What is hotel revenue management?

What is Hotel Revenue Management?

Hotel Revenue Management is a scientific discipline widely used within the hospitality industry aiming at helping hoteliers decide on what room to sell to a given target, for what price, when to sell it and decide what is the most appropriate route to do so. When implementing revenue management techniques, hotel operators try to maximize their hotel revenue taking into account multiple constraints and variable conditions.

The main way to implement a hotel revenue management strategy consists in increasing its revenue by dynamically changing available room rates depending on the forecasted demand. For instance, during periods of high demand, a majority of hoteliers increase their prices to optimize their revenue, whereas during periods of low demand forecast, hoteliers prefer lowering their prices so as to be able to stimulate demand and occupancy. This close relationship between demand forecast and dynamic prices can be illustrated using the following chart:

Hotel Revenue Management process

Here are three main steps to follow when implementing an efficient hotel revenue management strategy:

  1. Determining a realistic demand forecast;
  2. Preparing dynamic pricing projections based on multiple criteria:
    • Price sensitivity;
    • Unconstrained demand;
    • Distinction between different customer segments;
    • Residual capacity;
  3. Implementing yield controls i.e. developing techniques so as to be able to increase revenue potential during period of high demand and developing techniques to increase occupancy levels during low demand periods. Some of the most frequent yield control techniques are listed below:
    • Introducing a maximum length of stay (Max LOS):
      • This method consists in restricting reservations to a given maximum length. In that case, the goal is to restrict the availability of certain discounted prices.
    • Introducing a minimum length of stay (Min LOS):
      • This method consists in imposing a minimum length to certain reservations. This technique is generally used during high demand periods.
    • Using Closed To Arrival (CTA):
      • This yield control tool does not let clients check-in on a particular day.
    • Using allocations:
      • Work with partners that are given the opportunity to sell a given number of rooms at a discounted price.

First developed within the airline industry, revenue management techniques quickly expanded to the hotel industry. Developing a revenue management strategy makes sense for hoteliers as they are exposed to all the conditions and constraints for revenue management challenges to exist:

  • hoteliers have a limited and fixed supply;
  • their supply is perishable;
  • clients are willing to pay a different price for the same room depending on the demand level.

Over-time, hotel revenue management has became more complex and technical and requires an increasing number of hoteliers to use different solutions such as RMS (Revenue Management Systems), Channel Managers and Hotel Rate Shoppers to help them evaluate key metrics and make better informed pricing decisions.

How can Hotel Price Reporter help?

The Hotel Price Reporter platform has a local demand feature, showing a realistic demand forecast in the near and distant future for the hotel’s local market. This can then be evaluated against the pricing offered in the local market by the key hotel competitors. The platform also evaluates online review rankings and local events which could directly affect the occupancy levels. Revenue managers can use the platform to compare individual prices set for different room categories and different booking conditions.

However, no platform offers a silver bullet solution to maximizing revenue. How the platform is used is dependent entirely on revenue managers decision on case by case basis and depends entirely on the circumstances. Finding the right balance between the different factors in setting the right price is the challenge and managing all of the complexities is what makes Hotel Price Reporter an invaluable tool in a revenue manager’s arsenal.