Revenue management is critical for all hotels. However, small hotels face significant challenges here.
NB: This is an article from Hotelogix
Many factors affect a hotel’s ability to accurately manage revenue, from the budget for additional systems to their ability to accurately research competitors. In this post, we will take a closer look at how to manage revenue for small hotels and the hurdles that must be overcome to do so.
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The Small Hotel Revenue Management Challenges
Small hotels are often seen as being more agile and able to adapt than larger chains. They’re also able to position themselves uniquely in the market, whether as a boutique property, an affordable option for travelers, or something else. However, for all that, they face serious hurdles in terms of revenue management.
One of the most glaring challenges is that they are usually unable to afford revenue management systems. These are very costly and are primarily designed for big businesses with deep pockets. Without access to this type of tool, it becomes very difficult to accurately track revenue, forecast costs, and make informed decisions.
Another significant challenge is that small hotels are often short-handed. This makes it difficult to track competitors and what they are charging. Not having access to this information makes it virtually impossible to set their costs for the day with any confidence and with a high likelihood that their rate will not be competitive at all.
The Basics of Revenue Management for Small Hotels
Revenue management services and tools allow hotels to price and market products that have a very short shelf life. Usually, that shelf life is a single day. So, this differs greatly from marketing something that has a shelf life of several months or even years. And, once the opportunity to market and sell that product is gone, it’s gone forever.
For instance, retailers might need to price and market physical goods – say, a box of pasta. That box has a shelf life, but it is measured in months. The retailer has several months to sell the product. In contrast, hotels have only a single day to price and market their rooms, or they lose that revenue forever.
Demand Forecast
One of the most critical things to master here is the ability to forecast demand. All businesses must do this to some extent, and it’s usually by comparing last year’s sales and monitoring current trends. For instance, if a business sold $10,000 in product this day last year and the current economic trend is upward, they could feasibly expect to match or exceed those numbers today.
Of course, this is an oversimplification and small hotels must also account for other factors, such as:
- New bookings
- Cancellations
- Competitor prices
- Knowledge of local events
Demand forecasting can change dramatically with the presence of local events. Fairs, festivals, conferences, and concerts are just some of the things that can dramatically affect demand. And what makes things even more challenging is that these events are not necessarily annual, so they can throw your forecasts off by a great deal.
The goal of this step is to attempt to predict how many bookings you can expect on a particular day for your various price levels.
Optimizing Your Prices
Once you’ve forecasted demand, it’s time to start optimizing your prices. This starts with looking at the number of rooms remaining. You’ll need to determine your path forward based on quantity – do you have a significant number of rooms remaining? If so, you’ll want to pursue a reduced-price strategy.
However, if you only have a room or two left, then you can follow a higher price strategy. Having fewer rooms means that you have an in-demand commodity, and you’ll need to charge commensurately. You also need to keep in mind your profit.
For instance, don’t set your rate so low that you cannot make a profit, which we define as revenue less than the costs associated with each individual booking. You also need to remember that what one hotel does, others will eventually mirror if the increase or decrease in pricing is substantial.
All hotels within a given geographic area need to be competitive in terms of pricing. So, if you slash your prices in an attempt to sell those last five rooms, you can expect your competitors to do the same thing. This evens the playing field and makes it less likely that you’ll sell your rooms.
Market Segmentation and Rate Disparity
Of course, you also need to account for market segmentation and rate disparity. Market segmentation can be complicated, but it comes down to how much various guests are prepared to pay to stay with you, as well as how much they’re willing to spend during that stay.
It is very important that you know your audience here. For instance, if you’re booking a stay for a group of seniors traveling together, the chances are good that they’re sensitive to price fluctuations. On the other hand, a group of business people might not be as sensitive.
Rate disparity simply means that you’re charging different rates through different channels. Strive for parity, or you might find that the OTA reduces your rank. However, there are workarounds for this. For instance, you can offer coupon codes that allow prospective guests to reduce their costs. You can also offer lower rates behind a login screen if necessary.
Keep your strategy in mind here, though. Do you want to build customer loyalty? Or are you looking to make your price just competitive enough to edge out another hotel in the area? If you maintain parity (and use the tools available), you can still segment your audience.
The Right Tools Matter
Small hotels might not be able to afford high-priced hotel revenue management services, but that does not mean they’re out of luck. Hotelogix offers a flexible, adaptable, affordable solution that provides access to critical features to support smaller properties in their drive to compete in today’s market.
