Revenue management techniques are the playbook that helps hoteliers achieve the highest profits by identifying the relevant market segments and customer groups the hotel wants to serve.
NB: This is an article from Atomize
These techniques establish the right products and services as well as set up the optimal prices to be offered to customers.
As a hotel revenue manager, your mission is to implement these revenue management strategies and processes to optimize and maximize your hotel’s revenue. A big part of completing that mission is to sell the greatest number of rooms at the best possible rate. While in theory, the mission sounds quite simple, in practice it is much more complex.
Of course, optimizing and maximizing revenue places a lot of responsibility on your shoulders, because a good revenue manager can make the difference between a hotel being in the red or black.
To inspire you to tackle some of the most common challenges revenue managers face today, we’ve asked our customers and partners of Atomize what are some of the challenges they face that give them headaches and keep them awake at night. Working together with those same revenue managers we have come up with some ideas to help you address these challenges.
Which revenue management tools should I use?
To handle the basics of tactical revenue management , start by collecting and analyzing data in order to decide on daily pricing, opening and closing channels, allowing or avoiding overbooking, offering special deals and discounts or setting rate fences.
Making situational decisions about which tactics to apply daily is a very tedious and complex task but it is the strategic foundation that shapes your hotel’s daily performance.
Every aspect of this job becomes much more efficient and optimized by using technology. One of the most important tools for today’s revenue managers is revenue management software (RMS). By having a high-quality RMS as your right hand, you will not only automate and optimize your pricing, you will also, regardless of the type of hotel, help ensure success.
The intelligent RMS fulfills the need to perform complex calculations and have them carried out quickly and this requires the kind of real-time execution of well-balanced primary and secondary data that is impossible to replicate manually. A bonus of the intelligent RMS is that you will also spend less time on the tactical part of your work and gain more time to refine your strategies.
In the words of Atomize CEO Alexander Edström:
In dialogues with hoteliers, we regularly hear that revenue managers feel they spend too much time on the tactics and daily operations such as setting rates.
However, setting prices automatically by using Atomize enables them to be much more efficient, optimize revenue and free up time for working on their revenue strategy and long-term goals.
Along with revenue management using tech tools is a great way to streamline processes and gain more time to improve strategies.
With so many great tools available, it can be hard to decide which one to use. Since every hotel tech provider promises to have the best solution to your problem, it’s understandable if you occasionally suffer from ‘shiny object syndrome’.
More tech is not always the answer to streamline processes. Rather, it’s important to get the right technology that works best for your property and to stick only with what you really need.
To cut through the noise, ask yourself the following questions when evaluating an RMS:
- How much does it cost to set up and run? Does the potential ROI warrant this investment?
- How user-friendly is it? Does it have a powerful mobile-friendly version?
- Is it cloud-based and easy to access?
- How reliable are the solution and the price recommendations it provides?
- How satisfied are existing customers?
- How often does it update its data sources: once a day, bi-hourly or in real time?
- How much time will it help you save? Does it support the automation of manual workflows?
- Will it help you stay ahead of your competition?
Finally, to stay up to date with the latest developments in hospitality tech, do your research on customer review sites and exchange experiences with peers. That way you can be sure you will choose an RMS that suits your needs.
How can I ensure my data is clean and reliable?
Choosing a modern tech tool, based on quality data is a great start, but you’ve still got work to do. Setting up your rate codes, market segments, source markets, nationality codes and other important information properly will help your systems produce reliable data to execute upon.
If you get this first step wrong, the data used will be inaccurate and even the most sophisticated RMS will not be able to make the well-informed and proactive decisions it needs to be successful in your market.
Here are some steps to follow to ensure your data stays clean:
- Proper training for staff using your RMS, PMS and other systems
- Regular review and clean-up of your system (e.g. profile merging, nationality clean-up, etc.)
- Removal of outdated discount and promotion codes
- Update custom group codes
Following these simple steps and making an ongoing effort to maintain best practices will help you ensure your data’s accuracy and can make the deciding difference between you and your competition.
Which strategies are best for my market and hotel?
Dynamic revenue management strategies are the key to success, especially in competitive, fast-paced markets.
That’s why it’s becoming more important for revenue managers to…
- …understand consumer psychology (e.g. why and when people book at which rate)
- …practice proper guest segmentation
- …understand the impact of distribution choices
- …know how to leverage data in the decision-making process
An important way to take on these challenges is to keep up with industry trends by following the work of established experts, reading leading industry publications, attending conferences and other industry events and exchanging information with your peers.
