The Impact of Revenue Management on Hotel Performance

The Impact of Revenue Management on Hotel Performance

If you want to stay ahead of the competition, it’s essential to know your market and adapt your offer to it. With RMS technology hotels can adapt quicker and easier to market changes in real time. These solutions identify parameters that influence decision making to offer the right pricing recommendations.

We live in a changing society, where predicting the future is practically impossible. However, Sheryl Kimes, Professor of Operational Management at Cornell University, offers some great insight into the latest in revenue management trends. At BEONx, we understand the importance of staying up-to-date with the latest in Revenue Management, so we bring to you the latest trends in the industry:

• Revenue management is becoming more strategic and technology based. Marketing strategies are highly specialized and are linked to many tools that consider key performance indicators (KPIs).

• The new focus in revenue management is “Total Revenue Management.” In other words, you’ll be able to apply revenue to other hotel spaces, other than hotel rooms.

• Revenue Management will carry out a common strategy and aim at increasing a hotel’s total potential to obtain maximum profits.

We’ve combined the best in theory and experience to propose 10 tips that are basic for every revenue manager to optimize their Revenue Management strategy:

• Understand channel costs. It’s highly important to understand acquisition costs (ex. reservation costs after all discounts, commissions, etc. are applied). Failure to account for these costs will penalize your hotel and make it difficult for you to determine how each strategy affects your hotel’s bottom line.

• Measure the impact of your pricing strategy. Analyze your client’s sensitivity to price change and how price changes alter demand. By analyzing which margins you can use in different market situations, you’ll be able to make the necessary adjustments and optimize your pricing strategy. This is important to keep in mind, since pricing directly affects your hotel’s quality.

• Use forecasts. If you have the technology that allows for it, analyze travel intention by looking at availability in third-party booking portals. This will help you create a strategy for placement targeting and customize offers for your most profitable distribution channels.

• Understand typical booking windows before stimulating an offer. You can set offers or discounts when a typical booking window is not already set for a certain segment. This way you won’t directly affect revenue that comes in from other sources when the traveler chooses to book. RMS technology helps you understand booking behavior for each segment and varies hotel pricing as little as possible to avoid losing out on profit.

• Adjust negotiations with tour operators. Analyze historical data so that you have the most relevant information when negotiating with tour operators or any intermediary that’s subject to an exclusive contract. By doing so,  you can determine how profitable that partner has been and decide the type of relationship you will establish with them in the future.

• Inter-departmental collaboration. During revenue management meetings, it’s important to have the right components so that all decisions are looked at from all angles. Service quality and guest satisfaction at your hotel highly depend on how well all your departments work together. This topic, therefore, needs to be carefully addressed within your hotel.

• Match supply and demand. It’s important to match supply with high demand. An increase in demand causes a shift in the usual bookings and an increase in room prices. It’s important to be aware of these variations to make adjustments at the right time and, therefore, increase your hotel’s profitability.

• Increase occupation during low demands. Revenue managers dedicate much of their time optimizing peak demand, so often boosting occupancy during low periods gets left on the back burner. However, these low periods are an opportunity for your hotel to increase occupancy and revenue. For example, you can  adapt your offer to new customer segments.

• Understand demand when adapting prices and availability. Before modifying your hotel’s room prices, you must first understand the demand. A price increase doesn’t necessarily mean a fall in demand, or vice versa. Adapt these parameters to the market and to your guests’ perception using factors like online reputation to optimize your hotel’s pricing strategy.

• Focus on maximizing profits, not on increasing occupancy. It’s a thing of the past for hotel directors to only talk about increasing income through occupation or ADR. These metrics don’t necessarily convert into revenue. Instead, they could generate unwanted costs. If you want to increase your hotel’s overall profitability, then you must include metrics like GOPPAR  in the revenue strategy you wish to implement.  

In hotel management today, integrating IT with revenue management is fundamental. Hotels need to be able to analyze the costs of implementing any changes and integrate the necessary technology to optimize resources.