7 hotel revenue management strategies
November 27, 2023 · 8 min read
November 27, 2023 · 8 min read
Hotel revenue management is a complex and multifaceted undertaking, but it’s essential for ensuring that operational and financial decisions are made based on a strategic, data-driven, and, ultimately, profitable approach. Fortunately, there are a number of methods and tools that make revenue management easier to understand and implement.
Hotel revenue management is the process of maximising a hotel’s revenue and profits through data-driven pricing strategies and competitive service offerings. It involves a number of different strategies for optimising marketing and operations in a way that considers seasonal trends, customer preferences, profit margins, and evolving market demands.
Ultimately, revenue management is about getting the best possible return on investment. For hotels, this means filling as many rooms as possible, at the most profitable rates possible, in both the short and long term.
*Learn more: A quick overview of hotel revenue management
Perhaps the biggest factor affecting a hotel’s earnings during any given time period is occupancy. Generally speaking, the fuller a hotel is, the higher its revenue. Hoteliers typically set room rates higher when demand is higher, and they reduce rates when demand is lower in order to encourage more bookings.
But how can hotel operators anticipate these peaks and troughs in demand? How can they be sure they’re not under or overcharging during the high and low seasons? There’s no need for guesswork. Forecasting trends based on the data from previous years is an effective way to anticipate demand and maximise profits. Hotel revenue management software makes it easy for hotel operators to track and store historic customer data just for this purpose.
Hotels looking to maximise profits should make a point to encourage direct bookings through their own websites. Although travel agents and third-party booking sites can help introduce a hotel to a wider audience, they charge high commission fees for each booking. With direct bookings, hoteliers benefit from a much higher profit margin as well as more control over the guest’s booking experience.
Hotel operators can encourage direct bookings in a number of ways, including the following:
Competitor analysis is a vital part of strategic planning for companies across many industries, and nowhere is this more apparent than in the hotel industry, where savvy customers pride themselves on finding the best possible room deals. Hoteliers must understand their competition and ask themselves, “How do we measure up?”
Firstly, hotel owners need to determine their market segment within the hotel industry. For example, is their hotel considered a budget hotel, mid-range hotel, luxury hotel, boutique hotel, business hotel, resort hotel, or youth hostel, etc? They then need to track their direct competitors within that segment to determine whether their own pricing, services, facilities, and amenities exceed or are at least on par with that of their competitors.
Competitor analysis will also help hoteliers spot opportunities for how they can differentiate their offerings and stand out from the competition. For example, offering free parking, highlighting eco-friendly amenities, featuring the hotel’s historic status, or offering late check-out as standard are all ways that hotels can create a unique selling point and enhance their value proposition to potential guests.
Although annual forecasting is helpful for anticipating macro trends and setting “high season” and “low season” prices throughout the year, hotel operators benefit from being flexible and willing to adjust prices in response to real-time events.
For example, if a large snowstorm leads to an unprecedented number of cancellations, hoteliers will want to update their prices to fill those empty vacancies. Conversely, if a one-time event is scheduled near the hotel, such as a large sporting event or music festival, hoteliers will want to adjust to this rise in demand accordingly.
The easiest, most effective way for hotel operators to make these real-time pricing adjustments is to use a dynamic pricing tool. A dynamic pricing tool, often included as part of more robust hotel revenue management software, will scan real-time data and use sophisticated algorithms and artificial intelligence to adjust prices according to the market’s current demands. It will analyse historical data, competitors’ pricing, search trends, and guest behaviour and suggest the most appropriate room rates for any given moment in time.
One of the best ways to encourage direct bookings and create a loyal customer base is to offer perks and rewards for returning guests. Setting up a loyalty program where returning guests can earn/redeem points, access special discounts, and enjoy exclusive privileges will foster a sense of appreciation and belonging.
This makes it more likely for guests to return to the hotel and, perhaps even more importantly, it makes them more likely to share their experience with friends, family, colleagues, and social media followers. Word-of-mouth referrals are particularly valuable, as they require no additional marketing efforts and expense on the part of the hotel.
Although every hotel can hope for loyal, returning customers, it’s also true that the vast majority of hotel guests book rooms based on factors other than brand loyalty. When choosing a hotel, many people prioritise the following:
Potential guests will search for hotels and analyse them based on these factors using search engines, primarily Google. Hotels can attract customers who are searching for these terms by optimising their websites’ structure and content in a search-friendly format. Hotel owners can also create a Google Business listing and connect their rates/availability in order to appear in the search engine’s own hotel listing results pages.
When it comes to maximising a hotel’s revenue, every department has a role to play. For example, what good is a hotel’s reward scheme if it’s not promoted by the marketing department, encouraged by front desk staff, integrated into the website by the IT team, and analysed by the finance department?
When devising a revenue management strategy, hotel operators should be mindful to look across all areas of the business to ensure the approach is comprehensive, seamless, and effectively implemented. Harmonising revenue strategies across all departments and getting every team member on board to pay their part is the best way to ensure that high-level plans are actually carried out at the operational level.
Hotel revenue management requires hotel operators to consider every aspect of their business model while tracking customer data, forecasting market trends, analysing competitors, and managing inventory in real-time. It’s a gargantuan task that is nearly impossible to do, or at least do well, without the help of purpose-built online tools.
Hotel revenue management software is designed to automate the revenue optimisation process, using sophisticated algorithms and AI tools to analyse the market and make dynamic, data-driven recommendations on pricing and inventory management.
A robust hotel revenue management software program will provide the following:
Common challenges of hotel revenue management include issues inherent to the hotel industry, such as:
Other challenges that occur as part of the process of revenue management include:
Yes, even the smallest hotels benefit from having a comprehensive revenue management strategy to ensure they’re getting the most out of their facilities, expenses, and hard work.
For example, a small hotel or guesthouse that doesn’t struggle to fill rooms can still benefit from dynamic pricing that takes advantage of high demand and helps ensure rooms aren’t underpriced based on market conditions. It can still benefit from tracking evolving customer preferences and analysing competitors in order to maintain a high-quality service and loyal customer base in the long term.
Revenue management software and dynamic pricing tools can also free up costs for smaller hotels that would otherwise be spent on staff trained to manually track data and devise revenue strategies.
Although direct bookings are typically more profitable for hotels, that doesn’t mean that hoteliers shouldn’t also list rooms with online travel agents (OTAs) and booking sites. In many cases, the reach these third-party websites have and the built-in marketing tools they provide are indeed worth the commission fee. However, hoteliers should still encourage direct bookings as much as possible and regularly reassess the value of accepting bookings through third-party sites. A revenue management software specifically designed for hotels can help make this analysis easier and more efficient.
Last-minute cancellations are a nuisance for all hotel operators, as rooms left empty represent potential revenue down the drain. However, there are a few ways that hoteliers can mitigate this issue and recoup some of the lost earnings. These solutions include:
Even the most sophisticated hotel revenue management software cannot salvage a hotel that is plagued by negative customer reviews. As with any business, without a quality product or service at its core, all secondary efforts to perfect and maximise revenue are futile. Having a negative reputation, both online and offline, is a serious issue for hotels. To mitigate negative reviews, a hotel’s only option may be to drop prices below the market rate in order to fill rooms with guests who are willing to overlook negative reviews if the price is low enough.
Although negative reviews should be of great concern for hotel owners, positive reviews are invaluable. Positive reviews serve as free, word-of-mouth advertising and are a huge contributor to increased bookings and revenue.
As part of a comprehensive hotel revenue management strategy, hotel operators should monitor guest feedback, address concerns quickly and graciously, and encourage customers who are happy with their stay to leave a positive review.