Also, look around you — what are the most successful hotels in your market doing? Can you identify a strategy or a trend in how they price and distribute their rooms? What can you learn from that? Note that we’re not suggesting you copy what your comp set is doing. Rather than copy your competitors, study their methods to see what works in the market and develop your customized strategy around what you learn. Once you start testing, you can measure your results and refine your approach until you get the results you want.
For me, I don’t see challenges in revenue management, only opportunities. Since the level of understanding and knowledge of revenue management is very different from one company to the next, I think the biggest opportunity is the knowledge gap.
With the right training and education, revenue management has great potential to become more important in the hotel industry because of the huge value it brings hoteliers,” says Thibault Catala, founder of Catala Consulting.
How can I build trust in my strategies and data among the team?
Once you have chosen your tools and outlined your strategy, of course you need to get your team, other departments and management on board as well. Since revenue management and the vast amount of data it deals with can feel quite overwhelming for other departments, it’s important to build trust from the beginning.
If those around you don’t trust your strategies and the systems you use, they will frequently question your choices which will likely lead to many lengthy meetings and discussions where you have to justify your approach and defend pricing changes or other steps you’ve taken.
To get started off on the right foot, you must be 100% confident in your tools, the data they supply and the decisions you make based on those tools. Once you are confident you should be able to present your findings as well as your strategies in an easy to understand way, so your team can follow your thought process and decisions.
You could even demonstrate how you use your RMS and other systems to collect the information. Since cloud-based solutions are easy to access from anywhere, you can quickly pull up your RMS’s dashboard for a demonstration, for example.
In short, the more transparent you are about the strategies and systems you use to make revenue decisions, the more constructive the dialogue will be, and the more likely it is that everyone will end up on the same page.
How do I maintain our positioning in the market?
In day-to-day operations, pricing and positioning are key. That’s why you may worry about staying in line with the market when the competition changes their prices just after you do. The challenge here is to know when the comp set updates their rates and whether you have to review yours again to remain positioned properly.
This is especially time-consuming for revenue managers who revise their rates manually and do not rely on an RMS to suggest or automatically update rates when the market changes.
The best way to solve this problem is to use an automated RMS to save time and get live optimized rate suggestions; that way you eliminate the need for manual rate shops and will always be ideally positioned in the market.
We let Atomize recommend the prices per room type multiple times per day and manually review some of the suggestions since we currently have 12 months of data now and can set the rates for 365 days into the future.
This saves us a lot of time and we can tell that Atomize is sophisticated and learns quickly since we need to do less and less manual price modifications now,” says Olivia Byrne, Company Director at Eccleston Square Hotel.
How do I best handle group booking requests?
Quoting group rates can present a couple of unique challenges. First, you want to quote the right rate for the group itself. Second, you need to price your remaining rooms appropriately while waiting for the group’s decision.
For example, imagine a large group is currently marked as tentative. If they confirm their booking, rates for the remaining rooms should be increased. If the group cancels, rates should remain at the regular level. While this is straightforward, the important question is: how to price your rooms while waiting for the group’s response?
Getting this right will help you maximize occupancy and revenue but getting it wrong, because you don’t know the amount of displaced revenue, can mean losing out on revenue and potential clients. Since determining the rate for a group isn’t the same as setting public prices, a different approach is necessary.
To help you get started, here are some questions you should ask:
- How many guests and room nights will the group bring?
- Will guests use other departments such as the F&B venues, the spa or conference rooms and create ancillary revenue?
- Which dates are they requesting and are they the same for all guests?
- Which room types are they asking for?
- Will all guests stay in the same room category or did they request multiple room types?
Of course, answering these questions is only half the work. Now you also need to check your forecast to determine if you should accept the group at the rate you calculated, or if it would be better to sell your rooms on the open market. Making this choice can feel like an expensive gamble and going through this process several times a day takes a lot of time.
Using an automated RMS which leverages historical hotel data and market information to create optimized rate recommendations both for groups and your remaining rooms can help address this challenge so you can make the right decision for your hotel.
An automated RMS that can calculate group bookings will also put you ahead of your competition since you’ll be able to produce an optimizd proposal quicker than any of your competitors. Considering that, according to a recent Skift report, less than 20% of hotels use an RMS, your advantage is maximized.
Upselling and ancillary sales
Driving ancillary sales via upselling and cross-selling is a great way to boost a hotel’s revenue from existing guests. Upselling to a higher category can be a great tool to optimize a hotel’s profitability when working with groups.
For example: If a large group books standard rooms, can the existing transient standard room bookings be upsold to superior rooms? This approach helps make the required number of standard rooms available for the group while at the same time generating additional revenue from guests who choose the paid upgrade. Especially when there aren’t enough standard rooms to begin with and your hotel would have to upgrade some guests for free, trying to upsell them first reduces the number of free upgrades given.
