A revenue-management strategy can be vital for hoteliers looking to optimize financial results. Yet, it is important to understand that there are several different sub-strategies to be aware of as well as some best practices to follow. In this article, you will find seven key revenue-management tips to help you along the way.
Revenue management in a nutshell
In simple terms, revenue management is the process of optimizing availability, distribution, and pricing, to maximize financial results. It is an applicable concept in any industry where customers are willing to pay different prices for the same product or service and where businesses have perishable inventories. Within the hotel industry, a useful way to think about revenue management is: “Selling the right room, to the right person, in the right moment, for the right price, through the right channel, with the best cost efficiency.”
The importance of revenue management
Revenue management is important for hotels because the same room can sell for drastically different prices depending on levels of demand. At the same time, hotel owners need to contend with a range of different fixed costs, which remain the same regardless of the number of hotel rooms that are filled and the price they are sold at. For this reason, it is important to optimize the amount of money coming in so that those fixed costs can be covered. A revenue-management strategy provides an evidence-based approach for ensuring this is the case.
7 revenue-management tips for hotels
Effective revenue management requires a multi-faceted approach. Here are seven revenue-management tips that can go a long way towards helping you to optimize your strategy.
1. Study the market
For any hotel attempting to optimize revenue management, a crucial first step is to understand the market by studying your guests and your rivals. Gain insight into who your customers are, what traits they share and what they are looking for. Then, take the time to understand competitors and what they have to offer. To optimize financial results, you will need to track demand over time, find patterns, and identify the various factors that influence it. Once you have this kind of market overview, you can make much more intelligent, evidence-based decisions about the prices you charge, the marketing campaigns you fund and the potential customers you target.
2. Collect the right data
Effective revenue management relies heavily on data collection, yet one of the most important revenue-management tips to be aware of is to focus on collecting the right data. All of the information you gather, whether it is linked to hotel guests or the local economy, needs to be relevant and have strategic benefit. With this in mind, you need to identify the kind of data that is needed and develop consistent methods for gathering and organizing it. Some hotels make the mistake of collecting too much information, with much of it either irrelevant or unnecessary, so it is important to focus on data that will assist you with anticipating demand and maximizing revenue.
3. Embrace forecasting and mapping
Many hotels are aware of the importance of forecasting for revenue-management purposes, as this helps you to anticipate demand and adjust the pricing accordingly. With that being said, you want to go beyond simple forecasting and also map out where the demand originates from, as this can allow you to target marketing efforts more effectively. Generally speaking, hotels can gather large amounts of information about guests, and their location is usually among this data. This can allow you to pinpoint areas where demand is high and areas where it is low. It can also be compared with past data so that you can see where demand has grown and where it has subsided.
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4. Adopt the best pricing strategy
When it comes to pricing, there are a number of established strategies that can be useful in certain situations, but none of them are foolproof. Instead, pricing strategies need to be selected carefully and used at the right moment. Your decisions can be influenced by your hotel’s offerings, your target market, and demand. For instance, if you are confident that your hotel can offer more than rivals, it may be sensible to adopt a competitive strategy, where you set prices in line with them. However, if you are anticipating low levels of demand, a discount strategy could be the difference between empty rooms and a full hotel.
5. Compete based on the value
However, one of the biggest traps hotel leaders fall into when trying to optimize their revenue-management strategy is focusing too much on pricing alone. In reality, one of the single best revenue-management tips is to try to concentrate more on the concept of the value and compete with other hotels on that basis. For example, you may not need to compromise on price if you throw in extras. Similarly, if you are anticipating low demand for hotel rooms at a certain time, you can experiment with discounts on additional nights for current bookings. This may allow you to fill what would otherwise be empty rooms while enhancing the value you are offering guests.
6. Optimize your distribution channels
It is vital that when potential customers visit your hotel website, or distribution partners like Booking.com, Expedia or trivago, they get a real sense of your hotel and its facilities. For this reason, you need to optimize your various distribution channels, so that they clearly demonstrate what your hotel has to offer. Some tips here include tailoring any text to the target audience, using high-quality images of your hotel and its rooms, and using professional video or even virtual reality tours whenever possible. Besides, you should manage customer reviews on these platforms, respond to feedback, and dynamically manage your pricing.
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7. Cross-departmental collaboration
Finally, for your revenue-management strategy to pay dividends, you need to create an environment where cross-departmental collaboration is encouraged. This means different departments in your hotel viz. sales, marketing, service staff, and so on need to be singing from the same hymn sheet. Ensure that the individual departments are all aware of broader hotel strategies and are pulling in the same direction. You should also try to gain buy-in from the key decision-makers in each department. When close collaboration is facilitated properly, everyone in your hotel can collectively work to optimize revenue.
The hotel industry is highly competitive. Hotels must contend with several fixed costs and also, at the same time, variable costs of hotel room rates. As a result, a revenue-management strategy is vital for optimizing financial results. The seven revenue-management tips provided above can help you to achieve this goal.
Featured image: Olya Adamovich on Pixabay