Getting started with revenue management – managing your hotel room rates

It's easy for businesses to plateau in such a setting – occupancy alone can only take hotels so far. With so many accommodation providers and distributors for travelers to choose from, properties need to ensure that they're deriving maximum value from every booking they receive.

Enter revenue management. The process is not new – larger hotel chains have been implementing these pricing strategies since the 90s, tweaking room rates to maximize profits. Today however, with the onset of cloud computing and SaaS companies, small and mid-sized properties can also leverage these solutions to optimize their pricing. With competition intensifying so rapidly, revenue management provides hoteliers with an opportunity to make the most of their inventory.

Getting started with revenue management – managing your hotel room rates — Photo by Hotelogix

With the wide array of tools available to property owners, the process has also become less complex. However, considering the number of variables involved when estimating demand, it's important to remember that it will still take some trial-and-error before owners stumble upon the perfect formula for their specific hotel.

Here are a few important things to keep in mind while managing your room pricing –

Understand when to prioritize occupancy:

Occupancy is important – it's where the money comes from. However, investing all your efforts into solely driving higher occupancy can be counterproductive. This is best illustrated with an example. Consider a 10 room hotel in two scenarios. In the first instance, the manager is focused on driving occupancy and prices rooms to sell out. He ends up selling all 10 rooms for $90 each, earning the hotel $900. In the second instance, he focuses on revenue management and ends up selling only 9 rooms for $100 each. This also earns him $900. It's apparent that considering all the additional costs incurred by housekeeping and maintenance, the second instance is more profitable. Revenue managers should focus on attaining maximum value from each room night, rather than selling as many rooms as possible in order to add more to the bottom-line.

Implement a reliable tool:

In order to properly optimize revenue, hotels need to compile as much relevant data as possible. Information about competitor pricing and local demand can be invaluable for revenue managers. Since there are so many variables involved in accurately estimating demand, it can be hard for hoteliers to collect enough data. Modern revenue management tools however, source information directly from global OTAs. Booking.com’s tool BookingSuite for instance, gathers competitor information directly from its parent site’s enormous database. Revenue managers can use this information on the Rate Intelligence tool to get an idea about demand and pricing in the region for the time. It’s important that any revenue management tool has access to a credible database or it can wreak havoc on the entire pricing strategy.

It's important that any revenue management tool has access to a credible database or it can wreak havoc on the entire pricing strategy.

Find the right blend of distribution channels:

Every hoteliers would agree that direct bookings are the way to go when it comes to maximizing profitability. However, this isn't entirely true. While the direct booking themselves are pure profit, setting up the hotel website with the necessary optimizations and booking engine can be an expensive process. If you spend $500 on monthly SEO and website hosting fees, and attract 20 direct bookings, the cost per acquisition becomes $25. Register only 5 direct bookings and this cost quickly escalates to a massive $100 per customer. Remember that rooms being allocated to OTAs and other channels are not considering while evaluating the efficiency of your booking engine. Finding the right blend of room sales on your website, OTAs and other channels is critical in order to improve your earnings.

The important thing to keep in mind is, revenue management is both – and art as well as a science. While the data, facts and figures can help, it’s up to the manager to interpret this information and make an educated projection regarding future occupancy. It may take several attempts of trial-and-error before you discover the right strategy for your hotel. However, revenue management is a long-term play and the stability it provides your property – even in the off-peak season – is certainly worth it!

In order to get the best results, it’s advisable to implement a robust property management system that offers complete integration to a reliable rate managing tool.

If you’re looking to invest in a complete, all-round property management system, why not give Hotelogix a try? The free trial takes less than a minute to get started with!

Learn more about pricing rooms in our free webinar with BookingSuite – click here to book your seat.

Property Technology Revenue Management