Revenue Management (RM) is getting a lot of attention in the hotel industry these days. If you’ve heard about it, but are still unsure what it is and how it works, this article is for you. It lays out an easy-to-follow explanation for everything you need to know about RM and how you can profit by using its strategies.
But, in case you’re already familiar with the term, simply scroll down to the section with best practices and main revenue management strategies.
What is Revenue Management?
Revenue Management in the hotel industry or RM is a methodology that puts together a set of techniques that aim to maximize business revenue. Adapted to the hotel industry, RM manages the balance between occupancy rate and profit of a specific hotel.
Through studies and market analysis, as well as looking at key performance indicators for sales, it’s possible to forecast demand during a determined period of time. Therefore, it’s possible to adopt the best pricing strategies.
Applying revenue management strategies
Whether it’s off-season or peak season, the purpose of revenue management strategies is to maximize sales and profit margins, launching appropriate offers at the right moment.
To illustrate the RM strategy: imagine a hotel restaurant that has “orange juice” on its menu. When oranges are in season, the acquisition cost of this fruit as a raw material is much lower than in other seasons, right?
So let’s say that the profit margin of orange juice is 90% and other juices only 40%. An RM strategy could gather that data and apply, for instance, an “orange juice promotion” in the hotel restaurant.
The restaurant would sell more orange juice for a lower price, but the low cost of the acquisition of the orange would compensate for the profit margin, which in turn provides better profitability.
Another way to create new business opportunities during the off-season is to promote special offers targeting a specific goal. For example, reaching 80% of the hotel’s occupancy. When the target is achieved, the room rates can oscillate to higher prices, balancing profitability with consumer demand.
To accomplish this, it’s mandatory that every hotel department is integrated, especially marketing and sales, to avoid misunderstandings. Hotel automation is one way to integrate multiple communication channels, allowing everybody to know what’s going on.
Only with integration, you can apply the RM methodology and take the best advantage.
Revenue management for hotels
Hotel competition is more aggressive now than ever. That’s why revenue management strategies are important for hotels to get ahead of competition and profit all year long.
Here are some of the best practices of revenue management in the hotel industry that provide relevant benefits:
1. Upsell
Upselling is a sales technique to offer consumers a solution with added value to generate more revenue for the business.
Reservations are only the beginning of the commercial possibilities for hotels. In this industry, adding value means offering more than just rooms. This can be done on the hotel website or through email marketing campaigns for guests.
This is upselling – to make clients pay more for a better solution. This way, it becomes win-win.
2. Dynamic rate
Another pillar of revenue management is the dynamic rate of the mix of products of hotels. Besides defining a different price table for off, middle and peak seasons, it is also interesting to note other commercial possibilities, allied with upselling strategies.
As mentioned, revenue management must be applied in every hotel department, not only in sales. Every team needs to collaborate in order to recognize new revenue opportunities. To this end, it’s necessary to gather the following data:
- market and competitors;
- hotel’s performance;
- traveler’s behavior, and so on.
All data needs to be turned into reports that are easily understood so that hotel management looks at the best chances of profitability. Technological tools, like CMS and Business Intelligence, are some of the examples of hotel systems that can help with that.
3. Customer service automation
The battle for attention is hard in the current digital universe. Hence, businesses that respond faster and more efficiently have a better chance of beating out their competitors.
Therefore, it’s crucial for the success of revenue management strategies that maintain the same quality of online customer service, on every digital channel of the hotel.
An omnichannel platform for customer service, for example, integrates all communication channels to make it possible to respond to travelers quickly, even outside business hours. Moreover, automated customer service allows hotels to answer room quotes instantaneously, integrated with the booking engine of the hotel.
4. Reputation/ social proof
Even before implementing a marketing digital strategy, it’s imperative to create a good reputation both online and offline. That way, the hotel is able to generate social proof. In other words: to convert more clients from current guests’ experiences.
In practice, hotel pages can bring statements and comments from previous guests, positive business statistics, among other resources that express previous guest satisfaction.
Tripadvisor’s stamp is a great sales tool. After all, people make decisions based on customer reviews to avoid a bad experience with a service or product.
On the other hand, a lot of hotels don’t invest in creating a reputation or making use of social proof to convert more clients. Therefore, they end up prioritizing price strategies instead of value. In other words, they reduce their price rate too much to attract more clients, which does not always happen as planned.
In the meantime, competitors, who make the most of their reputation, create social proof and, consequently, have occupation rates higher at the regular price or even more.
Thus, it’s essential to structure a strong base for hotel marketing in order to add more value to the products and services of the hotel. Thereafter, set adequate and balanced pricing according to the Compset, and combine all that with other revenue management actions in the hotel industry.
Still unsure about how to create the best revenue management methodology for your hotel, don’t worry. Ask experts for help. HotelMinder, for instance, has a talented team of experts who work closely with partners to enhance hotel revenue and even train staff.
Revenue management benefits in the hotel industry
In a nutshell, to achieve revenue management means bringing more intelligence and competitiveness . Allied with RM, there are other hotel technologies, like automated customer service platforms.
Hotel News Now interviewed Revenue Managers to find out what all hotel professionals should know. The result can be seen in this video:
Furthermore, the importance of the alliance between marketing and sales can’t be overlooked, along with all other hotel sectors. In this case, it might be worthwhile to have a hotel consultant for sales to synchronize every gear of the hotel.
This way, predicting and responding to consumers’ tendencies by period and segment, revenue management will undoubtedly be a strong strategy for your hotel to close more reservations. No more dependence on seasonality, as hotels will have a high occupancy rate all year long.
If you enjoyed this post and know a hotelier that needs an update on revenue management strategies, share this post! Let’s all make more money, shall we?
