Oftentimes I hear from smaller properties that they don’t need a revenue management system (RMS) because of their size. While I understand that smaller properties try to keep costs low and they often feel that dynamic pricing isn’t as necessary, I believe that an RMS can have a return on investment for hotels of all sizes and I have math on my side to prove it!
NB: This is an article from Rate Yield
Subscribe to our weekly newsletter and stay up to date
As an example, let’s assume a 34 room property has an annual occupancy of 83% and an annual ADR of $189. If an RMS increases the ADR by 5%, the increase in revenue annually is $97,338. Now I know what you are going to say, I can just raise my price by 5% and get that same increase without incurring the costs. If you were to try that and increase rates across the board, you may not see the return you are looking for, because an annualized ADR and annualized occupancy rate experience variation throughout the year.
By increasing rates by 5% across the board, you risk losing business to competitors in some months and not compensating for that loss with a large enough increase in the high season. The decrease in occupancy could ultimately result in a decline in revenue year-on-year. An RMS is able to analyze current market dynamics to ensure rates are optimized for every single day of the year to remain competitive and to maximize revenue on days when demand is highest. This intricate balance between ADR and Occupancy is where an RMS can ultimately help you to maximize your revenue.
In the above example, the overall increase of rates by 5% results in a decrease in revenue of -2.28% year-on year. In the example with an RMS where each month sees its own fluctuations, ADR has increased by 5% overall and the revenue increase is 5.14% year-on-year.
Additionally, and this is especially crucial for small hotels, you can save a significant amount of time. With a revenue management system in place you can be sure that your rates are optimized for the next 365 days and more, every day. The system will analyze the competitive pricing and capitalize on any anomalies or high demand dates. The system will send you reports so you can oversee it in your hotel’s image, without requiring you to spend a few hours a week doing manual adjustments. And while those hours can be quantified in terms of salaried hours saved, I prefer to qualify them as opportunity cost. Especially when it comes to small hotels, what else can you be doing with those hours and how would those tasks benefit the hotel.
Historically an RMS has been a huge investment, but that is no longer the case. Rate Yield is accessible for any budget and offers flexible month to month billing so you can be confident that the return is there for you without committing to a lengthy contract term or an upfront lump sum payment. Reach out today to see how Rate Yield can help you to yield more revenue!
