If you ask 10 hoteliers what revenue management is, you will probably get 10 different definitions. Some may be so complex they make your head spin.
NB: This is an article from RoomPriceGenie, one of our Expert Partners
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Here we make things easy for you. We answer the most important questions owners and operators of independent properties have about revenue management.
Whether you operate a boutique hotel, guesthouse, hostel, campsite, vacation rentals, or some other fabulous property, you will learn essential ways to boost revenue today.
Who Is Responsible for Revenue Management?
Whereas most large properties employ a full-time revenue manager, smaller properties often don’t have that luxury. Instead, tasks may be handled by the front office manager, marketing manager, or general manager. Or duties are shared.
Ideally, one individual should manage all revenue responsibilities. This helps create accountability, ensure consistency, and reduce errors. The person should be good with numbers, super organized, a stickler, a strategic thinker, and an effective communicator who can rally the whole team to support revenue strategies. In short, a revenue champion.
What Are the Main Functions of Hotel Revenue Management?
Revenue management can be divided into six key areas.
1. Inventory Management: What Are You Selling?
One of the first tasks of a new hotel is to assign room categories with names and descriptions that will appeal to travelers and set expectations. For example, which of the following are you more likely to book?
- A Standard Room OR a Standard Garden View Queen Room
- A Deluxe Room OR a Deluxe Ocean View King Room
- A Suite OR a Spacious One-bedroom Suite with Double Beds and a Kitchenette
Essential Stay Restrictions
Rather than sell rooms on a first come, first served basis, the revenue manager implements stay restrictions to control which rooms are available and on what terms. The goal is to maximize revenue for all nights, not just nights of high demand.
Here are a few examples of effective availability controls.
- A minimum length of stay (LOS) requirement
- Closing a date to arrivals or departures
- Tightening the cancellation policy
- Overbooking to protect occupancy from cancellations and no-shows
Total Revenue Management
While the main focus of revenue management is on rooms – typically the most profitable asset for hotels – the ultimate goal is to maximize total revenue and profitability.
You can help advance this goal by:
- Promoting ancillary services like your restaurant and spa
- Creating packages that include breakfast or parking
- Applying revenue strategies to function space, food & beverage, parking, and other revenue streams
- Controlling costs and factoring costs into pricing decisions
2. Pricing: What Rates Will You Charge?
Pricing is one of the most important tasks of revenue management. If your property is priced too high, you will miss out on bookings. If it is priced too low, you will miss out on revenue. The goal is to find the sweet spot that brings in the most revenue.
Pricing involves three main tasks:
- Establish an annual rate schedule. Assign minimum and maximum (also called “rack”) rates for each room type, along with a schedule of discount tiers.
- Set up rate plans. Create rate plans to appeal to different types of travelers, such as advanced purchase, corporate, wholesale, group, packages, and special offers.
- Price dynamically. Adjust rates up or down by season and day of week, during events and holidays, and when demand, market conditions, or competitor pricing changes.
Essential Pricing Strategies:
- Charge a premium for desirable features such as a king bed, view, or extra space.
- Offer discounts for longer stays, early-bird bookings, and last-minute bookings.
- Offer discounts for advanced purchase (non-refundable) bookings.
- Use percentages rather than fixed increments to price room types and rate plans.
- If premium rooms and suites often go unsold, try reducing pricing percentage differences to boost sales.
