One of the objectives of hotels as a business is to generate revenue. However, earning it is not as simple as it may sound! In fact, a proper financial strategy is needed for hotels to be able to obtain revenue – and what’s a better way to achieve it aside from implementing hotel revenue management?
Revenue management is a financial strategy used by many businesses in the hospitality industry nowadays. It boosts sales and revenue – both in the short and long run – by using data and analytics to obtain the maximum amount of overall possible revenue!
This time, our article will take you deeper into the topic of revenue management in hotels; what it means, its history, its objectives and importance, even covering the key strategies and top software for hotel revenue management!
About Hotel Revenue Management
The definition of hotel revenue management.
For starters, hotel revenue management is defined as the strategic pricing and distribution of all the hotel’s facilities – such as rooms and amenities – to the right customer market. It involves both analytics and performance data to predict customers’ behavior, and this data is then used to formulate appropriate pricing and distribution strategies.
The origin of hotel revenue management.
Interestingly, the concept of revenue management was inspired by inventory management and price optimization in the aviation industry! Hotels in the past did not consider the importance of new market segments, nor did they apprehend whether the prices they offered were ideal. And, it wasn’t until the late 1980s that hotels began to implement revenue management strategies in their businesses.
The objective of hotel revenue management.
What about the goal of implementing hotel revenue management? Well, its ultimate objective is to serve the right facility for the right customer at the right time and place. Once this goal is achieved, hotels are more likely to maximize their revenue, as well as their profit.
The importance of hotel revenue management.
Revenue management is considered important for several reasons. First, it provides reliable data to make calculated decisions, leading to revenue boosts and maximum profitability. Moreover, revenue management has the ability to generate data about potential services that hotels can benefit from. Another crucial aspect of hotel revenue management is how it is able to improve financial forecasting, drive down costs, and even help hotels advance over competitors!
Key Strategies of Revenue Management for Hotels
Key strategies of revenue management for hotels.
Truth be told, there are no strategies that can guarantee a 100% successful revenue management in hotels. But, these strategies have proven to be reliable and have contributed to great hotel revenue management performance. See below for the key strategies of revenue management for hotels!
- Accurate Data Collection and Analysis: An accurate data collection and analysis leads to effective decisions for greater hotel revenue management!
- Market Segmentation: By segmenting their customer market, hotels can personalize their services for specific segments and boost occupancy rates.
- Dynamic Pricing: A real-time, algorithmic approach to calculate room prices, dynamic pricing is a method that takes advantage of big data to factor consumer behavior and the hotel’s current room supply to generate optimal prices for potential guests.
Aside from proper strategies, effective hotel revenue management is also influenced by the use of revenue management metrics, some of which are commonly used and listed up next!
Examples of Hotel Revenue Management Metrics
Hotel revenue management metrics.
Finance departments in hotels use various revenue management metrics that are useful for gauging revenue progress! However, every metric has its own strengths and limitations, which is why a proper revenue management strategy is needed to use the right metrics and make the right decisions. Below, we present a few examples of hotel revenue management metrics:
1. Revenue Per Available Room (RevPAR)
How to calculate it: Room Revenue / Total Rooms Available
This metric is commonly used to measure the hotel’s overall revenue performance. It allows the finance team to assess and maximize the hotel’s revenue relative to last year, as well as do budgeting and forecasting.
2. Average Daily Rate (ADR)
How to calculate it: Room Revenue / Rooms Sold
ADR gives insight to the hotel’s finance department regarding the customer’s willingness to pay for a single room through specific channels and at specific rates!
3. Occupancy Rate (OCC)
How to calculate it: Number of Occupied Rooms / Total Rooms Available
Meanwhile, OCC is a hotel revenue management metric commonly used to calculate the success of securing bookings, which is later utilized to determine the hotel’s future pricing strategies.
4. Gross Operating Profit Per Available Room (GOPPAR)
How to calculate it: Gross Operating Profit (GOP) / Total Number of Available Room Nights
The GOPPAR metric serves to evaluate the broader performance of the hotel’s revenue beyond bookings, and changes in GOPPAR must be evaluated alongside changes in RevPAR, OCC, and ADR metrics as well.
5. Total Revenue Per Available Room (TRevPAR)
How to calculate it: Total Revenue / Total Available Room Nights
Finally, TRevPAR functions to gauge the hotel’s overall financial performance. Since TRevPAR counts all of the hotel’s revenue streams and expenses, it helps determine the most valuable customer segment for the hotel.
Top Hotel Revenue Management Software in 2023
IDeaS, one of the top revenue management software for hotels.
Of course, the implementation of revenue management in hotels comes seamlessly with the use of revenue management technology. Here, we have compiled a list of the best hotel revenue management software this year, which you can find in the next line!
- Gamechanger by Duetto: A cloud-based predictive analytics platform with an open pricing methodology that maximizes booking revenues and profits!
- IDeaS Revenue Solutions: IDeaS drives optimal revenue results across all segments through scientific pricing and rate availability decisions.
- RoomPriceGenie: An easy-to-use and completely transparent software that will save users time checking rates against competitors!
- Atomize: This software focuses on increasing revenues and operational efficiency using price optimization, making it a fit for hoteliers that want to do more with less.
- BEONx: BEONx brings revenue management to a new level with a highly adaptive AI-driven algorithm, providing users with accurate pricing recommendations anytime!
Such a great impact is left by revenue management on a hotel’s financial operations! With the use of proper revenue management strategies, hotels can attract more customer markets, maximize revenue performance, and, in turn, profitability.
Being a crucial aspect of the hotel’s finance department and the overall hotel business, revenue management is one of the most sought-after skills in the hospitality industry as well. Mastering it will undoubtedly lead one to achieve a higher level of career in hospitality finance. Moreover, the opportunity to learn revenue management is widely available in the industry!
For starters, one of the best ways to master hotel revenue management is by joining hospitality finance internships or management training programs; both of which you can easily access with us at RMC Asia.
Our programs are far from ordinary. As a participant, you not only get the opportunity to learn from and work with seasoned experts but also experience a unique, unforgettable cultural exchange in your program placement, thanks to our partnerships with prestigious hotels and resorts in various destinations across Asia!