the right combination of location, price point, quality of the physical asset, marketing strategy, dedicated employees, and supportive investors and management partners. However, a hotel isn't profitable by default, so you can expect a lot of hard work to generate profit.

What is the average revenue of a small hotel? ›

Small hotels, defined as those with less than 50 rooms, can vary greatly in terms of revenue and profitability. According to a study by STR, the average revenue per available room (RevPAR) for small hotels in the United States was $63.44 in 2020.

What is a high profit margin for hotels? ›

Whilst EBITDA can reach 30% for the most successful hotels, net profit margin can go up to 10-15% instead. That's because depreciation and interest expenses are typically very high for hotels.

What is revenue management strategy? ›

Revenue management is a comprehensive, customer-centric approach that uses analytics to forecast customer behavior trends to improve pricing and grow revenue. In contrast, yield management centers on pricing and inventory and matching the right product to ideal customers at the best price.

What does a revenue manager do in a hotel? ›

A hotel revenue manager is the person in charge of leading pricing strategies in order to maximize a hotel's profitability. They generate rate strategies that can be applied to a hotel's sales and marketing efforts to better position the hotel for success.

What is an example of revenue management? ›

The most common example of how Revenue Management is executed is in the businesses of Hotel Management and the Airline Industry. The primary source of revenue for hotels is found in their room rates. The revenue generated from the bookings is a simple multiplication of price and volume booked.


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