When it comes to bringing in revenue, hotels typically rely on four primary sources: rooms, meetings and events, food and beverage, and ancillary services.
NB: This is an article from IDeaS
In hospitality, typically, the performance of each pillar will determine a property’s financial success. If you want to generate the largest revenue in your property, you need to understand how the four revenue drivers for hotels break down:
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- Rooms: Providing a clean, safe, and comfortable space for people to sleep at night represents the functional backbone of a hotel. Whether rooms are being sold or left vacant is a significant indicator of the financial health of a hotel.
- Meetings and events: Whether you have a local business utilizing a conference room for a day, a wedding reception in one of your banquet halls, a full-week conference, or a tour group hosting a meal in between outings, meetings and event spaces can provide a massive source of revenue for hotels.
- Food and beverage: This category fills an array of offerings ranging from room service to in-property restaurants. If managed correctly, these outlets can substantially increase the property’s bottom line while offering a range of in-demand services and amenities.
- Ancillary: “Ancillary” equates to all other services—parking, spa, laundry, concierge services, etc. What falls under this category will depend on what offerings the hotel has have been made available.
It’s also worth noting that many hotels also rely on rent (to retail outlets), commissions from third-party vendors (like water sports and tours), and retail (like gift shops) for additional sources of revenue. While these sources of revenue technically don’t fall under “ancillary services” in the accounting books, they’re still worth noting.
Regardless, the four categories listed above generate the lion’s share of revenue a property typically earns.
So, what brings in the most revenue for hospitality organizations?
Of the four categories, rooms represent one of the lowest-hanging fruits for generating revenue.
It makes sense since most of the visitors to a hotel on a given day are staying in a room. Only some guests may participate in meetings and events, food and beverage, or ancillary services. Rooms often receive the highest return on investment since the overhead costs are the lowest.
Because rooms generate a high amount of revenue, it’s essential that hospitality organizations don’t leave important decisions like pricing to spreadsheets and manual information inputs. Relying solely on these methods can limit the profit potential for each room.
Utilizing a revenue management system (RMS)—like G3 RMS from IDeaS—allows your property to analyze a variety of circumstances to maximize revenue. These circumstances include supply and demand, local events, historical records, group size, and revenue stream type.
By taking a whole-picture view of how, when, and why your rooms are being reserved, you can determine more easily how to price rooms effectively. An RMS can also help you maximize profits from the other revenue streams as well.
So, where should you focus your resources?
Just because rooms generate a large amount of revenue doesn’t mean all your resources should be focused there.