Best Practices
Revenue Management

Hospitality Revenue Management Best Practices

Regardless of experience level in the hospitality industry, maximizing revenue management best practices will go a long way in increasing profitability.

Whether you are a seasoned hospitality industry pro or new to the business, there is always more to learn. This is especially true when it comes to revenue management best practices. Understanding and knowing which methods and tools to use will go a long way in optimizing your property’s revenue potential.

Let’s review the revenue management fundamentals, look at the latest best practices, and explore strategies and tools for data and analytics you may find useful.

What Is Revenue Management?

Robert G. Cross, writer of “Revenue Management: Hard-Core Tactics for Market Domination,” defines revenue management as “the art and science of predicting real-time customer demand at the micromarket level and optimizing the price and availability of product.”

At its core, revenue management is meant to enable hoteliers and other businesses that sell perishable commodities to better forecast demand and then dynamically price and market their products to maximize profit and occupancy. It’s all about selling the right product, at the right price, through the right sales channel, to the right customer, at the right time.

Revenue management forecasting takes into account the following:

  • Predictable demand
  • Variable or uncertain demand
  • Unconstrained demand
  • Perishable inventory
  • Seasonality
  • Length of stay
  • Days to arrival
  • Price sensitivity from customers
  • Cost and pricing structure

A key component of revenue management across the hospitality industry is yield management, the process of adjusting the price of a product to respond to variable market factors such as demand. When businesses with perishable commodities, such as hotels and resorts, take bookings, they want to ensure they are maximizing both revenue and occupancy.

Best Practices for Hotel Revenue Management

No matter which tools you use, all revenue management strategies that follow the leading best practices are meant to forecast demand accurately, making it so you can produce optimal rates while meeting demand.

Key things to track for a revenue management strategy are:

  • Pricing
  • Forecasting
  • Marketing
  • Inventory management
  • Distribution strategy

There are many elements to explore within the discipline of revenue management. Let’s focus on three in particular: determining trigger points, driving direct bookings, and how to handle overbooking management.

Determine trigger points

Trigger points are used to determine when to open or close a room class for busy or quiet periods. For example, if you are forecasting high demand, or a busy period, you know to raise room rates and limit inventory. When your rooms are in low demand, or a quiet period, you know to drop rates and further open inventory, if able.

Whether your property is in a high- or low-demand period, setting a minimum rate is a must. You can set price tiers, or set floor and ceiling prices, so you easily address price sensitivity within your market. With price minimums, it also helps enable your staff to better assist walk-in guests looking to rent rooms. This allows your staff to sell rooms in-person without undermining your property’s revenue strategy.

Drive direct bookings

A key best practice to follow for hotel revenue management is to drive direct bookings. By getting as many people as possible to book directly with you, you can minimize third-party distribution costs and can better track data which will help you control pricing and segment out your audience. This will allow you to pick up on trends, define traveler groups, whether people book far ahead of time or if you get lots of walk-ins, etc. Using this information, you may define cancellation policies that can have a great impact on revenue management.

Overbooking management

Since renting rooms and suites is providing your market with a perishable commodity, you want to rent out as many rooms as possible each night. When you are in a high-demand period, determining how much to overbook is key. 

While excessive overbooking may cause stress among your clientele and staff, you also don’t want to rent exactly 256 rooms in a 256-room property if your demand is red-hot. The likelihood of every single person who booked a room showing up for that night is unlikely. 

Tracking your revenue management data can show how many no-shows you are likely to have, which can help you decide how many rooms you should overbook before you are faced with sending people to other properties, which can eat into your profits.

Overbooking by room type is another tactic some properties use wherein they overbook popular room classes knowing they will have higher room class inventory available as needed. This approach comes with the added benefit of creating a positive guest experience when they’re told upon check-in they’ll be staying in a nicer room.

Automation Makes Revenue Management Easier & More Efficient

The effectiveness of your revenue management strategy can be measured with key performance indicators (KPIs), which break down your occupancy rate, average daily rate (ADR), revenue per available room (RevPAR), and more. While many revenue management strategies are still structured around using spreadsheets, automation is a far more efficient and practical way to track KPIs to drive your revenue strategy.

Automation through the use of software solutions isn’t just faster than relying on spreadsheets, it’s more precise. Achieve greater profitability with accurate forecasting and price confidently while enhancing productivity. IDeaS’ all-in-one, easy-to-use revenue management solutions may be just what you need to gain a competitive edge and ensure you’re following best practices for hotel revenue management.

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