But upselling and cross-selling are also worth it when you have no big groups. Offering guests extra services and products can have a positive impact on your bottom line and the guest’s experience at your hotel.
If you’d like a piece of the upselling pie, start by implementing an upselling scheme at your hotel. Preferably go for a tech-driven fully automated approach which promotes targeted, customized offers to your guests pre-arrival. That way your tech solution will do most of the work for you and you get to enjoy the results.
How can I align revenue management goals with other departments?
At the end of the day, a hotel’s profit is what matters. To get the best results and keep more of your revenue, you are probably interested in increasing profitability, not just in rooms, but across the whole property.
Since a hotel’s performance depends on more than room revenue, it’s important to consider how you can align your revenue management goals with the hotel’s overall targets. That’s why it’s important for revenue management to go beyond room pricing and shift towards the core of operations.
To do this successfully, the revenue management department must connect and work with other teams in the hotel including sales, marketing and operational departments to practice total revenue management. In short, everyone needs to come together to achieve the hotel’s goals.
Here are some ideas on what you can do to make this happen:
- Have clear overall goals as well as targets for each department
That way everyone knows what to work on and you ensure you are not sabotaging your efforts by sending your teams in different directions (e.g. pushing OTA sales as well as direct bookings).
- Build a holistic view of the guest
Learn what guests want and need at your property and which services and facilities they value or expect. To do this you must collect as much data as you can throughout the guest journey, analyze the data and refine your offering according to your findings. This will enhance the guest experience and help you drive revenue.
- Understand your guest’s total value
Examine your segments to learn which are the most profitable, demanding, expensive to acquire and loyal. For example: Who is more likely to use the spa or the hotel restaurant – guests from corporate groups or transient guests? How much do different types of guests spend at your hotel, on average? These insights will help you during displacement analysis when you consider signing an agreement with a new partner or while refining your overall strategy.
To follow the steps above, it’s essential you leverage the technology solutions available today. Ensure your systems (PMS, RMS, channel manager, etc.) integrate and share information, so you get a clear picture of your guest and your hotel’s performance instead of having useless data siloes spread across your departments.
How can I measure the ‘actual cost’ of distribution?
On top of being in charge of maximizing top line room revenue, hotel revenue managers face another challenge which is often underestimated but has a huge impact on a hotel’s profitability: distribution cost. As you probably know, understanding this cost can be extremely challenging due to the numerous distribution partners and channels hotels work with to sell their rooms today. Since all channels and means of distribution have their own contract or agreement outlining different commissions and fee structures, it can feel impossible to know the actual cost of distribution.
It doesn’t help that invoices usually get sent straight to the finance team, so the fees don’t stay at the front of the revenue manager’s mind or that hotel groups often file signed contracts in regional offices, out of the local revenue manager’s reach. Or, sometimes agreements are simply so old, that their details have been forgotten.
But knowing your actual distribution cost is imperative to understanding your NET RevPAR (RevPAR after commissions distribution and acquisition cost) and driving your property’s profitability.
While diving deep into your distribution cost is a long and arduous process, you can start getting an overview by answering the following questions:
- Which OTAs drive the most bookings and how high are their commissions?
- How much did your channel manager cost to set up?
- How much does your channel manager charge per month/booking/OTA connection?
- Which GDS do you work with and what agreements do you have with them?
- How much do you spend on marketing, PPC ads, SEO, direct booking campaigns, etc.?
- What is your staff cost in the revenue, sales, marketing and reservations department?
- How much does your loyalty scheme cost you?
Getting all this information will require the finance, revenue, sales and marketing departments to work together. It will take time and effort to cut your costs, but the resultant revenue gain is worth it.
Once you can answer the questions above, you can tackle the next step, which is finding ways to lower your distribution cost.
A good place to start is yielding the most expensive channels, especially during high-demand periods. That way you can drive bookings from lower-cost channels and boost profitability. If you have added information about OTA commissions to your PMS and it integrates with your RMS, you’ll be able to see which channels are best for your hotel.
Evaluating which partnerships and sales channels to maintain or give up due to high cost and low production are also important. A final tip is to stay updated on your distribution costs. For example, how do these cost change when you implement a new tool or sign a new contract? If you are updated on these costs, you will always know how they are evolving and you can stay ahead of the game, rather than having to play catch-up later.
What other revenue management-related topics are on your mind? Looking at the points above, it’s clear that many of these challenges can be addressed with the latest tech tools, for example, a cutting-edge RMS.
