6 Important Facts About Revenue Management In Hotel Industry


The art of Revenue Management is defined as a strategic management approach, which identifies, develops, and deploys customer-oriented business strategies to maximize revenue for the organization. These are the strategies that make organizations more profitable and sustainable. It is the process of controlling and managing a company’s financial transactions, and businesses need to stay focused on the bottom line. It’s also challenging to define since it’s a comprehensive term. 

What is Revenue Management?

Revenue Management is a company’s ability to increase its revenue while decreasing its costs by identifying and applying the most effective customer and channel strategies. Four levers control income in a company, and it is the revenue manager’s job to pull all the levers to boost profit.

  • Pricing: Defining pricing strategies and developing disciplined pricing tactics fall within this revenue management category. This could be to raise or lower prices to meet customer needs and boost revenue.
  • Inventory: Inventory management involves managing inventory to control costs. As far as revenue management is concerned, it involves effectively allocating resources to reduce wastage.
  • Marketing: By temporarily reducing the price, companies can sell higher volumes. It is the role of marketing to raise awareness of this price drop.
  • Channels: Channel management is a strategy for boosting revenue through the use of different distribution channels. Other channels may represent customers with varying price sensitives.

How Does Revenue Management Work In The Hotel Industry?

In essence, revenue management in the hotel industry is a way to determine the best rates based on customer demand. Hotels can boost their revenue through revenue management by generating additional income from existing sources of revenue. A hotel can achieve the following outcomes by effectively managing its revenue and enhancing its marketing. Furthermore, this overview of revenue management in hospitality suggests some exciting strategies that hoteliers can use to get a broader understanding of what it is all about. There is a lot of information to process, but the advantages for hotel managers are tremendous when utilized correctly. By understanding this discipline, a hotel can:

  1. Understand the guest’s needs and booking patterns
  2. Calculate the correct room rates
  3. Invest in hotel expansion
  4. Gain the upper hand over competitors

6 Facts That Will Help Your Growth

You can use specific strategies to help to boost revenue, and some are specific to the hotel industry.

1. Do a Forecasting Budget

The first thing you will need to consider when looking to boost revenue is your budget and forecasting predictions. The COVID-19 pandemic has left the hospitality industry in tatters, but it is still vital to allocate a budget to promote and maintain your hotel. Next, you will need to create a forecast. Most of us have heard of a budget forecast, but what is it? It’s the forecast of certain financial assets, such as cash and investments, for a future period, usually a year. You can outsource to a budget forecasting firm to prepare one, or you can make a forecast yourselves. Either way, a prediction can give you a general idea of where we stand financially in a year.

2. Engage in Competition Analysis

Competitive analysis is a process of identifying and analyzing the competitive environment of a business and determining the strengths, weaknesses, opportunities, and threats of competitors. Competitive analysis is a critical process for an organization to take advantage of its competitive advantage in the marketplace. Some interesting factors to include in this analysis include:

  • Number of rooms
  • Type of rooms
  • Accommodation type
  • Property size
  • Number of services and amenities
  • Review averages
  • What they are doing to upsell their product

4. Conduct Demand Forecasting

Demand forecasting is the process of predicting how much product (in this case, rooms) a company will need in a given time. Demand forecasts are typically made from aggregate data, such as macroeconomic trends, sales history, and customer demographics. Hotels will use this information to calculate how many rooms have been occupied in a given period. In addition, the forecasting process considers factors such as inventory levels, market conditions, and the effects of various cost-cutting and efficiency initiatives.

5. Make Sure You Understand Your Market

There is no doubt that the market has changed; therefore, it is essential that you thoroughly understand what any new market might look like. For example, you might discover a change during your demand forecast that shows people from a particular country who usually stay in your hotel are traveling less. Still, perhaps those of another country are traveling more. If your hotel is set up for a specific language, you might want to consider appealing to the latest demographic trends. You can appeal to people of different:

  • Ages
  • Languages
  • Cultures
  • Tastes

By genuinely getting to know your market, you will be better positioned to attract the travelers who will be spending the money.

6. Collaborate With Other Departments

Suppose your hotel is large enough to have several departments dedicated to a specific area of expertise. In that case, it is a good idea to work with them to develop solutions that will boost overall revenue. The most obvious would be the marketing team, where you can share the demand forecast and general market research. This will enable the entire team to come up with an actionable plan.

7. Recover Online Sales From OTAs

Many hotels have been stuck in the past and relied too heavily on an Online Travel Agency (OTA). Traditionally, these OTAs dominate the search results, so hotel websites are pushed down, effectively becoming invisible to searches. As a result, searchers do not have the option of booking a hotel directly. This leaves revenue on the table and puts you at the mercy of unscrupulous OTAs. Thereof it is in the interests of a revenue manager to embrace what is known as Search Engine Optimization (SEO). By allocating some of the marketing budgets to this option, you will find that bookings increase exponentially over time.

Revenue management covers a lot of ground but is essentially the process of creating strategies to boost profitability. Unfortunately, the hotel industry and the hospitality industry as a whole have been having a tough time. Nevertheless, by following some simple strategies and understanding the facts, you can achieve positive outcomes.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.