Are you still relying solely on a Revenue Management System (RMS) to drive your hotel’s profitability?
NB: This is an article from Demand Calendar
If so, you may miss substantial revenue streams and opportunities for greater guest satisfaction. While RMS is crucial for optimizing room revenue, it’s just the tip of the iceberg. In today’s competitive landscape, full-service hotels and resorts must look beyond room bookings to become truly profitable.
Subscribe to our weekly newsletter and stay up to date
While RMS has revolutionized how hotels manage room pricing, it’s important to note that this system traditionally zeroes in on room revenue. For many hotels, especially those offering a range of additional products and services – such as restaurants, meeting spaces, banquets, spas, and parking – room revenue might make up less than 50% of the total revenue. This raises an essential question: Are you genuinely maximizing profitability if you only manage half (or less) of your revenue streams?
We explore why a more comprehensive, profit-oriented approach is critical for financial health. From managing diverse revenue streams to understanding Customer Acquisition Cost (CAC) and improving guest satisfaction, we will explore why focusing solely on room revenue is a one-dimensional strategy that can no longer meet the multifaceted demands of modern hotel management.
The Limitations of RMS
Designed Primarily for Room Revenue
An RMS is a powerful tool for optimizing room revenue, but that’s precisely where its focus tends to be—on rooms. It uses algorithms to adjust room prices dynamically, but it rarely, if ever, considers other services or amenities that a hotel offers. While room revenue is undoubtedly significant, it is only one revenue stream in the multifaceted business that modern hotels have evolved into. Ignoring or underutilizing other revenue streams can lead to missed opportunities for enhancing overall profitability.
Short-term Perspective (Up to 90 Days Before Arrival)
Another constraint of most RMS platforms is their inherently short-term focus, often limited to about 90 days before a guest’s expected arrival. This narrow window can be a severe limitation, especially for properties that host events, conferences, or seasonal activities, which often require planning and booking well in advance. A short-term focus can also make it difficult to strategize for long-term growth and profitability, as it limits the hotel’s ability to take a more comprehensive view of its business cycle.
Doesn’t Account for Other Significant Revenue Streams
If your hotel offers services like dining, spa treatments, meeting spaces, or even golf courses, a traditional RMS won’t help you optimize those revenues. Many hotels derive a significant portion—sometimes more than half—of their revenue from these additional services. Ignoring these streams can result in a skewed understanding of your property’s revenue potential. A failure to optimize pricing and demand across all services can result in lost opportunities and, ultimately, reduced profitability.
No Focus on Customer Acquisition Cost (CAC)
One of the most glaring omissions in a traditional RMS is the lack of focus on Customer Acquisition Cost (CAC). While the RMS might be adept at setting the perfect price for a room to maximize revenue, it doesn’t usually consider how much it costs to acquire that customer in the first place. Digital marketing, advertising, commissions to travel agencies—these are all costs that can eat into the revenue generated from room sales. Not considering CAC in your revenue management strategy could lead to misleading performance indicators and undermine profitability.
These limitations illustrate why a traditional RMS, though valuable, can be a somewhat blunt instrument in the complex orchestra that is modern hotel management. The following sections explore ways to go beyond these limitations for a more nuanced, profit-focused approach to running your hotel business.
